Domino's Pizza has suffered an investor savaging that saw its share price plunge more than 20 per cent after the embattled company failed to meet its own targets for profit and predicted softer growth in the coming year.
The one-time darling stock fell from $51.11 a share to $40.28 within the first minutes of trade on Tuesday, wiping almost $1 billion from the company's market capitalisation. Its shares recovered slightly over the day to finish 18.8 per cent down at $41.50 by the market close.
More BusinessDay Videos
- Video duration
- 01:59
Fair Work grilled over Domino's ...
Fair Work grilled over Domino's investigation
Fair Work Ombudsman Natalie James is questioned by a Senate committee over their investigation into underpayment at Domino's Pizza.
Up Next
Commodity shippers eye Korea tensions
- Video duration
- 02:49
- Video duration
- 02:49
Commodity shippers eye Korea tensions
Commodity shippers eye Korea tensions
Senior officials in Washington are trying to cool that rhetoric around North Korea, but the recent war of words has unnerved investors.
Up Next
ASX winners and losers - a snapshot
- Video duration
- 00:43
- Video duration
- 00:43
ASX winners and losers - a snapshot
ASX winners and losers - a snapshot
The stand out listings traded on the ASX captured at key moments through the day, as indicated by the time stamp in the video.
Up Next
Why wage growth remains weak: NAB
- Video duration
- 02:21
- Video duration
- 02:21
Why wage growth remains weak: NAB
Why wage growth remains weak: NAB
NAB chief markets economist Ivan Colhoun looks at the possible reasons for slow wage growth around the globe.
Up Next
CBA chief Ian Narev to retire
- Video duration
- 00:58
- Video duration
- 00:58
CBA chief Ian Narev to retire
CBA chief Ian Narev to retire
CBA chairman Catherine Livingstone plays down links between Narev standing down and allegations of anti-money laundering breaches by the bank.
Up Next
Market volatility risks in the week ahead
- Video duration
- 02:43
- Video duration
- 02:43
Market volatility risks in the week ahead
Market volatility risks in the week ahead
Investors face the triple threat of increasing geopolitical risks, while Australian corporate earnings and jobs data are also vulnerable. This video was produced in commercial partnership between Fairfax Media and IG Markets.
Up Next
RBA identifies low wage growth risk
- Video duration
- 01:36
- Video duration
- 01:36
RBA identifies low wage growth risk
RBA identifies low wage growth risk
RBA governor Philip Lowe points to low wage growth as one of the key risks to the Australian economy.
Up Next
ASIC considers action against CBA
- Video duration
- 04:35
- Video duration
- 04:35
ASIC considers action against CBA
ASIC considers action against CBA
The corporate regulator will investigate whether the CBA's board complied with continuous disclosure laws when it decided not to alert investors to suspicious behaviour.
Fair Work grilled over Domino's investigation
Fair Work Ombudsman Natalie James is questioned by a Senate committee over their investigation into underpayment at Domino's Pizza.
The company has for months been fighting claims of widespread wage underpayment in its franchise network and that its business model left little room for store owners to make a living. It revealed on Tuesday it had recovered almost $1 million for workers following store audits. Those audits are continuing.
But Domino's did not blame these problems for its disappointing result, instead pointing to issues with its French operations, which chief executive Don Meij said had now been addressed.
"I'm embarrassed we got this one wrong, but I'm not embarrassed we grew 28.8 per cent," Mr Meij told investors, referring to the jump in the company's underlying profit after tax for the last financial year to $118.5 million.
The figure was short of the 32.5 per cent growth it told investors in February it would achieve. Australian and New Zealand same-store sales grew 13.6 per cent – also short of its guidance of between 14 per cent and 16 per cent – and the key metric slipped to 10 per cent in the second half of the financial year – the slowest growth in three years.
Sales growth slipped further in July to 7.2 per cent. Domino's said net profit growth for the year would be lower at about 20 per cent.
Andrew Rennie, Domino's Europe chief executive, told analysts he had "stuffed up" and that he took full responsibility for the company missing its targets.
"We should have been a little bit more cautious," Mr Rennie said. "We're big boys, we can deal with that and we can move forward".
Sales growth in Europe was also softer than expected at 2.8 per cent, short of Domino's 5 to 7 per cent guidance, and in Japan went backwards 0.6 per cent after forecasting 0 to 2 per cent growth.
Dominos' shares had already shed 36 per cent of their value over the past year as the company's business model has come under scrutiny and analysts raised concerns over the health of franchisees.
In June, when its shares were at $52.60, Citi analysts said Domino's was as much as $800 million overvalued and cut its target price to $45.50.
But one investor, Tom Marsico of investment firm Marsico Funds, said he was "absolutely shocked" by the size of the sell-off triggered by the "very minor miss".
Total sales jumped 18 per cent as it rolled out 178 new stores across its franchise networks in Australia, New Zealand, Europe and Japan.
The company also announced a $300 million share buyback, funded by new and existing debt facilities, which it said was to return capital to shareholders and increase the efficiency of its balance sheet.
$1 million in pay recovered
Earlier this year, a Fairfax Media investigation revealed that an uneven profit split between Domino's head office and store owners was pushing some franchisees to underpay staff in order to survive.
Domino's said on Tuesday it had completed 15 full store audits and recovered $770,000 in unpaid wages and superannuation, while another $249,000 was recovered after investigating 55 individual complaints.
That brings the total paid back to ripped-off workers over the past 3½ years to more than $5.5 million.
Three franchisees who ran six stores between them "exited the system" following audits during the year and Domino's said it was withholding $487,000 for back payments to workers from those stores.
A total of 29 franchisees have now left the business following audits. Forty-five stores were profitable and received assistance from head office, Domino's said.