Down 22% in FY24, what's in store for Domino's Pizza shares in FY25?

Many analysts have a positive view.

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Domino's Pizza Enterprises Ltd (ASX: DMP) shares had a difficult end to FY24 and are down 27% in the past 12 months. They are currently swapping hands at $35.02 per share.

Meanwhile, the S&P/ASX 200 Index (ASX: XJO) is around 2% higher over the same time.

Investors were quick to unload their stock in the company after it released a trading update in January, advising its H1 FY24 profit numbers were lower than expected.

The forewarning – whilst polite – was not received well by the market. The stock fell from above $57 to $39.50 in just one session.

I'm not sure the FY24 listing of Guzman Y Gomez Ltd (ASX: GYG) made things any easier for the stock either.

As we look ahead to FY25, investors are keen to understand what the future might hold for Domino's Pizza shares. Here's what the experts are saying.

Could Domino's Pizza shares rebound in FY25?

Analysts are optimistic about the potential for a rebound in Domino's Pizza shares. According to investment bank Citi, based on its target price of $44.50 per share, Domino's could see a 22% increase.

This bullish outlook follows the company's investor tour in France, where Citi analyst Sam Teeger noted the potential for "better days ahead" despite recent struggles.

Analysts at Goldman Sachs also attended the tour. In a May note, the broker highlighted a positive shift in management's focus towards improving store profitability.

We view more positively a higher management commitment to store unit profitability via lifting Average Weekly Unit Sales (AWUS) largely via Average Weekly Order Count (AWOC) with a combination of higher aggregator contribution, fixing carry-out, new product development as well as higher brand marketing.

It also notes the pizza chain's new third-party partnerships, such as Uber Eats in France, as another potential driver of growth.

What are the other drivers for Domino's Pizza shares?

Citi isn't alone in its optimism. Ord Minnett also sees significant upside potential, rating Domino's Pizza shares a buy with a price target of $44.40.

Otherwise, the stock is rated a buy from the consensus of analyst estimates, per CommSec.

This confidence stems from expected growth in sales and earnings as the company adapts to changing consumer preferences and market conditions.

Domino's long-term expansion strategy is a critical factor in this. According to my colleague Tristan, the company aims to approximately double its total store count by 2033.

It is specifically targeting growth in Europe and Asia Pacific, but in Australia and New Zealand, it plans to reach 1,200 stores by 2027/2028. This growth may or may not positively affect Domino's Pizza shares.

Goldman Sachs explained that Domino's management is focused on improving the company's unit economics. Efforts include reducing food and delivery costs, increasing digital spending to attract new customers, and enhancing product quality and delivery times.

The broker noted that "management will also lean further into digital initiatives, including Germany stepping up loyalty rewards in CY24, rolling out digital kiosks…". Digital kiosks – what a time to be alive.

Challenges and risks ahead

Despite the optimistic projections, there still could be risks to consider. Morgan Stanley's analysis into GLP-1 weightloss drugs highlights the potential impact of labels such as Ozempic.

The thinking is that widespread use of the compound could reduce the consumption of high-calorie foods, including pizza. If correct, this could pose a challenge for Domino's Pizza shares.

Goldman Sachs also points out that while there is a positive shift towards improving store profitability, "current franchisee payback periods at ~4-5 years for Germany and Netherlands and ~4.5-6 years for France vs target of ~3 years" indicate that there is still work to be done.

Foolish takeaway

If Citi and Ord Minnett's positive forecasts hold true, Domino's shares could see a significant rebound in FY25. The company is positioned for potential growth with ambitious expansion plans and efforts to improve profitability. As always, it is crucial to weigh the risks and stay informed before investing.

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Zach Bristow 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 and Goldman Sachs Group. 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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