The Domino's Pizza Enterprises Ltd (ASX: DMP) share price has come crashing down to earth on Wednesday.
In afternoon trade, the pizza chain operator's shares are down 21% to $56.23.
This follows the release of the company's half-year results, which fell short of the market's already low expectations.
But the Domino's share price isn't the only thing in freefall today. This morning, the company revealed that it would be slashing its dividend.
The Domino's board has elected to cut its interim dividend by a disappointing 23.8% to 67.4 cents per share.
Image source: Getty Images
Why has the Domino's dividend being cut?
Domino's was forced to cut its dividend in response to a sizeable profit decline during the first half.
For the six months ended 31 December, Domino's reported a 1.2% increase in sales to $1.97 billion but a 21.5% decline in underlying net profit after tax to $71.7 million.
This poor form was driven by the company's failure to combat inflation effectively. The company's CEO, Don Meij, explained:
Given the challenging conditions and the effect on our franchisees we felt it was necessary to lift prices, including applying some surcharges. This was successful in protecting franchisee profitability, however given the speed of the change it was difficult to forecast the effect on customer repurchasing rates, especially where customers order less frequently such as Japan or Germany.
It meant while we saw an initial benefit to franchisees' unit economics, specific customer groupings, particularly in delivery, reduced their ordering frequency which resulted in December trading being significantly below our expectations.
And while management suspects that the company may fall short of its medium term same store sales growth and store expansion targets in FY 2023, it remains positive on the future and expects to return to positive same store sales growth once it is able to balance the value equation for customers.
All being well, this could mean that the Domino's dividend returns to growth again in FY 2024.
