When a company announces a $300 million share buyback, misses key financial targets and reveals its chief executive is selling shares, it's a sign the party is over.
And so it was for pizza giant Domino's, which suffered a huge share price rout within minutes of the market opening on Tuesday.
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'They blackmail us': Domino's boss
Domino's CEO Don Meij blasts franchisees who have underpaid 2,400 workers by $4.5 million as "criminals".
No matter what spin chief executive Don Meij tried to put on the group's numbers, the market wasn't buying it.
Some of the early comments from broker sales desks included: "DMP not good", "FY17 Miss, FY18 Guidance light = Stock Lower", "Miss, Miss, Miss" and "weaker across the board, stock to trade lower".
It would seem after so much hype about being a technology stock, a growth stock and that it was heading for global pizza domination, the hedge funds are finally having their day.
Meij is renowned for being upbeat. Drones, cutting-edge IT, fast pizzas, quality pizzas, happy franchisees and passionate workers are all part of the Domino's image.
But in the past year, Domino's has become one of the most shorted stocks on the ASX.
Some of the hedge funds believe the share price bloodbath still has some way to go. Concerns range from the success or otherwise of Domino's expansion in France and Japan, potential added cost burdens on franchisees from an updated workplace agreement to be introduced later this year and rising food prices, not to mention the revitalisation of chief rival Pizza Hut under its new ownership.
![Domino's chief executive Don Meij is under pressure.](http://web.archive.org./web/20170817213522im_/https://www.fairfaxstatic.com.au/content/dam/images/g/u/o/8/r/g/image.related.articleLeadwide.620x349.gxwvqd.png/1502828166224.jpg)
Whether hedge funds are right or wrong, the violently negative reaction to a record result suggests the market is rapidly losing confidence in the company, its operating model, its cashflow and its growth story, which until earlier this year was being hailed as one of the greatest success stories.
Since it listed on the ASX in 2005 at $2.20, Domino's shares surged more than 2500 per cent to hit a high in August 2016 of almost $80 a share, before closing at $41.50 at the close of trade on Tuesday.
But cracks started to appear in the strategy earlier this year when Fairfax Media exposed systemic wage fraud across the franchise network amid allegations by some franchisees that the business model was forcing them to cut corners, including selling visas in some instances or underpaying workers.
It prompted investors to become concerned that wage fraud was systemic and the numbers released for franchisee profitability didn't quite stack up.
I've been in this business for 30 years and it’s my intention to sign another five year contract.”
Don Meij
The company vigorously denies it has systemic underpayment issues across its franchise network and argues the franchise model is profitable, and there is no reason to underpay workers, other than greed. But the jury is out.
The workplace regulator, the Fair Work Ombudsman, has ramped up its investigation into Domino's and the Turnbull government has introduced the Vulnerable Workers Bill aimed at beefing up penalties for wage fraud and making franchisors jointly responsible for workplace abuses if they have a "significant degree of influence or control" over their franchisees' affairs.
The passage of that bill will be delicately poised in the Senate on Thursday and several MPs have named Domino's as the pin-up company for the kind of underpayment the new law would address.
The stakes on the outcome are high for the franchise industry. To put it into perspective, convenience store giant 7-Eleven has so far paid back $158 million in compensation to underpaid workers in its franchise network.
Domino's has launched a network-wide audit of stores, which has been delayed, which has raised questions.
There has been speculation that Meij may not remain in his job when his contract expires at the end of the year.
But Meij said: "I've been in this business for 30 years and it's my intention to sign another five-year contract."
Domino's is also being criticised over the timing of the share buyback, and some are asking if it was designed to neutralise a falling share price as executives sell shares.
Meij and the Domino's board will be reeling over the market's reaction to its 2017 earnings results. A lot of positive things were said, but the market just wasn't buying it. He will be wondering what on earth he can do to restore the faith.