Australia's Domino's Pizza plunges after flagging bleak start to second half

By Rajasik Mukherjee and Sneha Kumar

Feb ‌25 (Reuters) - Australia's ​Domino's Pizza ​Enterprises flagged a weak start to the second half of the year on Wednesday citing extreme weather in Germany and the Netherlands, ‌sending its shares more than 4% lower.

The company, which operates Domino's ⁠stores in 12 countries across Australia, New Zealand, Asia and Europe, reported a 7.2% fall ‌in same-store sales for the ‌first eight weeks of the second half. Analysts see a 0.2% fall for the six-month period, according to Visible Alpha estimates.

Domino's Pizza has adopted a ​new approach in Australia and New Zealand, reducing reliance on national discounting and advertising spend to improve returns for franchise partners, as it navigates sliding ⁠sales and rising competition.

"We reduced reliance on discounting during the (first) half. Volumes moderated, as expected, but unit economics ​improved. That was a conscious trade-off to build a stronger system," said Executive Chairman Jack Cowin.

The approach, however, led to ​reduced earnings for the first half as it ‌reported a group revenue of A$1.10 billion, compared with A$1.17 billion a year earlier.

"The reset improves profitability in the near ⁠term, but unless revenue growth stabilises, the benefits of trading customer volumes for higher margins are likely to be temporary," said Cliff Man, CEO at ETF Shares.

Shares of the ⁠pizza chain operator slumped as much as 16.3% to A$18.130, hitting their lowest level since November ​3, before closing 4.4% lower.

The stock was the top loser on the broader ASX200 benchmark index, which rose more than 1% to hit a record high.

"The market reaction suggests investors ‌remain cautious about the sustainability of the turnaround strategy," said Cliff.

"The key concern is whether the company can successfully transition ‌from discount-driven volume growth to a more margin-focused model without impairing its customer base."

Earlier ⁠this month, the largest master ‌franchise of the U.S.-based Domino's ​Pizza tapped former McDonald’s executive Andrew Gregory as CEO.

(Reporting by Sneha Kumar & Rajasik Mukherjee in Bengaluru; Editing by Sumana Nandy and ‌Subhranshu Sahu)

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