(Bloomberg) -- Domino’s Pizza Inc.’s CEO is looking to reassure investors that its US value offerings and growth in markets like China will more than offset weakness in other parts of its business.
The chain suffered its worst one-day stock decline in more than a decade last week after unexpectedly suspending its store-growth target due to some international store closures by a major franchisee. Chief Executive Officer Russell Weiner is looking past the stock move, pointing to positive results in areas such as the US, where the chain has brought in diners as its rivals lose traffic.
“It shows that even as one thing doesn’t hit, we can still deliver,” he said in a phone interview, referring to the company’s strategy to focus on areas like value offerings, better food and franchisee profitability.
The chain’s shares fell 14% last Thursday when the company reported earnings after suspending its store-growth target, citing uncertainty at Australia-based Domino’s Pizza Enterprises Ltd. The franchisee said last week it would close as many as 80 low-volume stores in Japan and aims to reduce total store count in France by 10 to 20.
The weakness internationally is partially offset by markets such as China and India, where store counts are increasing, Weiner said, adding that the company maintained its outlook for sales and profit.
“Folks are starting to do the math and realizing this is just a few million dollars,” he said, referring to Domino’s Pizza Enterprises’ planned closures.
Domino’s shares have begun to bounce back, rising 3.4% since July 18 as of Tuesday’s close. The planned closures by Domino’s Pizza Enterprises “barely impact profitability,” BTIG analyst Peter Saleh wrote in a note to clients.
Deals Focus
The chain increased order counts in the US across all income cohorts in the second quarter, which analysts such as Saleh highlighted as a positive even though same-store sales were shy of expectations. The growth came from regulars ordering more frequently as well as new customers, Weiner said.
Weiner attributed this in large part to the company’s offers, which he’s trying to pitch as superior to competitors’.
Chains from McDonald’s Corp. to Sonic have launched deals offering markdowns on specific menu items as fast-food restaurants compete to lure diners stung by inflation. The Golden Arches’ $5 offer, for example, includes a McChicken or McDouble, a small drink, fries and four chicken nuggets. Domino’s, by contrast, offers almost any two items on its menu such as stuffed cheesy breads and specialty pizzas for $6.99.
“It’s like ‘hey, the rest of our menu is expensive, but you can get this one thing you may or may not like cheaper,’” said Weiner, referring to competitors while declining to name specific companies. “That’s not value.”
“Just because something is cheaper, if it’s not what you want, it’s not valuable,” he added. “If you want a big sandwich and you end up getting a little sandwich cheaper, you’re not happy.”
McDonald’s said that it’s extending its $5 offer as early performance indicates the deal is helping bring diners back to its restaurants.
A revamped loyalty program that allows diners to redeem rewards quicker also helped drive the increase in order counts, as did new products such as New York-style pizza. The chain is focused on boosting order volume to maximize profitability even as it discounts, the CEO said.
Domino’s has also raised prices at a slower pace than its quick-service peers in recent years, he said. The chain boosted prices by 1.5% in the quarter, which included a high single-digit hike in California on the back of a $20 minimum wage requirement that came into effect in April.
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