After Domino's released 1H23 results (and the share price taking an almost 25% haircut so far today) here are some of the broker (investment bank) early views:

JP Morgan: Overweight with a 12m Price Target of $85

Key positives: 1) ANZ solid result. With fewer headwinds in Australia, Domino’s is seeing solid sales and earnings results, with -0.3% network sales growth and +5.2% EBIT growth. Project Ignite has driven a step up in store openings

Key negatives: 1) Response to inflation not resonating. Price rises have led to customer counts below expectations since December 2022, resulting in further work to do in order to “balance the value equation”. 2) Store growth run-rate behind >8% target. Domino’s opened just 79 stores organically in 1H23, with management noting new store additions may be below the 8%-10% p.a.growth target in next 3-5 years depending on franchisee sentiment. We forecast 7.0% organic store growth in FY23. 3) Franchisee profitability is now below pre-COVID levels, as EBITDA per franchisee has fallen to $101,100, a 7.5% EBITDA margin in the 12mths to September 2022 vs. $103,900 in the 12mths to September 2019

Outlook and Guidance: The 6 week trading update was soft at -2.2% YoY, implying 3.9% p.a. CAGR vs. pre-COVID levels. This reflects an improvement from the ~4% p.a. exit run-rate in 1H23. In FY23, management now expects SSS to be below the 3% - 6% target range in their 3-5yr outlook, and new store openings “may be below” the 3-5yr outlook of +8% - 10%. Labour and commodity pressures are expected to persist at a less intense level in FY24

Likely change to consensus: Large downgrades are expected given the softer sales outlook and admission that network expansion will below targets. Further investment in the health of the Franchisee may be required 

Morgan Stanley: Also Overweight with a Price Target of $85

Miss driven by lower sales in Asia and lower margins in Europe

Key Points:

Group SSS growth of -0.6% vs Cons. at +0.8%. ANZ +1.7% (vs Cons at +3.4%); Europe +0.3% (vs Cons at -0.5%) and Asia -6.6% (vs Cons at -2.9%)

EBIT margins: ANZ 15.7% (+80bpts YoY, vs Cons at 15%); Asia 9.4% (- 90bpts YoY, vs Cons at 10.7%); Europe 7% (-670bpts YoY, vs Cons at 8.9%)

Franchisee margin 7.5% (vs 9.8% @ 1Q22 and 10.3% @ 1Q21)

Guidance:

First 7 wks sales growth of +4.2%; SSS growth -2.2% (vs pcp of 1.7% and 2H22 of -4.3%)

FY23 SSS growth will be below annual 3-5 year outlook of +3-6% (vs Cons. 2.8%)

New store openings may be below 3-5yr outlook (vs Cons. 6% & 1H23 +2.1%)

Removed prior guidance “FY23 NPAT excluding ~A$7m FX headwinds expected to exceed FY22 NPAT” 

UBS: Buy with a 12m Price Target of $78

ONE LINER

1H23 below UBSe & mkt due to Asia & Europe; 2H23E SSSg to be below 3-5yr outlook

UBS COMMENT

1H23 result below UBSe & mkt, especially SSSg in Asia and EBIT for Asia & Europe (vs mkt). Sales to start 2H23E subdued, resulting in 3-5yr outlook targets to not be achieved in SSSg and that new store openings will not be achieved either. Given 2H23E sales headwinds and weaker 1H23 NPAT, we see downside risk to FY23E NPAT guidance