Domino’s Pizza shares(ASX:DMP) experienced a significant sell-off today, closing down 22% at A$15.10 after reporting its FY25 results, which included its first annual net loss since listing. The disappointing figures and strategic reset plans triggered a sharp negative reaction from the markets.
Today’s drop is a significant decline for DMP, with the share price marginally above its low of A$14.80 and roughly half its value from a year prior, reflecting growing concerns about the company’s performance and future prospects.
Looking at the fiscal year financials, Domino’s reported a 0.9% decrease in network sales to $4.15 billion. Revenue also fell by 3.1% to $2,303.7 million.
Underlying EBIT saw a decrease of 4.6% overall, although the ASX and EU segments showed growth of 5.2% and 3.1%, respectively. Asia experienced a sharp decline of 32.6%, primarily due to challenges in Japan.
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Domino’s declared a final FY25 dividend of 21.5 cents per share, unfranked, representing a 35% payout. The company will maintain its dividend reinvestment plan (DRP) but has removed the underwriting feature. “This preserves an avenue for investors who wish to compound their investment at a time when the Company’s share price does not fully reflect its long-term potential,” the company stated. Eligible shareholders participating in the DRP will be issued shares at a 1.0% discount to the average daily volume-weighted average price over the 10-trading day period commencing on September 8.
The company reported its first annual net loss in two decades, amounting to A$3.7 million, a steep drop from the previous year’s A$96 million profit, primarily attributed to weak sales and rising costs in key markets, notably Japan and France.
The company is currently undergoing a “strategic reset” aimed at improving profitability through simplifying operations and focusing on franchisee profitability. Key to this plan are strategic store closures, particularly in France and Japan, where 205 underperforming stores were closed, including 172 in Japan and 32 in France.
According to Domino’s, the closures are expected to generate annualized savings of approximately A$15.5 million, although the company incurred a one-time restructuring cost of A$97 million.
Bull Case:
- Strategic reset streamlines operations, focuses on core pizza business.
- Cost efficiencies expected to provide A$55 million annualized EBIT savings.
- Dividend Reinvestment Plan offers discounted shares, long-term compounding potential.
Bear Case:
- First annual net loss raises concerns about financial health.
- Significant declines in Asia, particularly Japan, weigh on overall performance.
- Store closures incur one-time restructuring costs, impact short-term profitability.
Domino’s faces a challenging period as it navigates its strategic reset and aims to restore profitability. The markets will be closely watching the execution of these plans and the company’s ability to regain investor confidence. The 5 year decline in DMP now stands at an alarming 82.16%, with very little for markets to get behind since 2021. The first annual loss is not a great place to start, but is it reaching a point where the company may be near a bottom?
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