Investing

Domino's May Be in Trouble

Douglas A. McIntyre

Published: August 6, 2024 6:50 am

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• Like other fast-food chains, Domino’s Pizza Inc. (NYSE: DPZ) is feeling the pinch of shrinking customer traffic.
• Also: Dividend legends to hold forever.

When people think about Domino’s Pizza Inc. (NYSE: DPZ), they think about the huge restaurant business with nearly 7,000 U.S. stores. In the most recent quarter, this parent company brought in $4.5 billion in revenue. What they don’t think about is the London-listed U.K. franchise of the U.S. pizza store group. It released earnings news, and part of the news was depressing.

The U.K. Domino’s company had revenue of £326.8mn for the first half of the year, down 1.8% compared to the same period the year before. Additionally, it lowered its full-year guidance. The Financial Times reported that the reason was a drop in customer demand because of “cost of living pressures.” McDonald’s Corp. (NYSE: MCD) and Starbucks Corp. (NASDAQ: SBUX) recently gave the same reason for lackluster earnings in the second quarter of the year. Obviously, consumer anxiety about inflation is not just a challenge in the United States.

What the comments from all three fast food chains mean is that promotions like $5 meals are not working well and are unlikely to do so. Even though the U.S. and U.K. governments say inflation has dropped sharply this year, many consumers do not feel that way. People with very modest incomes are often the primary customers at these fast-food chains. As a group, they appear to feel pressure of daily costs compared to their incomes.

It is hard to say why people with modest incomes seem to worry about costs. Perhaps they are pinched because of the rising cost of energy. Perhaps their wages have not kept pace with even moderate inflation. No matter the reason, they don’t visit inexpensive fast-food locations at the same pace they did a year ago.

Taken together, the Domino’s U.K., McDonald’s, and Starbucks earnings point in the same direction. Revenue is threatened because customer traffic is falling.

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