The Domino's Pizza Enterprises Ltd. (ASX: DMP) share price is down another 5% today. It just hit a 52-week low. Could it be time to grab a slice of the pizza business at this price?
Over the last six months, the Domino's share price has declined by over 40%. What's going on for investors to be lukewarm on the company?
Well, overnight the Domino's Pizza, Inc. (NYSE: DPZ) share price fell 5% after handing in its quarterly update.
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FY22 half-year growth didn't impress
A couple of months ago, the business reported its result for the first six months of FY22.
Brokers like Credit Suisse have been reducing their price targets on the company because HY22 profit wasn't as good as expected, with concerns about the Asian division and questions about how many of its stores will be profitable.
Domino's reported that network sales rose by 11.1% to $2.05 billion, while online sales rose 11.5% to $1.6 billion. However, earnings before interest and tax (EBIT) dropped 5.7% to $144.7 million and underlying net profit after tax (NPAT), after minority interests, dropped 5.3% to $91.3 million.
Let's look at what Domino's said about the Asian operations.
In the period, it added its 10th market – Taiwan, which came with 156 stores with the acquisition. Domino's also added 87 more organic stores. The ASX share reported that sales grew by 16.4% despite the lifting of the state of emergency in Japan. However, EBIT dropped 17.3% "reflecting rebasing of Japan sales and accelerated corporate store openings compressing margins."
The Asian division achieved same-store sales growth of 3.5%. Domino's said that the Taiwan market performed above expectations, with sales growth and new store openings accelerating compared to before the acquisition.
The company is expecting long-term growth
The outlook can have an effect on the Domino's share price.
Domino's said that in the first few weeks of the second half of FY22, its network sales were 6% higher, with 1.7% same store sales growth. FY22 same store sales growth is expected to be "slightly below" its three to five year outlook.
The company is going to tackle short-term inflation pressure by serving larger meal offerings that "are a win for customers and franchisees."
It opened its 3000th store in the first half of FY22. The 4000th store is planned for the 2023 calendar year and the 5000th store is planned for either 2026 or 2027.
Over the next three to five years, the company is aiming to achieve same store sales growth of between 3% to 6%. The company says it is continuing to invest in its future, with net annual capital expenditure at between $100 million to $150 million as it helps franchisees with store expansion and investing in future digital technology and initiatives.
Domino's thinks its new platforms will lead to higher conversion rates.
Domino's share price targets
Credit Suisse is neutral on the business, with a price target of $87.80. That implies a possible rise of more than 15% over the next year.
Citi is much more positive on the business. It has a price target of $108.30, which implies a potential rise of over 40% over the next year.
Morgan Stanley just rated Domino's as a buy, with a price target of $100 – that suggests a rise of over 100%. It notes the long-term international growth potential of the business.
