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Domino's sales sour as delivery fees deter consumers; shares slump

FILE PHOTO: A Domino's Pizza restaurant is seen in Los Angeles

By Mehr Bedi and Deborah Mary Sophia

(Reuters) -Domino's Pizza Inc missed quarterly sales estimates on Thursday as inflation-hit customers, put off by higher delivery fees, cut back on online orders of pizzas and chicken wings, sending the company's shares down 11%.

The world's largest pizza chain, like many U.S. restaurants, has jacked up delivery charges and menu prices over the past year to counter higher labor and commodity costs, which prompted more consumers to cook at home instead of getting their meals delivered.

This squeezed Domino's, which brings in 60% of its sales through its delivery business, even as it tried to lure customers with limited-time discounts on its pizzas. The number of orders fell in the fourth quarter, with delivery same-store sales declining 6.6%.

"We expect the economy to be a headwind for our delivery business in 2023 ... Every day, delivery customers will be deciding where to spend their hard-earned dollars," Chief Executive Russell Weiner said on a post-earnings call.

The Michigan-based company has also been facing shortages of delivery drivers at its U.S. stores, which has lengthened delivery times and further dented sales, though staffing levels are now improving.

Like Domino's, smaller rival Papa John's reported gloomy same-store sales, coming in contrast with fast food majors such as McDonald's Corp and Taco Bell owner Yum Brands Inc that saw more customers turn to their stores in search of wallet-friendly meals.

"For Domino's, the fourth-quarter (U.S. same-store sales) weakness was disappointing, and it's raising a bit of a red flag," Northcoast Research analyst Jim Sanderson said.

Prolonged weakness in the U.S. delivery business, coupled with macroeconomic pressures, prompted Domino's to trim its outlook for global retail sales growth to between 4% and 8% over two to three years. It had previously expected growth of 6% to 10%.

(Reporting by Mehr Bedi and Deborah Sophia in Bengaluru; Editing by Milla Nissi)