Domino Pizza Enterprises Ltd [ASX:DMP] share price fell by 12.72% shortly after opening this morning, following the announcement of the pizza chains full-year results for 2018 and its guidance for 2019.
Despite an increase in profit for 2018 due to higher sales, investors are disappointed with the 2019 forecast.
Domino’s shares are currently trading at $45.75 — down nearly 17% from its 52-week high.
Why is Domino’s share price sinking despite positive results for FY18?
Domino’s reported a full-year profit for 2018 of $136.2 million, 15% higher than the previous year. And an increase in its final dividend payment of 15.5%, meaning shareholders will be paid 49.7 cents per share (75% franked).
The fast-food chains sales also rose 11.7% to $2.59 billion and total revenue increased by 7% to $1.17 billion.
Investors were left disappointed as the results fell short of its own 2018 forecast which was estimated to be around $138 million, with a 20% growth from the previous year.
Domino’s states that the less-than-expected results were a result of Australian sales underperformance, which were affected by the recent labour force scandal involving Domino’s employees and the Fair Work Commission. This, along with lower than expected sales in France from increased food costs, proved costly to Domino’s falling share price.
How does 2019 financial year look for Domino’s share price?
Domino’s is estimating to open between 225–250 new stores over the next year, with an estimated same store sales growth for all stores to be within 3–6%.
The fast food chain is expecting earnings before interest and tax to total $227–247 million. With capital expenditure of between $60–70 million.
Domino’s CEO and Managing Director Don Meij stated that the company is focused on investing in technology, to improve efficiency and better the ordering experience for customers.
‘Globally, we believe ongoing growth over the longer term is achievable and expect to grow our business, and our share of the pizza and wider fast food markets, with compounding growth in the range of 3-6%3 — higher than our competitors.
‘We believe this is achievable given the growth we’ve achieved in the Europe market already — 230% in the past three years alone.’
As stated by Mr Meji, despite tough trading conditions due to poor publicity and its expansion into the European and Japanese markets, Domino’s strong store metrics and an increase in profit for 2018 demonstrate resilience and reinforce confidence in the pizza chain.
Even if the share price falls further, Domino’s stores aren’t going anywhere. There is definitely potential for them to make a comeback, let’s just hope they continue to operate ethically and avoid any more negative publicity.
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