Domino's Pizza Inc DPZ.N has missed market estimates for quarterly profit as costs soared and a staffing crunch hampered the fast-food chain's efforts to capitalise on demand for its pizzas and chicken wings.
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The world's largest pizza chain has had to spend more on ingredients from grains to oil since the Russian invasion of Ukraine, adding to the headaches of a company already grappling with rising freight and labour expenses.
Gross margin fell to 36.3% in the second quarter from 39.5% a year earlier, even as Domino's tried to cushion the cost spike with increases in delivery fees and menu prices.
The Michigan-based company earned a profit of $2.82 per share, missing the $2.91 expected by analysts, according to Refinitiv IBES data.
The results show how pervasive inflation is becoming, said Northcoast Research analyst Jim Sanderson, adding the price pressures could continue even if commodity inflation slows from levels seen in the first half of 2022.
The profit miss also reflected the hit from a shortage of drivers at the company that pioneered pizza delivery. Finance chief Sandeep Reddy said sales from delivery orders fell 11.7% in the quarter, though they were still up more than 8% from pre-pandemic 2019 levels.
Reddy added the pace of US store growth could slow this year until supply chain, staffing and inflationary pressures subside.
The driver shortage has forced Domino's to encourage more takeaway orders by offering promotions and expanding its carryout menu. The company has also resumed "boost week", which offers a 50% discount on online orders, after a two-year gap.
But those promotions could hit profit once consumer spending starts declining, Northcoast Research's Sanderson said.
US Same-Store Sales
In the three months ended 19 June, Domino's US same-store sales fell 2.9%, less than the 4.8% fall estimated by analysts.
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