Are Domino's shares a buy, hold or sell following their earnings update?

Domino's Pizza Enterprises Ltd (ASX: DMP) has announced more than a quarter of a billion dollars worth of write downs and a fall in same store sales, while reiterating that its underlying net profit is expected to come in as forecast.

Brokers UBS and RBC Capital Markets have run the ruler over the results and have diverging views, and price targets, on the company, which we'll get to shortly.

First let's look at what the company announced.

Profit stable as the business resets

Domino's said in a statement to the ASX it expected net profit to come in at $118-$122 million, as previously guided, while its franchisee profitability is up 11.3%.

The company said it had delivered $60-$70 million in annualised cost savings, and generated free cash flow of about $164 million, up about $116 million compared to FY25.  

And while same store sales had fallen, the company said this was expected.

As they said:

The result reflects the Company's deliberate transition towards profitable and sustainable sales growth, with long-term franchisee profitability prioritised over headline sales. During FY26, the Company focused on improving unit economics through pricing optimisation, promotional discipline and operational efficiencies rather than pursuing lower-margin transaction growth. While this resulted in lower same-store sales, franchisee profitability improved.

Domino's added that it had been trialling new strategies in Western Australia which had been successful and which would now be rolled out nationwide in FY27.

Brokers are split on where to from here for Domino's shares

RBC Capital Markets said net profit coming in marginally ahead of consensus, improved cash flow, and modestly improved franchise profitability were all positive.

But they added:

We view reported same store sales growth outcomes as difficult to ignore, with DMP missing RBC and consensus across the board. While ANZ only missed by ~20 basis points, Europe and Asia missed RBC by -1.7% and -2.7% respectively. We think a key additional piece of information in August will be the first 7 – 8 weeks of 1H27 same store sales growth, as we note VA consensus forecasts +42bps for group same store sales growth in 1H27 and the exit rate implied by today's update may suggest potential downside risk to this.

RBC has a price target on Domino's of $17.

Meanwhile the analysts at UBS are much more positive on the outlook for the company, with a price target of $21, although this was lowered from $22.

UBS noted the company's cost savings targets were on track, and while same store sales growth fell, this was due to a focus on profitable sales.

They retained their buy rating, "as the increased focus on franchisee & DMP profitability progresses, while cost & capex discipline supports earnings & reduces leverage, with the DMP consensus 1yr fwd P/E multiple (13.9x) reflecting an attractive valuation''.

The post Are Domino's shares a buy, hold or sell following their earnings update? appeared first on The Motley Fool Australia.

Motley Fool contributor Cameron England has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Domino's Pizza Enterprises. The Motley Fool Australia has recommended Domino's Pizza Enterprises. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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