Investors marked down Domino’s Pizza today in what should have been a triumph as the fast food chain beat expectations with annual after-tax profit up by 51% to $64.048 million.
The outlook for 2016, an expected 20% rise in net profit, was found lacking.
“The result is as good as expected, a slight beat,” says Farina Parsons, a Morningstar analyst.
“It’s really the outlook that people are seeing. Maybe they wanted to see in the region of high or mid-20s and that wasn’t the case.”
Parsons says she thinks the company can do better than 20% and management is known for setting targets and exceeding them.
Evan Lucas, market strategist at IG, says the guidance just wasn’t good enough to justify a higher price. “They are doing really well and are an innovative company but the guidance has to be higher,” he says.
The company’s high tech credentials may also not be working, yet. However, technology is driving sales.
The pizza maker, in notes to the market on its full year results, highlighted its successes in using technology to sell quick food.
“Domino’s Tech Innovation Drives Record Profits,” was the headline of the company’s results.
Its digital innovations include GPS tracking of orders, easier online ordering with four clicks, electric pushbikes to cut local noise pollution and a 15-minute and 20-minute delivery guarantee.
Technology as a means to compete.
CEO Don Meij wants to use technology to win businesses from convenient fast food drive-thru outlets.
In Australia, Domino’s has more than 40 digital projects in the pipeline for 2016, with its GPS tracking technology continuing to be the linchpin of the business.
“We have only just fired up the ovens on what is possible with GPS Driver Tracker,” he says.
Parsons, at Morningstar, says Domino’s clearly wants to be a tech company.
“They are really trying,” she says. “They are not there yet but obviously they have a lot of initiatives and they do a large part of their sales online.
“It could potentially become a tech company but not at this stage. It’s still a retailer as far as I’m concerned. I guess when it becomes a tech company it will trade at much higher multiples.”
A short time ago, Domino’s was trading at $38.67, about 6% weaker. The stock is up from a low of $20.08 a year ago.