Domino's Pizza's Franchisee Profitability Bet Tests Investor Patience

A deliberate move to remove discounts and lift franchisee profitability hurt near-term sales, drawing criticism from its US franchisor, as founder Jack Cowin took direct control of the turnaround.

31 Aug 2026 · 4 min read

Domino's Pizza Enterprises rallied 34 percent on cost-cutting optimism and takeover speculation, before same-store sales declines from a deliberate strategy of removing discounts to boost franchisee profitability triggered further weakness, drawing criticism from its own US franchisor even as founder-chair Jack Cowin took direct control to drive a turnaround.

A significantly undervalued turnaround story

Ten Cap said it believes the stock is significantly undervalued relative to its long-term growth prospects, supported by global scale, strong brand equity and operational efficiencies, later naming it the top contributor for the month, up 34 percent, having increased its investment after an August result where the risk-reward profile shifted decisively to the upside as the market grew more confident in management's ability to cut costs. Katana Asset Management said the stock rallied from a heavily oversold position on speculation private equity may be looking to take over the company, acknowledging that isn't a reason to hold but that the heavily depressed valuation does provide a catalyst for such a move. Oracle Advisory Group said Domino's continued to disappoint, with same store sales declining 0.9 percent in the first seven weeks of FY26 compared with 0.2 percent in FY25, growth in Germany and Malaysia offset by weaker performance in ANZ, Japan and France, with investors still awaiting the new CEO and more detail on the turnaround strategy.

Despite recent volatility, we believe the stock is significantly undervalued relative to its long-term growth prospects, supported by global scale, strong brand equity, and operational efficiencies.

— Ten Cap, Monthly Report, September 2025

A deliberate strategy to remove discounts backfires short-term

First Sentier Investors called Domino's the ultimate example of falling behind, with Australian sales down 9.5 percent after the company backed away from its discounting strategies, a real reminder to companies to stay on their game. Ellerston Capital, overweight and a top-five holding, said Domino's remains out of favour and completely mispriced by the market, with strong medium-term earnings turnaround potential offering material valuation upside. Ten Cap said its exposure to Domino's is selective and fundamentally driven, focused on operational initiatives and cost-out programs gaining traction, with the presentation elaborating that the company is very focused on driving down operating costs and reinvesting in franchisee profitability, since when franchisees make more profit they invest in more stores, creating a win-win, importantly with a very strong new CEO coming in.

Australian sales down 9.5% because they've backed away from their discounting strategies. So it's a real reminder to companies to stay on your game.

— First Sentier Investors, Article, February 2026

US franchisor disappointment, CEO departure, and founder takes control

Pendal Group said the stock fell 8.7 percent after its US franchisor, Domino's Pizza Inc, noted that Domino's Pizza Enterprises's underperformance was dragging down same store sales in its international division, appearing disappointed by the strategy of improving franchisee profitability by removing discounts, which lowers total sales in the short term. ECP Asset Management said it divested its position following the unexpected departure of chief executive Mark van Dyck the previous year, describing itself as a low-turnover, long-term investor that remains active in reallocating capital toward more attractive valuations. Ellerston Capital, having established its position six months earlier in November 2025, said Domino's suffered a precipitous post-COVID share price decline caused by poor management execution driven by a growth-for-growth's-sake ethos, higher costs and lagging overseas sales, especially in Japan, with chair and largest shareholder Jack Cowin, holding 26.1 percent, taking direct control of the turnaround.

DMP suffered a precipitous share price decline post-COVID caused by very poor management execution driven by a growth/roll out for growth sake ethos, higher costs and lagging sales in overseas markets, especially Japan. The Chair and largest shareholder, Jack Cowin, took over.

— Ellerston Capital, Monthly Report, May 2026

A gearing improvement offsets ongoing sales weakness

Pendal Group said the stock rose 11.9 percent after Domino's pre-announced FY26 results, with net profit slightly above market expectations, though the real highlight was gearing declining to 1.9 times from 2.6 times a year earlier, removing equity raising risk in what remains a heavily shorted stock, even as same-store sales declines came in greater than expected as the company implements higher pricing to improve franchisee profitability. Seneca Financial Solutions' Richards pointed to a second consecutive year of sizeable write-downs, arguing these are hard to treat as one-off items and raise questions about the company's capital allocation. Pendal separately said the stock rose 6.1 percent after meeting FY26 expectations, though only through lower depreciation and amortisation, with EBITDA missing by 3 percent, and same-store sales poor in the first eight weeks of the new financial year, down 5.8 percent, continuing the negative trend from the second half of FY26.

What fund managers say they are watching next is whether same-store sales stabilise as the discount-removal, higher-pricing strategy matures and franchisee profitability improves, delivery of further FY27 cost-out benefits, whether founder-chair Jack Cowin's direct involvement drives the turnaround, and resolution of the capital allocation concerns Seneca raises around repeated write-downs.