Investing.com -- Barclays has downgraded Domino’s Pizza (NYSE:DPZ) Group (UK & Ireland) to “underweight” from “equal weight,” in a note dated Tuesday, citing signs of market maturity, weak like-for-like order trends, and ongoing cost pressures that could strain the company’s ability to deliver consistent shareholder returns. The price target has been cut to 250p from 290p.
A key concern is stagnation in order volume on a like-for-like basis. While total orders grew 4% from 69.3 million in FY19 to 71.7 million in FY24, the store base expanded by around 16% in the same period, implying a decline in per-store orders.
Delivered orders fell by 3% in absolute terms and now represent a smaller share of total orders, 65% versus 69% in FY19, with collection orders picking up the difference.
Barclays flagged this shift as a potential symptom of cost-cutting measures rather than real growth, especially as collection volumes contracted slightly in the second half of FY24.
As cost pressures mount, Domino’s has introduced a five-year "profitability and growth framework" in late 2024 to support franchisees.
This includes an estimated £7–9 million financial contribution and comes on top of a £3 million annualised hit from increased National Insurance costs.
While Barclays acknowledged the need to protect franchisee economics, analysts warned that sustained financial support from the company could continue to erode profits available to shareholders, particularly if order growth remains sluggish.
Barclays also questioned Domino’s ability to deliver on guidance, highlighting a pattern of delayed downgrades throughout 2024.
Despite signs of soft trading, the company reiterated its EBITDA forecast of roughly £147 million until mid-year, only revising it “towards the lower end” of expectations in its H1 results.
Even with a £5.5 million contribution from the Shorecal acquisition, full-year EBITDA came in at £143.4 million, or £137.9 million excluding Shorecal, below prior guidance.
Analysts noted that while some of the shortfall was due to deflationary cost savings passed on to franchisees, the overall earnings performance failed to meet expectations.
In a move seen as further evidence of pressure on the core business, Domino’s has been exploring the acquisition of a second brand to extend growth options for franchisees.
The company was linked to a potential purchase of Wingstop’s UK arm, though the deal ultimately fell through, costing Domino’s £3.2 million in aborted acquisition expenses.
Barclays noted that while such an acquisition could generate upside in the long term, it also risks increasing leverage, currently around 2x EBITDA, in a company that operated with a net cash position as recently as 2015.
Without a clear path for sustained LFL growth and improved earnings delivery, Barclays sees no catalyst for Domino’s to re-rate in the near term.
Analysts warn that the stock’s current FY25 PE of 13x may overestimate future profitability, compared to its historical average of 17x.