A class action lawsuit was filed against Domino’s Pizza, Inc. ($DPZ) by Levi & Korsinsky on September 20, 2024. The plaintiffs (shareholders) alleged that they bought DPZ stock at artificially inflated prices between December 7, 2023 and July 17, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought Domino’s Pizza stock during that period can click here to learn about joining the lawsuit.
Domino’s operates in the quick service restaurant (QSR) space. Its main offering is pizzas along with other food items. Domino’s has both company-owned and franchised stores across the globe. Domino’s Pizza Enterprises ($AU:DMP) is the largest master franchisee outside the U.S., holding master franchise rights across Australia, New Zealand, Japan, and other countries.
The company’s claims about store openings and closures and related misstatements about future expectations are at the heart of the current complaint.
Domino’s Misleading Claims
According to the lawsuit, Domino’s and two of its senior officers (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about the challenges affecting DPE and ancillary issues from SEC filings and related material.
For instance, in the Q4 FY23 press release dated February 26, 2024, Domino’s CEO stated that the U.S. transactions and same-store sales across delivery and carryout channels showed solid growth momentum in Q4. Furthermore, in the annual report filed on the same day, the company noted that it used rigorous standards for potential U.S. franchisees, which are unique to the franchising industry. These standards raised the quality and operating procedures for Domino’s franchisee stores, the company added.
Additionally, during the earnings call on the same day, the CFO noted that they expected to achieve more than 1,100 net store openings in 2024, driven by 175 net stores in the U.S. and 925 in the International markets. The CFO highlighted the solid rise in U.S. net store growth in Q4 and added that he expects the momentum to continue.
However, subsequent events (discussed below) revealed that Domino’s Pizza allegedly misled investors about the pace of net store openings for Fiscal 2024, which also led to over-expectations of other financial metrics.
Plaintiffs’ Arguments
The plaintiffs maintain that the Defendants deceived investors by lying and withholding critical information about the company’s business practices and prospects during the Class Period. Importantly, the Defendants are accused of misleading investors about the scope of net store openings in 2024.
The information became clear on July 18, 2024, when DPZ released mixed Q2 FY24 results and issued dismal guidance. In the press release, Domino’s stated that it will fall short of its net store openings target by 175 to 275 stores. This shortfall was mainly related to the International segment’s target of opening over 925 net stores in Fiscal 2024. The company blamed this shortfall on the issues faced by DPE in both store openings and closures.
Additionally, DPZ temporarily suspended its full-year guidance of reaching over 1,100 global net store openings until the full impact of DPE’s store openings and closures on international net store growth is known. DPZ shares plunged 13.6% on the news.
To conclude, Domino’s Pizza allegedly made unrealistic claims about potential store openings and closures, leading to overstated expectations for Fiscal 2024, which were eventually slashed. Year-to-date, DPZ shares have gained 7.7%, while the S&P 500 (SPX) Index has advanced 25.5%, causing damage to shareholder returns.
