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Dominos fails to deliver

Shares in Dominos Pizza shed 14% to a near one-year low on Wednesday, dropping to $86.13 to be trading around levels seen in March 2021.

The tumble comes after DMP posted a 5.3% drop in its underlying profits, and advised investors that it expects sales growth in the current year to be “slightly below” the 3-5 year outlook.

While Network sales increased 11.1% to $2.05 billion and Online sales rose 11.5% to $1.6 billion, EBIT slipped 5.7% to $144.7 million and underlying NPAT dropped 5.3% to $91.3 million. First-half earnings results were lower than the prior comparable period largely due to investments in Project Ignite (ANZ) and a rebasing of sales in Japan in the second quarter.

In the first half, the company and its franchisees added 285 stores and said it is on track for a ~500 store expansion this financial year. Regionally, Asia added +87 organic new stores, including 5 in Taiwan, Europe expanded by 39 stores, and Australia/New Zealand added 3 new stores. 19 corporate stores in Australia were also refranchised to existing store managers and franchisees.

Key metrics across the regions also included:

  • Asia: Added 10th market (Taiwan +156 stores) and added +87 organic stores. Sales grew +16.4% despite the lifting of State of Emergency in Japan. EBIT -17.3% reflecting rebasing of Japan sales and accelerated corporate store openings compressing margins

  • Europe: Regional sales (+11.9%, to $796.7m), with franchisees rising to COVID conditions by growing delivery sales through improved execution. EBIT grew +11.5%, to $49.7m

  • ANZ: Multiple stores set records as Network Sales grew (+6.4% to $689.6m). EBIT -6.1% to $60.3m reflecting investment in franchisees (Project Ignite ~$6m) and temporary closure in New Zealand.

Despite the ongoing effects of COVID-19 in each of Domino’s 10 markets, the company reiterated its long-term store milestones, 3-5 year outlook for new stores openings (+9-12%), and same-store sales (+3-6%). However, it noted sales growth this year is expected to be slightly below this range.

Although two years after Domino’s served $3 billion in global food sales ($2 billion online), the company expects this year to reach $4 billion in global food sales, with more than $3 billion online.

Looking ahead to FY22, Domino’s reported a positive start to the second half, with Network Sales 6.0% higher. The company said forecasting short-term same-store sales growth was challenging, and although management expected same-store sales this financial year would be slightly below the 3-5 year outlook.

Group CEO & Managing Director Don Meij commented, “It remains our intention to deliver another strong year of profit – a result of our long-term investments that accelerated during COVID-19”

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