Domino’s Pizza Enterprises Ltd. delivers investors a mixed trading update

Shares in Domino’s Pizza Enterprises Ltd. (ASX: DMP) closed flat at $48.10 today after the pizza store franchisor released some price sensitive news to the market out of its South Bank, Brisbane, AGM quite late in the trading day.

However, the news is unlikely to move the stock price much as it refers to, inter alia, a minor upgrade to European same-store sales growth forecasts from 5%-7% to 6%-8% over FY 2018.

In fact the group warned that “profit growth would be appreciably lower in the first half” due to the exceptional comparable period, which suggests it’s pinning its hopes on meeting its full year guidance on a stronger six-month period ending June 30 2018.

While same-store sales growth in Europe clocked in at an impressive 8.48% for the first 17 weeks of financial year 2018 its Japan business is looking increasing like an Achilles Heal with negligible same-store sales growth of 0.12%.

The company also confirmed it has bought back 1.87 million shares for a total of $87 million since August in a move that suggest management believe the stock represents decent value.

Overall, this was a bit of a mixed update by Domino’s recent standards that were blemished by a profit miss for the year ending June 30 2017.

As such the share price could remain flat over the months ahead as investors remain nervous over the reliance on a stronger second half to meet forecasts. As such I don’t think Domino’s shares at $48 offer a sufficient margin of safety given current valuations present some downside risk if the company does not deliver on its aggressive growth forecasts.

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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