Domino’s Pizza: fast food fatigue sets in

Dining out requires more dough in an era of commodity and labour inflation. Consumers increasingly want a place to sit down when they decide not to cook for themselves, too. On Thursday, pandemic high-flyer Domino’s Pizza pointed to both when it reported soft fourth-quarter sales and an underwhelming outlook for 2023. Like-for-like sales, for instance, grew less than one per cent in the fourth quarter. Domino’s gross and operating margins both also fell respectively for the full year.

Collectively, those figures sent Domino’s shares plunging more than a tenth. Its stock price was already nearly 40 per cent off the peak reached at the end of 2021. 

Domino’s, which had been one of dominant growth stocks of the 2010s, benefited from pandemic lockdowns when pizza delivery was the simplest way to avoid cooking. The company’s own explanation for its weak performance in 2022 includes a post-pandemic preference for eating fast food on premises. High delivery fees leave a bad taste.

Like every other restaurant, Domino’s has also grappled with having to pay more for labour and ingredients. But as those shocks moderate, it may be stuck with an underlying product that has disproportionately fallen out of favour.

Pandemic winners whose businesses slowed in late 2021 and 2022 have often reported their results on a two or three-year “stacked” basis. The goal is to compare current results to 2019, to demonstrate the scale of pandemic dominance.

In a nod to the desire to move forward from an extraordinary period, Domino’s said it would no longer provide that detail. Instead it will revert to standard year-over-year comparisons.

The company insists that it is still taking market share amid a shrinking pie. The challenge for investors is to understand what growth and profitability Domino’s can realistically achieve at a time when the trickiest consequences of an unusual era persist. Until then, shareholders should consider holding their orders.