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Growth cools at Domino's Pizza as investors slice shares

Sydney

AUSTRALIAN fast-food chain Domino's Pizza Enterprises Ltd posted its slowest profit growth in five years on Tuesday, missing expectations, as a heatwave sent Europeans to cafes rather than pizza shops and earnings from Japan fell.

Although annual profit hit a record, it was the second year in a row that the one-time market darling fell short of its own guidance, prompting investors to question the longevity of its growth strategy, and sending its shares tumbling.

"They're probably thinking this is the start of the slide," said Mathan Somasundaram, market portfolio strategist at Blue Ocean Equities, after Domino's stock dropped 9 per cent to a near two-month low in morning trade. "Early in their story, the market was paying for future growth; and that worked well. But in the last two years, it's been the perfect growth market; and Domino's has actually gone the other way."

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The largest Domino's franchisor outside the United States also gave no profit forecast. It was looking for acquisitions to bolster same-store sales growth that it otherwise predicts to be steady at 3-6 per cent for three to five years.

"I know that can sometimes look more modest than some of our history, but the reality is that's still going to get significant market share growth," chief executive Don Meij said of the growth forecasts on a conference call.

Domino's underlying profit, which strips out one-off costs, rose 12.4 per cent to A$133.2 million (S$132.8 million) for the year to June 30, below analyst forecasts of A$136.6 million and behind guidance for a 20 per cent jump.

A Christmas promotion that went disastrously wrong in Japan was the biggest drag, contributing to a fall in earnings from what had been Domino's biggest market.

It also missed sales growth targets in Australia and Europe, now its largest market comprising just over a third of revenue.

Germany's early exit from the football World Cup, plus a slew of matches falling outside dinnertime, kept a lid on fans' appetite for the company's pizzas, Domino's Europe chief executive Andrew Rennie told investors on a conference call.

By the close, Domino's shares had recovered slightly but were still down 7 per cent, while the broader market rose 0.7 per cent. REUTERS