Dominos Closes Dozens of Stores, Revises Growth Targets

Highlights:

• Significant Store Closures: Domino’s Pizza Enterprises will close nearly 10% of its stores in Japan and France, revising its long-term growth target due to poor performance.
• Focus on Profitability: The company is prioritizing profitability and sustainable organic growth, with specific plans to boost earnings through targeted marketing and advertising in Japan and France.
• Revised Growth Expectations: Domino’s anticipates flat to slightly positive store growth through June 2025, with analysts expressing skepticism about the company's revised growth strategy and long-term targets.

Store Closures and Market Impact

Domino’s Pizza Enterprises (ASX: DMP) is shutting down nearly 10% of its stores in Japan and France to address poor performance, revising its ambitious long-term growth target. The ASX-listed fast food chain, operating in Australia, Europe, and parts of Asia, announced that the goal of reaching 7,100 stores by 2033 is now unattainable. Following the announcement, Domino’s shares plummeted over 8%, dropping to AU$33.02, marking a year-to-date decline of more than 44%.

Strategic Focus on Profitability

Despite the setbacks, Domino’s remains committed to expanding its store count in the future. The company emphasized its current focus on profitability and sustainable organic growth. In Japan, Domino’s will close up to 80 loss-making outlets, aiming to boost earnings by reinvesting in marketing and advertising to attract more customers. With 1,015 stores in Japan, Domino’s had previously planned to nearly double this number.

In France, Domino’s will shutter up to 30 of its 482 outlets. Despite this, the company still aims to open 10 new stores in the country this year, maintaining a long-term goal of 1,000 stores. This strategic realignment comes after a challenging period in which the company saw a 9.2% drop in after-tax profit for the six months ending December 31, 2023, largely due to underperformance in Japan and France.

Growth Prospects and Analyst Reactions

Domino’s had aimed for annual store growth of up to 9% over the next five years but now anticipates flat to slightly positive growth through June 2025. The company acknowledged that achieving its medium-term store growth outlook depends on improving franchise profitability.

Analysts have expressed skepticism about Domino’s growth strategy. Goldman Sachs analyst Lisa Deng highlighted a lack of transparency in addressing core issues in problem regions like France and Japan. Macquarie analysts described the revised store growth target as a prudent but negative short-term measure, adjusting their earnings expectations for the next three years.

While Domino’s management continues to believe in doubling its store network to 7,100 in the long term, they admitted that the timeline for achieving this goal is under review. Domino’s shares last traded at AU$36.09, valuing the company at AU$3.3 billion.

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