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An employee places a cooked pizza into a delivery box inside a Domino's Pizza Group Plc store.
Domino's shares skidded more than 9 percent Thursday after the pizza chain disappointed investors with sales growth that fell short of expectations.
Domino's has been expanding rapidly in order to decrease delivery times and allow drivers to earn more tips, a strategy that the company calls "fortressing." During its fourth quarter, the company opened a net 560 stores, with a net 125 new U.S. locations.
But U.S. same-store sales rose 5.6 percent, short of the 6.9 percent growth, analysts had predicted during the quarter.
"The softer than expected domestic comps could partially reflect an accelerated impact from fortressing as the company opened 125 domestic locations on a net basis in 4Q (+5.7%), in excess of our estimate for 106 net openings and Consensus Metrix's 101," Cowen analyst Andrew Charles said in a research note.
Domino's, which surpassed 10,000 locations open outside of the U.S. last year, also fell short on international same-store sales growth, reporting a 2.4 percent increase. Analysts expected to see international same-store sales grow by 4.1 percent during the quarter.
Here's what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:
Earnings per share: $2.62, adjusted, vs. $2.69 expectedRevenue: $1.08 billion vs. $1.10 billion expectedThe pizza chain reported fiscal fourth-quarter net income of $111.6 million, or $2.62 per share, up from $93.3 million, or $2.09 per share a year earlier. The company attributed the increase to a lower tax rate resulting from tax reform legislation in 2017.
Excluding items, Domino's earned $2.62 per share, missing the $2.69 per share expected by analysts surveyed by Refinitiv.
Net sales rose 21 percent to $1.08 billion, but still missed Wall Street's expectations of $1.10 billion. Higher U.S. franchise royalties and fee revenues, as well as higher sales at company-owned stores in the U.S., contributed to the revenue increase. However, negative impacts from foreign currency resulted in a decline in international franchise royalties and fees.
The company does not release forecasts for quarterly or annual earnings, but it did reaffirm its outlook for the next three to five years. It expects global retail sales growth of 8 to 12 percent and U.S. same-store sales growth of 3 to 6 percent.
Domino's also announced Thursday it is raising its quarterly dividend by 18 percent to 65 cents.
