Domino’s Australia Faces Class Action Over Alleged Misleading Statements on Japan Market Performance

Domino's Pizza Enterprises, an Australian franchise, has been served with a shareholder class action, alleging misleading statements about its performance in Japan. The lawsuit, initiated by Echo Law, follows Domino's November 2021 announcement of strong sales in Japan, which shareholders claim misrepresented the company’s outlook.

Domino's Faces 2.5% Share Drop Amid Class Action Over Misleading Statements on Japan Operations

Domino's Pizza Enterprises, an Australian pizza franchise, announced on September 9 that it has been served with a shareholder class action. The lawsuit alleges Domino's engaged in misleading or deceptive conduct regarding its anticipated performance in Japan.

The company's shares experienced a 2.5% decline to A$29.18, marking their lowest since late August, per Reuters.

Echo Law, an Australian legal consultancy firm, has initiated the proceeding on behalf of Domino's shareholders, who acquired an interest in the company by participating in an equity swap confirmation between August 18, 2021, and November 3, 2021.

According to Echo Law's website, the class action was initiated in response to Domino's November 3, 2021 announcement.

Echo Law did not promptly respond to Reuters' request for further commentary.

In November 2021, Domino's Japan operations reported "excellent compounding sales" and continued to experience robust new store openings.

"As a result of structural changes in marketing, pricing and store penetration, current sales and customer counts remain materially higher than corresponding period pre-COVID," the pizza chain had said in 2021. In July, Domino's shares experienced a decline of over nine years due to analysts' downward analysis of their earnings.

Domino's Shares Plunge After Store Closures in Japan and France, Analysts Lower Earnings Forecasts

Analysts reduced their earnings forecast for Domino's Pizza Enterprises, an Australian company, following its decision to close low-volume stores in France and Japan. As a result, the company's shares plummeted to their lowest level in over nine years on July 18.

Domino's stock experienced a 9.6% decline to A$32.62 at 0052 GMT, its lowest level since February 2015, while the benchmark index remained relatively unchanged.

After the market closed on July 17, the pizza manufacturer announced that it anticipates store growth to be flat to slightly positive in its current fiscal year. Additionally, it has announced its intention to shut up to 80 low-volume stores in Japan and 10-20 stores in France.

According to analysts at Macquarie, the company's emphasis on enhancing store profitability is prudent. However, expectations may experience a short-term decline.

Domino's Japan established numerous "immature stores" between 2020 and 2023.

"There were too many loss-making stores in Japan with too long a path to profitability, while the French store closures reflect the challenges for DMP in that market as the company repositions its operational focus,"UBS said.

The company anticipates a return to positive same-store sales in Japan in the fiscal year 2025, which commenced this month. Additionally, it expects an overall group store growth of 3%-4% in fiscal 2026.

“Given the lower levels of store openings in FY24-FY26, the previous timeline of 2033 will not be achieved,"Domino's said on July 17.

Morgan Stanley analysts decreased their earnings estimates for fiscal 2025 and 2026 by 3%. In response to modifications to their network growth assumptions, Macquarie analysts reduced their earnings forecasts for fiscal 2024 and 2025 by 2% and 5%, respectively.

The annual results of the retail food outlet operator are scheduled to be disclosed in August. It withdrew its fiscal 2024 outlook in January because its first-half profit forecast fell short of expectations.