Reason behind Domino's Pizza's brutal $2.3 billion plunge on the stock market – New Zealand Herald

If there was a good business to be in when the pandemic struck, delivery pizza was right up there. Photo / Domino’s Pizza via NCA NewsWire

Over the course of the pandemic, there have been winners and losers.

While many small businesses have done it tough and have even been forced to close their doors, some of the bigger companies have found ways to make more money than ever before.

One of them is fast-food giant Domino’s, which has been celebrating bumper profits from selling locked down Aussies home-delivered pizza.

It seemed the pizzas were flying out of the oven faster than the company could keep up with as it reported a 29 per cent increase in net profit to $188.2 million for the 12 months ending June. Shareholders lapped up the good news, sending the value of the company to an all-time high in September.

However, the past week has provided a brutal reality check to the pizza giant.

Domino's share price has been hit hard in the past week. Photo / Brenton Edwards / NCA NewsWire
Domino’s share price has been hit hard in the past week. Photo / Brenton Edwards / NCA NewsWire

A trading update from the company’s annual general meeting late on Wednesday night went down like a lead balloon with investors sparking a staggering collapse of almost 20 per cent on its share price the following day.

The dismal day of trading meant that the market capitalisation of Domino’s Pizza, which owns the Domino’s Pizza franchise in Australia, New Zealand and Japan, as well as in parts of western Europe, sank by $2.3 billion on Thursday alone.

Billionaire Jack Cowin, the chairman of Domino’s as well as its biggest shareholder, saw his personal holdings implode by $600 million in a matter of hours, while chief executive Don Meij’s shares are now worth $47m less.

Investors and the market were reportedly spooked after the release of the trading update showed the company recorded negative sales on a one-year basis and a weak performance from its Japanese operations.

In the couple of days of trading since the collapse, the share price has struggled to recover and one leading retail expert believes Domino’s could be heading for a particularly tough period.

Professor Gary Mortimer, an expert in retail marketing and consumer behaviour at QUT Business School, told news.com.au we could be seeing a shift in how Aussies are spending their cash, now that lockdowns are coming to an end.

Billionaire Jack Cowin, Domino's largest shareholder, saw his personal holdings implode by $600m in a matter of hours on Thursday. Photo / Nikki Short
Billionaire Jack Cowin, Domino’s largest shareholder, saw his personal holdings implode by $600m in a matter of hours on Thursday. Photo / Nikki Short

He said what we are seeing with Domino’s plunging share price in the past week is possibly a “market correction” as Aussies spend less on takeaway food, and more on other things.

“What we’ve seen with this particular business, certainly domestically, has been pretty strong growth across all of 2020 and I think that was related to Covid lockdowns, particularly in Melbourne and Sydney,” he said.

“People were locked down and unable to leave their homes, and restaurants, cafes bistros and bars were not able to open to diners.

“What I think has happened is that Australians have, throughout 2020, taken advantage of being able to just get a couple of pizzas to their house.

“So I think Domino’s took advantage of the pandemic, or the pandemic certainly leveraged their sales based on a convenient delivery of food to your home.”

He said Domino’s ran a “really great campaign” around contactless delivery that made people feel comfortable to order from them, and helped sustain the company through the lockdowns.

However, as vaccination rates continue to soar across the nation and Australians become more accustomed to going out for a meal again, Mortimer predicts businesses that specialise in takeaway like Domino’s will take a hit.

“A natural sales decline will materialise because people will want to go out and have a nice pizza at a restaurant instead of ordering one to the house,” he said.

“I think there is a pent-up demand from people, especially in Sydney and Melbourne, to now go out and have a meal.”

If there was a good business to be in when the pandemic struck, delivery pizza was right up there. Photo / Domino's Pizza via NCA NewsWire
If there was a good business to be in when the pandemic struck, delivery pizza was right up there. Photo / Domino’s Pizza via NCA NewsWire

He predicts that supermarkets will also see weaker profits in the coming months for the same reason.

However, Domino’s is staying optimistic after a tough week on the markets.

A spokeswoman for the company told news.com.au she wouldn’t comment on the share price as it’s a “matter for the market”.

However, she said there has been a big expansion in the number of new restaurants in the past three years and that the company was confident its operations in Japan – which was largely blamed for the tumbling stock price – will pick up again.

“Over the past three years we have built a materially stronger business in Japan, which serves more customers, on more occasions – through changing our menu offering and our store footprint,” she said.

“We have opened more than 300 additional stores and expanded into new regions that were previously inaccessible, with half of all stores now owned by franchisees.

“As we emerge from the peak of pandemic conditions to ‘living with Covid’, we are confident Domino’s Japan will continue to deliver for our customers and the wider business.”

The company said sales growth in the latest quarter has been strong but sales have been uneven across regions, with operations impacted by lockdowns and changes in customer behaviour. Domino’s currently has 3169 stores in the network and plans to more than double that number by next decade.

Meanwhile the company’s biggest shareholder, and one of Australia’s richest men, has no plans to sell his 23 million shares, which are still worth a whopping $2.69 billion even after last week’s price crash.

“I did look at the share price on Thursday, it goes up and down, but it is paper, and the only time it is significant is when you sell,” Cowin told The Australian.

“And I am not a seller so that didn’t come into the equation.”

source: Reason behind Domino's Pizza's brutal $2.3 billion plunge on the stock market – New Zealand Herald

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