Speaking at Domino's Pizza Enterprises Ltd (ASX: DMP)'s annual general meeting this week, executive chairman Jack Cowin signalled the company's ambition to emulate its US counterpart, which, he said, was a favourite of fabled investor Warren Buffett.
Mr Cowin said the Australian company, which had 3500 outlets across 12 markets, had "considerable potential for growth, if we can get the formula for success correct – big numbers of undeveloped territory with development rights expansion under a world-class brand''.
He went on to say:
Our Franchisor (Domino's Pizza Inc) is an interesting case of getting the formula right as their share price in 2008 was US$3 and today it is US$400. Same business – understanding what the customer wants and doing it profitably. Warren Buffett has endorsed the future prospects of the … business with a US$1 billion investment in the past 12 months. He says he gets euphoric when stock he is buying goes down as he recognises value (and) potential. We are part of a very successful business with a great future.
That said, Mr Cowin admits that a push into Europe and Asia successfully established the brand, "but unfortunately the business formula for enhanced growth and profits stalled''.
Plan for profitable growth
Mr Cowin, who founded and owns Hungry Jack's, said the company had an action plan to boost profitability, including the recent refinancing of its debt, a $60 to $70 million cost reduction program, and a new pricing strategy with higher profit contributions "from an everyday value pricing strategy''.
He added:
We are confident that the company will exceed consensus full year net profit forecast for FY26 as a modest increase versus FY25.
Analysts hopeful, but wary
So what do the analysts think? The team at Jarden have analysed Mr Cowin's comments and while they back the strategy, they are waiting on the execution.
As they said in a note to clients:
The net result, if successful, should be a higher yielding, higher multiple business, not dissimilar to Collins Foods, but more capital light, being a franchisor versus a franchisee. The above said, there is a long way to go. We continue to see significant value if the business is simplified, through focus on return on invested capital and growth in mature markets, expansion in growth markets (Germany) and stability⁄growth in Japan and France; we are less confident about the latter.
Jarden has a neutral rating on Domino's shares, with a target price of $19. This is now well below the current share price, which surged 11.7% on Thursday to close at $21.46.
