Domino's Pizza (ASX:DMP) profit nosedives: how will market digest result?

The share price is on watch for the restaurant franchisor as numbers are down in a mixed first half, but management is still optimistic for the long term.

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Key points

  • Domino's Pizza's underlying net profit plunged 5.3% to $91.3 million for the half-year ending December
  • Same-store sales growth this year will be below the long-term target range of 3% to 6%
  • The company added 129 new stores organically and 156 by acquisition in the first half

Domino's Pizza Enterprises Ltd (ASX: DMP) has reported lower profit but higher sales for the half ending December, as it looks to open 500 new stores this financial year.

What did the company report?

What else happened in the first half?

Domino's also reported that it had opened more than 285 new stores during the first half, with 129 coming organically and 156 landing by acquisition in Taiwan.

The pizza franchisor is on track to expand by about 500 stores over the current financial year.

Despite the impact of successive waves of COVID-19, Domino's is sticking by its long-term annual growth goals of 9% to 12% new store openings and 3% to 6% same-store sales. 

The company admitted same-store sales growth this financial year would fall below this target range.

What did Domino's management say?

Domino's chief executive Don Meij stated that his team would deliver "another strong year of profit" after accelerating its long-term investments during the pandemic.

"While there may be uncertainty about what it means for society to be 'living with COVID', we are certain we have the essential ingredients for long-term future success, and plan to deliver significant continued growth," he said.

"COVID-19 has brought unanticipated challenges, including the closure of a market, temporary store closures, and staff shortages as they self-isolate as patients or close contacts."

Meij added that Domino's "avoided the temptation" to bunker down and get defensive when the coronavirus pandemic hit.

"As a result we have built a materially stronger and more resilient business in all markets – in partnership with our people – and we will continue to do so." 

What's next?

Meij admitted forecasting same-store sales growth for the second half was "challenging", especially because the prior first half had very strong sales.

Supply chain issues, like in most industries, have struck Domino's.

"Our teams in each region are working with our supply chain partners to ensure our customers continue to enjoy their favourite meals," he said. 

"It is worth noting their efforts so far have avoided any menu unavailability, which reflects positively on our team and our partners." 

Domino's Pizza share price snapshot

The Domino's share price has fallen brutally the past few months.

The stock has plummeted more than 39% since its September high, or almost 30% since its November peak.

Domino's started Wednesday at $100.18, while it was flying high in the mid-$160s less than six months ago.

Goldman Sachs this week rated Dominos shares as a buy with a target of $136.20, which is a 36% upside from the current level.

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Dominos Pizza Enterprises Limited. 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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