Why Domino's Stock Lost 12% in July

What happened

Domino's (NYSE: DPZ) stock trailed the market last month, shedding 12% compared to a 1% uptick in the S&P 500, according to S&P Global Market Intelligence. That decline put the restaurant chain in negative territory for the year compared to a 17% increase in the wider market.

Young adults eating pizza at a picnic table.

Image source: Getty Images.

So what

Investors pushed shares lower after the pizza delivery leader reported sluggish sales growth for the fiscal second quarter. In mid-July, Domino's revealed its fifth consecutive quarter of slowing comparable-store sales, which fell to 3% from 4% in the previous quarter. Shareholders had enjoyed comps of 8% as recently as early 2018.

Now what

Domino's executives said that some of the slowdown can be pinned on the chain's "fortressing" strategy that involves adding locations close to existing stores. This initiative pressures sales growth in the short term but boosts earnings and revenue over time by keeping competitors locked out. Thus, investors can reasonably expect growth to accelerate in future quarters. It's also important to remember that Domino's is still capturing market share even at its reduced expansion rate. Yet the stock may continue trailing the S&P until sales growth stabilizes, both in its core U.S. geography and in the international division.

Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com