Domino's Pizza warns of challenging delivery business, shares fall

By Ananya Mariam Rajesh

(Reuters) -Domino's Pizza Inc on Thursday warned of a slowdown in its delivery business as consumers opt to cook at home instead of ordering in, sending shares of the company down 6% and taking the shine off the better-than-expected first-quarter results.

Consumers whose disposable income has already been stretched by elevated levels of inflation have become increasingly cautious about spending their dollars on pricier food items and higher delivery fees.

Restaurant chains from McDonald's Corp to Chipotle Mexican Grill Inc have seen prices of cheese and meat as well as fuel and labor increase. Domino's in an attempt to protect its margins has raised prices on menu items and increased delivery charges.

In a bid to attract inflation-weary consumers, the pizza chain relaunched the $3 Carryout Tips promo, where customers who place a carry-out order of $5 or more earn a $3 promo that can be used for another carry-out order.

Domino's Finance Chief Sandeep Reddy said on an earnings call that carry-out business was strong, with new menu item "Loaded Tots" seeing higher sales.

The delivery business was seeing a migration of demand to consumers returning to restaurants, Reddy added.

However, CFRA Research analyst Siye Desta said consumer spending patterns will normalize with pizza delivery orders beginning to contribute to overall sales growth.

U.S. same-store sales at Domino's, the world's largest pizza chain, rose 3.6% in the first quarter, compared with analysts' estimates of a 1.96% increase, according to Refinitiv data.

On an adjusted basis, the company earned $2.93 per share, beating estimates of $2.73.

Total revenue rose 1.3% to $1.02 billion, but missed estimates of $1.04 billion hurt by a strong dollar.

(Reporting by Ananya Mariam Rajesh in Bengaluru; Editing by Krishna Chandra Eluri and Shounak Dasgupta)