Domino's Guidance Gives Investors Indigestion; We See Strong Forward Prospects and Buying Opportunity

Wide-moat Domino's trimmed its three-year systemwide sales growth (now 4%-8%, from 6%-10%) and unit development (to 5%-7%, from 6%-8%) guidance this morning, sending share prices tumbling 11% on the initial reaction. We believe that the market's concerns are overblown, with the pizza chain's admission validating our prior thesis; worse restaurant-level profitability in tandem with higher construction and financing costs should drive a medium-term contraction in unit development for most operators--Domino's is simply our first company to publicly admit it. We expect only modest changes to our own estimates, which now contemplate 7% and 6% annual system sales and unit growth through 2025 (from 8% and 6%), respectively, leaving our $397 fair value estimate effectively unchanged.