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Pizza Index Says "Sell"

Pizza Index Says Sell

Everyone's heard of the "Lipstick Index" - based on the idea that when times are tough, consumers move away from big ticket purchases and instead spend on small luxuries, like lipstick. Well, our ever alert stockbroking and options team have identified a new indicator - the "Pizza Index". And it's flashing red today.

Domino Pizza Enterprises reported their full year numbers today. Additionally, they gave a rundown of recent sales growth, for the 5 weeks starting July 1. Domino's focus on the "value" end of the market. Their current campaign is based around a $4.50 pizza offering. I may be working in the wrong part of town, but you can't buy a takeaway lunch for $4.50 anywhere close to our offices.

The theory on the options desk is that as times get tougher, consumers move more towards the "value" end of the takeaway spectrum. They buy cheaper pizza. Locally listed DMP has operations in 3 key areas; Australia, Japan and Europe (mainly France). The recent sales numbers suggest consumers are tightening their belts.

Five Week Sales from July 1 - Domino's

Europe        +14.8%

Australia    +10.3%

Japan           +6.9%

On top of a weekly drop in a consumer sentiment index of 5.3%, and a report that credit card balances fell in June (modestly), a drop in July sales for JB Hifi, a picture of weakening consumer activity emerges.

Let's be clear, they are not spelling out a market disaster. Taking a balanced view, data today also showed rising business confidence and better than expected lift in house prices in Q2. Nevertheless, the geo-political tensions that belted markets (Ukraine and Iraq) are unresolved, and a weakening consumer could add weight.

In the short term, pizza sales up could equal consumer activity down.

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