Domino's share price rallies after net profit crashes 74%

The market is backing the pizza maker after a stinker of a 2023 financial year.

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Domino's Pizza Enterprises Ltd (ASX: DMP) shares are up almost 6% after an opening plunge on Wednesday morning following the release of the company's 2023 annual report.

The Domino's share price stood at $50.86 at the time of writing, 5.89% higher, after closing Tuesday at $48.03.

The company's shares had dropped as low as $45.10 apiece in the opening minutes of trading.

What did the company report?

What else happened in FY23?

In its presentation to the ASX, Domino's flagged that it already has restructuring and streamlining initiatives underway, including the closure of 56 unprofitable stores,

The company also exited from the Danish market, which resulted in 27 stores shutting down.

Back in March, Domino's high-profile chief executive Don Meij sold out $8.3 million of shares.

What did Domino's management say?

Meij blamed the pizza company and its franchisees' woes on "extraordinary" supply cost inflation.

Because of the speed at which we needed to respond to inflation we didn't always get the 'value equation' right. For example, some of the changes we made including the introduction of a Delivery Service Fee did not resonate with some customers and over time they ordered less frequently.

We have heard this feedback loud and clear and have now removed the majority of these fees. That said, some pricing decisions were accepted by customers, such as slightly increasing the price of our value range, while still providing amazing value.

What's next for Domino's?

Meij said that the company is still "actively working to rebalance the value equation":

This means getting the right products, service and image for our customers, not simply reversing price increases – we believe we can deliver both great value for customers, and great profitability for our franchisee partners.

Another 18 stores are under review for closure. 

The head office will also see restructuring, with reporting lines to be realigned and "centres of expertise" that will be shared across all geographical markets.

The chief executive flagged there would be job losses.

Wherever a global function sits within a market, the majority of our leaders will now 'double hat' so there is one decision maker, and my role is no exception – effective immediately I will be acting as both the group and ANZ CEO for Domino's.

Sadly, these changes mean that we expect a number of staff in our support offices in Australia and internationally to leave our business in the coming months, after we work through local consultation requirements.

These decisions, while challenging, will ensure we have a stronger foundation for future growth, both for our company and our franchisee partners.

Domino's share price snapshot

The Domino's share price has been hammered in the growth sell-off over the past two years. 

Since its September 2021 peak, the stock had fallen more than 70% before Wednesday trading opened.

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 positions in and has recommended Domino's Pizza Enterprises. The Motley Fool Australia has recommended Domino's Pizza Enterprises. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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