Investors are suing Domino’s Pizza for alleged securities fraud, claiming the company knowingly misled investors in its long-term guidance.
Scott Bender, a shareholder who filed on behalf of all investors, sued Domino’s, CEO Russell Weiner and Chief Financial Officer Sandeep Reddy for false or misleading statements made between December 7, 2023, and July 17, 2024. The filing notes “hundreds or thousands of members” who purchased Domino’s securities during the period could join the class action suit.
The suit alleges Domino’s, Weiner and Reddy “had both the motive and opportunity to commit fraud” during the period. The suit was filed September 20 in Michigan’s Eastern District Court; Domino’s is based in Ann Arbor, Michigan.
At its 2023 investor day, Domino’s announced plans to open 1,100 or more stores annually from 2024 to 2028. In its mid-July Q2 earnings call this year, Weiner told investors Domino’s expected to fall short of that goal on the international front by as many as 275 units.
The missed international target comes “primarily as a result of challenges in both openings and closures faced by” a master franchisee, Domino’s Pizza Enterprises. “We’re partnering closely with DPE as they work through this process,” Weiner said on the call.
DPE is Domino’s largest franchisee, with 3,820 units open at the end of 2023, which accounts for 28 percent of the brand’s international stores, or about 19 percent of its systemwide unit count.
The share price for Domino’s fell 13.5 percent July 18, to $409.04 following the call; the stock was trading at $426 midway through the day September 25.
Domino’s reportedly didn’t disclose to investors that DPE was experiencing challenges with store openings, which would result in falling short of its goal, according to court documents.
The suit alleges Domino’s failed to disclose this information prior to the Q2 call. “As a result, Domino’s was unlikely to meet its own previously issued long-term guidance for annual global net store growth,” the lawsuit alleges.
A Domino’s representative in a statement said, “We believe this suit is totally without merit and intend to vigorously defend it.”
As a result of the targets announced last December and beyond, the suit claims the class bought Domino’s shares “at artificially inflated prices.”
On the Q4 earnings call earlier this year, Reddy told investors: “We still feel really strongly about the guidance we gave, the 1,100-plus stores and 5,500 over the next five years. I mean, you saw some really nice momentum at the end of the year in the U.S. in 2023.” He continued, “We expect to see more at the end of the year in 2024.”
He reiterated the 1,100-plus goal on the Q1 earnings call this year.
During the Q&A portion of Domino’s Q2 investor call, Reddy said the company worked with its master franchisees, including DPE, on projections for the year ahead.
“We continued to engage with the DPE team to validate the forecast that we had for the year,” Reddy said. “It became pretty clear as we actually went through that conversation and discussion that there was not only the risk to the second quarter that we were seeing, but clearly the outlook was going to be impacted as well.”
Knowingly withholding such information, as the suit alleges, would violate U.S. Securities and Exchange Commission regulations.
The plaintiffs demanded a jury trial, with the hope of Domino’s paying damages sustained.