Shares in Domino’s Pizza Group PLC (LON:DOM) slipped in lunchtime trading Monday amid speculation that the company could be facing a rebellion from its franchisees, with analysts at broker Liberum cutting their target price from 250p to 210p
In a report from The Sunday Times at the weekend, the FTSE 250 pizza chain was said to have seen its franchisees refuse to open new stores unless they were given a greater share of the profits, with the rebel lobby group said to have attracted around 90% of the firm’s 56 franchisees.
READ: Domino’s warns on profits as international struggles overshadow record Christmas in UK
“While management went at lengths to state there is no feud with franchisees, The Sunday Times talks of a boycott of openings. If this is the case, we see this price sensitive information as having a direct impact on the outlook and reinforce our SELL,” the broker said in a note on Monday.
Analysts added that this news raised concerns around how to model Domino’s plan to open 600 new stores.
“If nothing changes can this target be met and what will it take for the management team to start negotiating positively with franchisees? ...This situation is clearly unhealthy and hence risks in the UK are looming large, losses are rising Internationally and debt is at an all-time high.”
“In our view it is just a matter of time until this all comes to a head and a reset is required.”
The speculation comes at an unhelpful time for Domino’s, which last week warned that its profits for the year just gone, will be at the lower end of its estimates after it experienced “growing pains” in some of its international markets in the final quarter of 2018, guiding for underlying pre-tax profits at the bottom of the consensus range of £93.9mln-£98.2mln.
Domino’s shares were down 2.2% at 256p.