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A massive international pizza franchise just saw its stock plummet more than 18%

Reuters with CNBC
Key Points
  • Australia-based fast-food franchisee Domino's Pizza Enterprises missed full-year profit expectations on Tuesday, sending shares to a near two-year low
  • The stock plunged 22 percent in early trade, before rebounding slightly
  • This underperformance was due to sluggish sales in Japan and France, said CEO Don Meij

Australian fast-food chain Domino's Pizza Enterprises, the biggest Domino's franchisee
outside the United States, missed full-year profit expectations on Tuesday due to sluggish sales in Japan and France, sending shares to a near two-year low.

Sydney-listed Domino's also forecast slower earnings growth in the current financial year to June 2018, pointing to moderation in the spectacular growth which has made it a market
darling since 2013.

The Domino's Pizza company logo is displayed on the jacket of delivery driver in London, U.K., on February 27, 2017.
Jason Alden | Bloomberg | Getty Images

The company's underlying net profit rose 28.8 percent for the year ended July 2 to 118.5 million Australian dollars ($93 million), short of company forecasts for growth of 32.5 percent. It was also below the A$122.4 million average estimate of 11 analysts surveyed by Thomson Reuters I/B/E/S.

The stock plunged 22 percent in early trade to A$39.50, its lowest since 2015. It finished the day down more than 18 percent.

The company holds the franchise rights for Domino's in seven countries including the Netherlands, Germany and Japan. The Domino's brand is ultimately owned by U.S.-listed Domino's Pizza.

The franchisee's forecast miss was mostly caused by underperformance in France, Chief Executive Don Meij said in a statement.

"This was largely due to the delay in rectifying some issues with our online platform in France, and the initial response in H2 to our value range offering in France," he said.

Addressing the France issue in a separate interview with CNBC, Meij said, "We took two things away, added in something new, and the something new didn't compensate for what we took away."

Sales in Japan were also weaker than expected, he added, without elaborating.

Domino's Pizza full-year profit misses guidance

Despite the expectations-missing numbers, Meij said that Domino's can "expect to continue to grow."

"We've corrected these issues," he told CNBC about the company's underperformance in France. "You can see how we started this financial year. We're up 8.8 percent in same-store sales in Europe. France is by far our biggest business," he added.

Domino's plans to add an additional 2,450 stores to its current 2,200-odd outlets in the next eight years, said Meij.

According to Meij, the company will continue to seek long-term "organic" expansion. That will especially come in Europe, which he said has plenty of growth potential given the region's large population and high rates of pizza consumption.

Domino's forecast net profit to rise 20 percent in the 2018 financial year, with same-store sales to rise in the range of 7 percent to 9 percent.

Domino's shares traded at a lofty price-to-earnings ratio of 51.65, compared with an average of 17.25 across the broader S&P/ASX 200 index, making them particularly sensitive to earnings misses.

The company also announced a A$300 million share buyback.

—CNBC's Stacey Yuen contributed to this report.