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Elizabeth Knight
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Chief executive Don Meij released the Domino’s Pizza full-year result, but shareholders couldn’t see much cause for celebration at Don’s (pizza) party.
Same-store sales across the group were down for the first seven weeks of the new financial year – and investors made for the exits, pushing the stock down 6.3 per cent when trading started on Wednesday.
Over the 2024 financial year, the group produced a tepid same-store sales improvement of 1.5 per cent.
It is tough out there in the fast food industry. First there’s the cost-of-living crisis, which is pricing some customers out of the market. It places brands such as Domino’s and KFC in a pincer. There is a limit to how much they can increase customer prices, but the companies are also being squeezed by inflation-driven escalation in their own costs such as ingredients, power and labour. The cost of cheese is apparently a killer.
The fast food industry brands are slaves to the fickle but discerning consumers who might daily choose between a burrito, a burger, fried chicken, some sushi or pizza or cooking for themselves.
For those in the industry with a big appetite for local and international expansion – of which Domino’s has traditionally been one – we have also seen cultural booby traps.
Domino’s is attempting to extricate itself from one in Japan and one in France which are weighing down the performance of the larger group.
The current performance lull is particularly galling for investors who at the height of the COVID-19 pandemic saw their shares trade at $160 – compared with today’s price, which is well shy of $33.
The pandemic was a profit disaster for most listed companies, but Domino’s thrived as people hunkered at home, picking up pizzas from their doorstep.
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The fast food industry model of rapidly rolling out new stores can result in corporate indigestion – a risk that investors in newly listed Guzman y Gomez appear to have largely ignored.
Recently, GYG’s market capitalisation of $3.1 billion has leapt ahead of Domino’s, which is sitting at $2.96 billion. Domino’s hauled in net profit of $120 million while GYG makes about $6 million.
Domino’s is toning down some of its international colonisation plans but is committed to growth in some select countries such as Germany.
It is tough out there in the fast food industry. First there’s the cost-of-living crisis, which is pricing some customers out of the market.
GYG has an enormous long-term expansion plan in Australia and offshore, and it seems investors are eating it up. Shares in the GYG float were issued at $22 and are currently trading at $32.62. One broker, Morgans, has laid out its bull case for the shares to reach a heroic $62.
This would make GYG something of a diamond in the rough of the fast food market.
The daddy of them all, the US McDonald’s, recently posted disappointing first-quarter results. Its chief executive, Chris Kempczinski, put the result down to boycotts of US companies in various countries in response to the Gaza war.
But the soft US sales were driven by low-income customers cutting back on fast food, he said.
Meanwhile, Collins Foods, which owns KFC stores in Australia and Europe, had a strong result in the 2024 financial year but said the first seven weeks of the new financial year in which Australian sales were up a somewhat anaemic 1.5 per cent reflected a continuation of a weaker consumer environment in Australia, while the conflict in the Middle East was also affecting sales in Europe.
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Chief executive Kevin Perkins sought to brace Collins Foods investors for a tough period ahead, saying significant cost-of-living and inflationary pressures are expected to remain for much of the year ahead and while commodity prices are stabilising, labour and energy costs remain elevated around the world.
While the fashionable Mexican wave of fast food is moving around the world, pizza may not be this year’s black.
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