Domino's Pizza Enterprises Ltd (ASX: DMP) shares are rocketing on Friday morning.
At the time of writing, the pizza chain operator's shares are up 22% to $36.30.
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Why are Domino's shares rocketing?
Investors have been buying the company's shares this morning after responding positively to the release of a big update.
According to the release, Domino's first half sales were down 2.9% over the prior corresponding period and same store sales were down 0.6%. This was driven largely by foreign exchange headwinds and store closures.
The ASX 200 share's underlying net profit before tax is expected to be between $84 million and $86 million. While this will be down from $89.6 million in the prior corresponding period, it is within the company's guidance range.
Some good news is that there are signs that the tide could be changing with same store sales up 4.3% during the first five weeks of the second half.
Strategic review update
Management also announced the first outcomes of a detailed operational and financial review to create a simpler and better Domino's. It aims to improve profitability, strengthen franchise partnerships, and position the business for long-term sustainable growth and improved shareholder returns.
Two key areas of improvement that are being targeted are cost efficiency and strategic growth.
In respect to costs, the company is simplifying the store network and its cost base, "identifying opportunities to buy better, and spend better, in areas including food, packaging and technology, with $18.6m of annualised network savings identified to date."
As for strategic growth, management is "developing a value creation plan, including refined market strategy, to drive sustainable long-term value across Domino's global portfolio."
Mass closures in Japan
Following a detailed operational and financial review, Domino's revealed that it intends to close 172 stores in Japan (58 franchised, 114 corporate). This will allow it to focus on prefectures where the company can leverage scale, brand strength, and operational efficiencies.
These closures are expected to generate $10 million to $12 million annualised EBIT uplift while incurring one-off restructuring costs of $61.8 million.
Commenting on its plans, Domino's new group CEO and managing director, Mark van Dyck, said:
When I started in this role three months ago I said we would move decisively to reshape our business for long-term success. Where change is required, we are acting quickly and transparently. Our priority remains clear—creating value for customers, franchise partners, and shareholders.
The ASX 200 share's CEO also spoke about its plans in Japan. He said:
Japan is an attractive market for Quick Service Restaurants and pizza, with significant long-term upside for Domino's. Some of our COVID-period expansion resulted in stores that simply weren't optimal based on our current customer proposition and removing them will strengthen our network.
We are committed to being disciplined in expansion—prioritising locations in high density prefectures where we can drive incremental, profitable growth. To reach our potential, we are taking decisive action. We are also refining our value proposition and improving our pricing strategy to position existing and new stores for sustainable success.
