It has been another disappointing day for the Domino's Pizza Enterprises Ltd (ASX: DMP) share price on Thursday.
In early afternoon trade, the pizza chain operator's shares are down 9% to $54.70.
This means the Domino's share price is now down 13% over the last two trading sessions.
Why is the Domino's share price crashing?
The Domino's share price has been sold off this week after the company released a disappointing trading update at its annual general meeting.
That update revealed that the company's sales are down 1.8% year to date. This is being driven by inflationary pressures, high energy prices, and foreign exchange headwinds.
Domino's CEO and managing director, Don Meij, commented:
We understand inflation, particularly high energy prices in Europe, are making customers consider every purchase – our answer to this is delivering a high-quality product at an affordable price.
Unfortunately, Domino's earnings are also being impacted by inflationary pressures and this is expected to remain the case for a little while longer. The company advised that it "anticipates inflationary headwinds to continue into the 2023 calendar year; primarily raw ingredients, energy prices in Europe, and labour costs in some markets."
As a result, the company's earnings are expected to "be materially lower" in the first half of FY 2023.
For the full year, management expects a year over year decline including foreign exchange headwinds and "to deliver NPAT growth in FY23" on a constant currency basis.
Broker reaction
This update hasn't gone down too well with brokers, which explains the weakness in the Domino's shares price today.
According to a note out of Citi, its analysts have downgraded Domino's shares to a neutral rating and cut their price target on them by over 20% to $66.60.
Elsewhere, Goldman Sachs has retained its neutral rating but cut its price target to $60.00. Goldman commented:
DMP reported FY23 first 17 weeks trading update with sales largely in-line with expectations though company guided for 1H23 earnings to be materially lower than pcp. Additionally, FY23 NPAT excluding ~A$7mn FX headwinds is expected to be above FY22 A$165mn but will be below if including FX impact. This is below Factset Consensus FY23 NPAT forecast of A$179mn and GS forecasts of FY23 A$170mn.
