(Reuters) - Domino's Pizza Inc
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The company has responded with a strategy it calls "fortressing", which aims to speed up delivery times by opening more stores near existing ones.
That, however, has come at a cost - a hit to sales at its existing outlets that last year knocked up to 1.5 percentage points off same-store numbers.
In the second quarter of 2019, total U.S. same-store sales rose just 3%, below estimates and the slowest growth in at least three years.
Comparable sales at company-owned U.S. outlets grew 2.1%, while those at U.S. franchise stores rose 3.1% in the quarter ended June 16, also both below expectations while those in international markets were up 2.4%, in line with expectations.
Bernstein analyst Sara Senatore said comparable sales of 3% was at the low end of the company's long-term targets for the United States.
"(This) will not refute the bear case that structural factors — better pizza competition, growing aggregators, and market splits - have fundamentally changed the rate and composition of Domino's growth," she said.
The company's shares were down 4.2% at $258.69 in morning trade, having gained about 9% so far this year.
Total revenue rose 4.1% to $811.6 million in the quarter, also below expectations of $836.6 million.
Net income rose to $92.4 million, or $2.19 per share, from $77.4 million, or $1.78 per share, a year earlier.
Analysts had expected the Ann Arbor, Michigan-based company to earn $2.02 per share.
Cowen & Co analyst Andrew Charles said Domino's needed to make clear to investors what the impact of the fortressing strategy would be on same-store sales this year if it wanted to head off a further decline in confidence.
"Failure of the company to address this could lead to the bear narrative around infringement from third-party delivery to dominate, and thus place shares in the penalty box," he said.
(Reporting by Aishwarya Venugopal and Soundarya J in Bengaluru; Editing by Arun Koyyur and Patrick Graham)
