Recession? Read between the pepperoni.

Everybody loves Pizza.

It’s why Stephen Colbert refers to dogs as “the pizza of the animal kingdom.”?

I think he’s right. People love dogs and everybody seems to love pizza. In fact, on the day of the Domino’s IPO in 2004 the CEO was so bullish on the ‘love of pizza’ idea translating to a favorable market reaction he was filmed saying, "The best analogy I can tell you as it relates to this IPO is that this pizza is loaded."

And he seemed to be right. From the IPO in 2004 to the first quarter in 2007 the stock was up more than 125%. The company had experienced sustained growth and had very few missteps. That all changed on February 23rd, 2007 when the company shared some tough news with the world via its annual report. Domino’s record of 12 consecutive years of positive US annual sales growth had come to an end.?

Maybe everybody doesn’t love pizza.?

The stock continued its positive trajectory after the disclosure but the macro economic challenges continued. Foot traffic was down, inflationary pressure was high and overall sentiment was waning.

The stock closed at $33.10 in April 2007 and by April of the following year it had declined more than 60% to a price of $13.05. The impacts of what we now refer to as the Great Recession which ‘technically’ took place from December 2007 to June 2009 had taken an early toll on the Pizza behemoth.

The stock flatlined for most of 2008 through 2009 and started to rebound in 2010. It’s interesting to note that Domino’s stock price didn’t surpass its April 2007 closing price until late in the 4th quarter of 2011. It's incredible to see the length of time it took for Domino’s to rebound from those challenges that were driven by the unanticipated consequences of the global economic environment.

So who cares whether everybody loves pizza or not?

From 2010 to today Domino’s stock has appreciated by around 2,900%. To put it in perspective you could have bought a large pizza in 2010 or invested your pizza money and had around $350 dollars today. It’s great performance but there are indicators emerging similar to the ones we saw in 2006 ahead of the great recession in 2007.?

In fact, Domino’s has reported two quarters over this past year of negative US sales growth including a 3.6% decline in US same store sales in Q1 of 2022. The stock is also down close to 40% in 2022 so your $350 pizza money was actually worth over $550 just a few months ago (smells like Q1 of 2007).

Historical events do not always translate to future events but I’m betting on the fact that everybody does love pizza. I think it’s a leading indicator for tough times to come. And if we learned anything from the past, it may take three or four years to fully recover. People do love pizza and they have to make tough choices when times get tough (like eating out less or canceling Netflix). We as business leaders need to prepare as many of us are leading businesses that will be impacted much greater than those built with dough, sauce and bubbly mozzarella.

Hopefully you didn’t lose your appetite.

Let me know how you’re being impacted by the current economic climate and don’t hesitate to ask me or other people for advice. Personally, I’m always happy to meet up and think through tough challenges while eating a big slice of what Domino’s serves up.

I really do love pizza.?