The Domino’s Pizza Enterprises Ltd (ASX: DMP) share price cracked a new 52-week low on Wednesday.
At the time of writing, shares in the pizza franchisor are down 16.22% to $83.93. However, Domino’s shares hit a new low of $83.25 earlier in trade today.
So, what has caused this significant degradation in investor sentiment towards the Domino’s share price?
High hopes meet headwinds
Investors are reacting negatively to the release of Domino’s half-year results for the six months ended 31 December 2021 today. Despite network sales increasing 11.1% to $2,048.4 million, the market appears to be focusing on the challenges for the company.
Due to a number of cost increases, Domino’s bottom line felt the pinch, leading to the company’s first decline in underlying earnings per share (EPS) in more than 11 years, as shown below.
While there was $2.9 million worth of one-off significant items for the company during the half, increases in operational costs also took a bite out of earnings. Perhaps shareholders are taking this as a sign that the Domino’s share price may not be insulated from inflation.
These cost increases included:
- ~$64 million increase in food, equipment, and packaging expenses
- ~$11 million increase in employee expenses
- ~$16 million increase in marketing expenses
Unfortunately, with the Domino’s Pizza share price trading on a 47 times price-to-earnings (P/E) ratio heading into these results, investors were likely hoping for an improvement in profits.
What else is hitting the Domino’s share price today?
The company also provided some more colour on what the near future is looking like. To shareholders’ disappointment, the short-term outlook holds challenges for the business.
Domino’s Pizza group CEO and managing director Don Meij said:
We are not immune to the challenges facing the global economy, but these are short-term challenges we will navigate through, with a continued focus on the long-term. Importantly, despite this short-term uncertainty, there is no question that our business is materially stronger than prior to COVID-19.
Finally, Domino’s admitted same-store sales growth for FY22 would fall below its target range.
The Domino’s Pizza share price is down 28.89% since the beginning of the year.
The post Slow down: Why the Domino’s (ASX:DMP) share price is sinking 16% appeared first on The Motley Fool Australia.
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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Dominos Pizza Enterprises Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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