Why is the Domino’s share price down 13% in two days?

It has been another disappointing day for the Domino’s Pizza Enterprises Ltd (ASX: DMP) share price on Thursday.

In early afternoon trade, the pizza chain operator’s shares are down 9% to $54.70.

This means the Domino’s share price is now down 13% over the last two trading sessions.

Why is the Domino’s share price crashing?

The Domino’s share price has been sold off this week after the company released a disappointing trading update at its annual general meeting.

That update revealed that the company’s sales are down 1.8% year to date. This is being driven by inflationary pressures, high energy prices, and foreign exchange headwinds.

Domino’s CEO and managing director, Don Meij, commented:

We understand inflation, particularly high energy prices in Europe, are making customers consider every purchase – our answer to this is delivering a high-quality product at an affordable price.

Unfortunately, Domino’s earnings are also being impacted by inflationary pressures and this is expected to remain the case for a little while longer. The company advised that it “anticipates inflationary headwinds to continue into the 2023 calendar year; primarily raw ingredients, energy prices in Europe, and labour costs in some markets.”

As a result, the company’s earnings are expected to “be materially lower” in the first half of FY 2023.

For the full year, management expects a year over year decline including foreign exchange headwinds and “to deliver NPAT growth in FY23” on a constant currency basis.

Broker reaction

This update hasn’t gone down too well with brokers, which explains the weakness in the Domino’s shares price today.

According to a note out of Citi, its analysts have downgraded Domino’s shares to a neutral rating and cut their price target on them by over 20% to $66.60.

Elsewhere, Goldman Sachs has retained its neutral rating but cut its price target to $60.00. Goldman commented:

DMP reported FY23 first 17 weeks trading update with sales largely in-line with expectations though company guided for 1H23 earnings to be materially lower than pcp. Additionally, FY23 NPAT excluding ~A$7mn FX headwinds is expected to be above FY22 A$165mn but will be below if including FX impact. This is below Factset Consensus FY23 NPAT forecast of A$179mn and GS forecasts of FY23 A$170mn.

The post Why is the Domino’s share price down 13% in two days? appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro 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 Scott Phillips.

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