Domino's Pizza saw its stock tumbled about 10% in Monday morning trading after the chain disclosed weaker-than-anticipated U.S. same-store sales and revised down its outlook for the year. Management's comments signaled potential industry-wide pressure across the fast-food sector.
The company reported domestic same-store sales growth of 0.9%, below the 2.3% increase that Wall Street analysts had expected, according to StreetAccount estimates. In conjunction with the release, Domino's reduced its full-year U.S. same-store sales guidance to low-single-digit growth, a step back from the previously communicated 3% target.
On a television interview, CEO Russell Weiner said he anticipates other fast-food chains will face similar headwinds. He pointed to a combination of winter weather disruption and a decline in consumer sentiment in March, which he attributed to rising fuel prices tied to the U.S.-Israeli war with Iran, as contributing factors to a tougher operating environment.
Weiner noted that reporting results early has the downside of not having the benefit of seeing peer performance first. He also addressed competitive dynamics within the pizza segment, stating that rivals Papa John's and Pizza Hut are reacting to Domino's market share gains with new promotions. Despite the promotional activity, Weiner indicated his expectation that those competitors will report same-store sales declines for the quarter.
On the competitive front, Weiner highlighted the company's marketing position, saying Domino's carries a larger advertising budget than its two nearest competitors combined. He added that both of those competitors are on the market for sale, which he interpreted as a sign that they are experiencing difficulty.
Market reaction to the update has been pronounced. Over the past year, Domino's shares have dropped nearly one-third in value, bringing the company's market capitalization to around $11.2 billion.
Investors are watching an upcoming string of reports from major restaurant chains. Starbucks is scheduled to announce earnings after the bell on Tuesday, while Chipotle Mexican Grill and Yum Brands - the owner of Pizza Hut, KFC and Taco Bell - are expected to report on Wednesday. Papa John's will release its quarterly results next Thursday.
Context note: The company's statements cite specific near-term factors including weather, consumer sentiment and fuel-price effects as drivers of the sales outcome and revised guidance.