Domino's share price sinks 5% on AGM update

This pizza chain operator's shares took a tumble on Wednesday. Here's why…

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The Domino's Pizza Enterprises Ltd (ASX: DMP) share price was out of form on Wednesday.

A late collapse saw the pizza chain operator's shares end the day over 5% lower at $60.01.

A woman holds a piece of pizza in one hand and has a shocked look on her face.

Image source: Getty Images

Why did the Domino's share price take a tumble?

Investors were selling down the Domino's share price after the company released its annual general meeting update just before the market close.

According to the update, trading conditions have been tough so far in FY 2023, which has led to network sales falling 1.8% year to date. On a same store sales basis, sales are down 1% over the prior corresponding period.

One positive, though, is that the company's sales have improved in October, with sales up 1.6% month to date. In addition, management continues to expect to be back within its 3% to 6% sales growth target by the end of the year.

What about its earnings?

Things have been equally challenging on the bottom line for Domino's due to inflationary pressures, high energy prices, and foreign exchange headwinds.

As a result, excluding the latter, management only expects "to deliver NPAT growth in FY23."

Though, this isn't stopping the company from expanding its network. In fact, the company "intends to set a new record for network expansion this Financial Year, with organic growth and three newly acquired markets to beat the FY16 record of 484 stores."

'A challenging short-term outlook'

Domino's CEO and managing director, Don Meij, commented:

We understand inflation, particularly high energy prices in Europe, are making customers consider every purchase – our answer to this is delivering a high-quality product at an affordable price. Customers have options, as they always have, and we believe we have an unrivalled ability to provide them choice and value; from inflation-busting offers for those looking for a meal for one, through to bundled offers for families and friends.

Some of our smaller competitors are under pressure in our markets, as they do not benefit from the same strategy and purchasing power, which means there is an increasing opportunity for smaller infill acquisition opportunities in our existing markets, in addition to possible market share gain.

This is a challenging short-term outlook for our business, but our confidence in the medium- to long-term is built on strong unit economics, allowing an expansion of our network to the benefit of customers, franchisees and shareholders.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Dominos Pizza Enterprises Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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