What happened
Shares of Domino's Pizza (DPZ 2.10%) fell more than 11% on Thursday after the restaurant chain reported lackluster sales growth and cut its revenue outlook.
So what
Domino's revenue rose 3.6% year over year to $1.4 billion in the fourth quarter, driven largely by new store openings. The pizza giant ended 2022 with 19,880 locations, representing a net increase of 1,032 stores compared to the prior year.
Yet the restaurant company's U.S. same-store sales only inched up 0.9%. That was well below Wall Street's estimates, which had called for comp growth of 3.4%.
Domino's was forced to raise prices to offset rising food and labor costs. But although that helped to bolster its profit margins, higher prices appear to have dented consumer demand for Domino's pizza and other offerings. Stubbornly high inflation and a challenging economic environment may have also driven more people to trade down to less expensive fare.
"We experienced significant pressure on our U.S. delivery business in 2022," CEO Russell Weiner said in a press release.
All told, Domino's earnings per share -- which were boosted by gains related to the sale of 114 company-owned stores to franchisees -- increased 4.2% to $4.43.
Now what
Due to ongoing macroeconomic challenges, Domino's lowered its two- to three-year sales growth forecast to a range of 4% to 8%, down from its prior projection of 6% to 10%.
However, if inflation levels can continue to moderate, Domino's could see some of its food cost pressure abate. That would likely have a positive impact on the pizza chain's profit margins and provide welcome relief for its shareholders.
