Domino’s May Be in Trouble

By Douglas A. McIntyre Published Aug 6, 6:50AM EDT

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Like other fast-food chains, Domino’s Pizza Inc. (NYSE: DPZ | DPZ Price Prediction) is feeling the pinch of shrinking customer traffic.
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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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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.