Shares of the Australia-based Domino’s Pizza Enterprises Limited (AU:DMP) fell by 2.26% after Macquarie downgraded its rating from Hold to Sell. Macquarie also reduced its price target on DMP stock by 8% to AU$29.50. Analysts at Macquarie pointed out a potential downside risk to earnings due to a lower number of store openings.
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Domino’s Pizza Enterprises is Australia’s largest pizza chain in terms of store count and sales. Additionally, it is the largest franchisee of the U.S.-based Domino’s (DPZ) brand worldwide.
Macquarie Downgrades DMP’s Rating to Hold
The downgraded rating on DMP stock indicates pressures on franchisee profits, which have been under pressure since FY21. It is mainly attributed to declining profits amid cautious consumer spending and rising operational expenses.
Moving ahead, Macquarie analysts believe that this will potentially result in earnings falling below consensus expectations in the medium term.
Additionally, Macquarie stated that the rate of new store openings is expected to remain slow in the coming years. It predicts a modest growth of just 0.2% annually in store numbers between FY24 and FY27, which is much lower than the 2.4% growth anticipated by analysts, according to Visible Alpha. Consequently, this will lead to a total store count of around 250 in FY27, which is 6% below consensus. They also estimate that a reduction of 50 stores in forecasts would result in a 3% negative impact on earnings.
DMP Faces Slow Start to FY25
Domino’s Pizza Enterprises started FY25 on a weak note, with same-store sales down 1.2% for the first 17 weeks as compared to 2.7% growth in the prior year period. The company highlighted that performance was impacted by challenges in Germany, France, and Japan.
Nonetheless, the company expressed its confidence in its overall strategy, along with its FY24 results in August, despite the short-term sales slump. Domino’s Pizza Enterprises mentioned store-level improvements for franchise partners as a positive indicator. Moreover, it confirmed its FY25 guidance for same-store sales growth of 3% to 6%.
Is DMP a Good Stock to Buy?
According to TipRanks’ rating consensus, DMP stock has received a Moderate Buy rating based on 10 recommendations. It includes six Buys, three Holds, and one Sell rating. The Domino’s Pizza Enterprises share price target is AU$37.50, which is 15.8% above the current price level.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
