Domino’s used its Investor Day last year to convey lofty growth goals, including bumping its annual global net unit growth target to 1,100 net new restaurants over the next five years. The pizza giant arrived at those projections after working with master franchisees on their 2024 and five-year expectations.
“At the time, we were completely aligned,” CFO Sandeep Reddy said.
As it turns out, that wasn’t the case. Domino’s Pizza Enterprises—the chain’s largest international franchisee with a presence in Australia, Japan, New Zealand, and a host of other Europe and Asia-based markets—will shutter up to 80 low-volume restaurants in Japan and about 20–30 stores in France. These will happen in the second half of 2024 and could bleed into 2025.
The franchisee noted in an update on Wednesday that Domino’s Japan opened a net of 403 restaurants between fiscal years 2020 and 2023. Still, following this growth stretch, paid media was challenged by higher costs and lower advertising funds because of decelerating sales and changing consumer behavior. In response, the operator advised that it was testing marketing spend and considering the viability of some stores. A new CMO was hired as well. Domino’s Pizza Enterprises added that these closures will be offset by 20 new units in higher potential markets. The delivery guests of closed restaurants will be serviced by neighboring stores, which should improve their unit economics and mitigate sales pressure.
In France, Domino’s Pizza Enterprises plans to apply global strategies and align stores on “best practice systems to improve operations and customer satisfaction.” The operator expects the same delivery sales transference to happen in this market.
“We continued to engage with the [Domino’s Pizza Enterprise] team to validate the forecast that we had for the year. And it became pretty clear as we actually went through that conversation and discussion that there was not only the risk to the second quarter that we were seeing, but clearly the outlook was going to be impacted as well,” Reddy said.
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As a result, Domino’s believes its 2024 guidance of 925-plus net international openings will fall short by 175 to 275 restaurants, primarily because of Domino’s Pizza Enterprises. The brand is also suspending its guidance metric of 1,100 global net restaurants per year until it knows the full extent of the franchisees’ store shutdowns.
Despite the closures, Domino’s maintained its long-term guidance (2024 to 2028) of 7 percent annual global retail sales growth and 8 percent annual income from operations growth. That’s because the closing restaurants weren’t making a lot of money anyway. Reddy called the impact “really immaterial in the grand scheme of things.”
CEO Russell Weiner agreed. “I think what this shows me is how many levers we have to grow this business,” Russell told investors during Domino’s Q1 earnings call.
Domino’s has approximately 14,000 international stores, half of which have come since 2015. The largest growth markets are China and India. Domino’s Pizza China announced it will open store No. 1,000 by the end of this year and that it will increase its net openings per year to between 300 and 350 by 2025. In May, India master franchisee Jubilant FoodWorks increased its total store count potential to 5,500 over the medium term in its six global markets. For perspective, it took Domino’s over 60 years to open 5,500 restaurants in the U.S.
Also, things are going well in the U.S. The brand still expects to open 175 or more net new restaurants annually from 2024 to 2028. Same-store sales rose 4.8 percent in the second quarter, driven primarily by transaction growth from the new loyalty program and marketing programming. Domino’s benefited from 1.5 percent pricing too, inclusive of high single digits in California due to the $20 minimum wage law.
Carryout comps rose 7.9 percent and delivery comps increased 2.7 percent. There were positive order counts in delivery, carryout, and across all income cohorts. In the carryout business specifically, orders with a loyalty redemption in the first half of 2024 were twice as high versus the same period last year under the old loyalty program. Additionally, estimated delivery times were nearly 10 percent better in Q2 than two years ago—and this is while handling more orders. Uber sales mix rose to 1.9 percent and is still on pace to reach 3 percent by the end of 2024.
Franchisees are happy because Domino’s should reach $170,000 or more in profit per unit this year. The chain ended Q2 with 6,906 domestic restaurants, comprising 6,617 franchised stores and 289 company-owned restaurants. In the quarter alone, Domino’s debuted a net of 32 locations.
“Development I think overall is pretty healthy, and like I said, we’ve got these other things firing at the same time, which is why our sales and profit numbers are still coming in at forecast,” Weiner said.
