Domino's Pizza Falls Short of Sales Expectations in Q3 Amid Weakening Demand

October 12, 2023
Stephanie Bedard-Chateauneuf
Domino's Pizza faced a third-quarter sales slump due to higher prices and delivery charges, with consumers opting for homemade meals amid rising living costs, resulting in a 3% drop in the company's premarket shares, and a surprising decline in U.S. same-store sales.

In the third quarter, Domino's Pizza (NYSE:DPZ) fell short of market revenue expectations, as the combination of elevated menu prices and delivery fees deterred customers from dining out at their restaurants. With rising costs for essential items such as rent and borrowing expenses, consumers are opting to allocate their limited household budgets to preparing more affordable home-cooked meals instead of ordering from restaurants. This shift in consumer behavior has put a dent in the demand for Domino's offerings.

In response to these challenging market conditions, shares of the Michigan-based pizza chain dipped by approximately 3% during premarket trading. The company also reported a surprising decline in its same-store sales in the United States.

Domino's, which had long been associated with speedy home deliveries across the globe, had initially anticipated that the benefits of higher product prices would taper off as the year progressed. In July, the company had forecast an average price increase of 2% for the current quarter, compared to the nearly 4% surge seen in the third quarter. Furthermore, the increased fees for pizza delivery have become a point of contention for customers.

The company also faced hurdles related to decreased supply chain revenue from its franchised stores. Pricing to these stores dropped by 1.7% during the reported quarter when compared to the same period in the previous year.

Nevertheless, Domino's managed to surpass expectations in terms of earnings per share, reporting $4.18, which exceeded the average estimate of $3.30 according to IBES data from LSEG. This notable increase in net income, nearly 47%, was driven by a one-time pretax gain. Some analysts, such as Joshua Long at Stephens Research, regarded this as a potentially "lower quality result" from the world's largest pizza chain.

Overall, the company's revenue saw a decline of 3.9% in the quarter ending on September 10, reaching $1.03 billion, in contrast to the analysts' estimate of $1.05 billion according to LSEG IBES data.

Looking ahead, Domino's indicated that its 2023 global retail sales growth, excluding the impact of currency fluctuations, is expected to fall below the mid-point of its previously stated two- to three-year outlook of 4% to 8%.