Domino’s growth could grind to a halt, analysts warn, as company’s prospects overvalued
The marketing juggernaut that is Domino’s could face an uphill battle to continue its meteoric rise as it reaches market saturation and new stores begin to cannibalise existing ones, a grim analyst note from Citi warns.
Domino’s campaign admits it needs to do better
The warning comes just a month after Domino’s launched a new campaign admitting that it had to do better for its customers since letting standards slip.
The Citi note warns that earnings growth at the multinational was slowing. It also flagged that the parent company could squeeze no more out of its existing profit pool and would now have to hand more back to franchisees in order for its own profit growth to continue.
“In addition, the prospect of further acquisitions is low and store growth will likely result in some loss of sales productivity,” the note said.
It said there were a number of reasons that Dominos’s margins are nearing a peak and suggested the brand needed to give franchisees stronger incentives to open stores and invest to retain digital customers.
The note put a sell rating on the shares at $45.50, well down on the the close of trade on Wednesday of $54.54 suggesting the company could be currently overvalued by as much $800m.
Domino’s declined to comment on the advice from Citi, citing its annual results coming up in August.
In a statement the company said: “Domino’s does not comment on the company’s share price, that is a matter for the market. Our focus, and our franchisees’ focus, continues to be on providing a high-quality experience to our customers, which we are doing in record numbers.”
Last month Domino’s launched a new campaign aimed at addressing the rising number of complaints about the quality of its food.
In the campaign, created in house, a franchisee reveals images of pizzas people have complained about and promises to “do better”.
Domino’s Australian and New Zealand CEO Nic Knight said at the time the company needed to take a back-to-basics approach.
“We have run a number of focus groups and our customers tell us they love our products, but when we make a mistake, they want it fixed as quickly as possible – and we will,” Knight said.
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