Shares of Domino’s Pizza and Papa John’s fell

Domino’s Pizza suffered its worst collapse in more than a decade as delivery difficulties and softening demand caused fourth-quarter sales that fell short of Wall Street expectations and led management to cut targets for income growth.

Shares of the pizza chain fell 12% Thursday, the steepest slide since 2010, while Papa John’s International Inc., which also reported weaker sales in North America, fell 6%. The loss wiped $1.7 billion of combined value from their market capitalizations.

Domino’s is down 46% from the pandemic peak set for late 2021, when demand from held-up customers surges. Papa John’s shares are off 38% from their high that year. Now the focus is on rising inflation, which is pushing more people to prepare meals at home rather than pay for delivery.

Domino’s is also battling a driver disability. Yet executives have been reluctant to tap third-party delivery options, called 3PD, such as GrubHub Holdings Inc. or DoorDash Inc., instead sought to solve that problem within the Domino system.

The quarterly results and forecast are “a big step back in the recovery of the company’s business model and may add fodder to the bear case that 3PD is permanently changing the competitive landscape for delivery-centric pizza players worse,” Jon Tower, an analyst at Citigroup Inc., wrote in a note.

Andrew Charles, one Cowen The analyst who rated Domino’s market performance, wrote that Thursday’s results and guidance “justify revisiting the conversation” with third-party alternatives.

Domino’s says it faces “macro-economic headwinds,” particularly in its US delivery business. It lowered its two- to three-year targets for global retail sales and unit growth, and said 2023 results for these metrics were at the low end of expected ranges.

Meanwhile, Wednesday was a brutal day for shares of Domino’s largest franchisee based on store count, Australia-based Domino’s Pizza Enterprises Ltd. It fell 24%, the most since 2005, after worse-than-expected first-half earnings and sales.

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