What happened

Domino's (DPZ 3.89%) shareholders sat out the market rally on Thursday. The pizza delivery leader's stock fell 6% by 1:15 p.m. ET, compared to a 1.2% increase in the S&P 500. Domino's shares are now down nearly 10% so far in 2023 while the wider market is up 7%.

Thursday's decline was sparked by the chain's Q1 earnings update, which showed market share challenges in the competitive fast food space.

So what

The good news for shareholders is that Domino's growth trends are improving in the core U.S. market. Comparable-store sales rose 4% at home, compared to a 1% uptick last quarter and a 1% decline for the full 2022 year. Modest growth in international markets, plus a growing global store base, combined to push sales up 6% after adjusting for currency exchange rate swings.

Yet Wall Street was hoping for stronger sales trends. Chipotle and McDonald's both reported double-digit comps increases earlier in the week, or about double Domino's growth pace. These fast food chains are increasingly targeting delivery, drive-thru, and on-the-go orders, challenging some of Domino's biggest niches.

Now what

Domino's continues to run a highly efficient, profitable business. It passed along higher menu prices to customers, for example, and it raised franchise fees this past quarter. These moves helped earnings rise at a much faster pace than sales. Net income was up 15% in the period.

Still, the chain could be losing a step against competitors in the fast food space, many of which have been raising the bar on customer service and food quality over the past year.

In the past, Domino's has demonstrated that it can win in these areas, including by reducing delivery times and innovation in its tech platform. But the pizza delivery giant still has some work to do to return to its prior path of steady market share gains. Therefore, the stock might see more pressure until investors can feel more confident that this rebound has taken hold.