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Domino's profit dips 9.2pc as local sales lag

AAP  |  21 Feb 2019Text size  Decrease  Increase  |  
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Higher wages and marketing costs have taken a slice out of Domino's first-half balance sheet, with a poor performance by the pizza empire's Australian stores contributing to a 9.2 per cent slide in net profit to $53.3 million.

Sales lifted 14.6 per cent for the six months to 30 December, with global revenue from continuing operations up 23.7 per cent to $702 million on 3.3 per cent same-store growth.

But Domino's (ASX: DMP) half-year balance sheet was weighed down by $10.9 million in one-off legal and settlement costs in Australian and New Zealand, as well as $13 million to convert Germany's Hallo Pizza and Pizza Spirit in France to Domino's-branded stores.

Marketing and employee expenses also jumped.

an image showing two slices of pizza

Australia and New Zealand same-store sales rose 3.5pc, down from 3.7pc a year ago

Shares in Domino's fell almost 8 per cent on the subdued update. At 12.30pm on Wednesday, they are up 0.5 per cent, trading at $44.72.

The company's share price had slumped to three-and-a-half year low of $38.70 in December.
Domino's Australia and New Zealand boss Nick Knight said domestic growth, while outperforming Europe's, had fallen short of management expectations.

Australia and New Zealand same-store sales rose 3.5 per cent, down from 3.7 per cent a year ago, and down from the 4.5 per cent full-year result in July.

"We've come through an unprecedented cost headwind and have been able to do so because of the close work with our franchisees and customers," Knight said in a release on Wednesday.

"We expected higher (Australian) sales growth and a performance better than we delivered, and we will be redoubling our efforts to do both in the months ahead."

Knight said live pizza tracker technology in Australia took longer than expected to implement, but the launch of the XL pizza size had proved a "profit driver" for franchisees.

Same-store sales rose 2.8 per cent in Europe and by an above-expectation 4.8 per cent in Japan.

Weaker margins in Australia and Europe drove the weaker in net profit after tax, said Morningstar analyst Johannes Faul.

"The drag on same-store sales were Australia and France – the two countries that didn’t perform to expectations. That accounts for the weaker Ebitda margin," Faul said.

Domino's expects global same-store sales for the full year to be within guidance, at the mid-to-lower end of the 3 to 6 per cent range.

"Right now, they're tracking at 4 per cent for the second half. That’s well within the guidance of 3 to 6 per cent. So, it was a good update," Faul said.

As a result, Domino's full-year earnings is expected to be at the lower end of guidance of $227 to $247 million.

The company is preparing to open its 2500th global store next month, with between 200 and 215 new stores set to open this financial year, down from the 225 to 250 originally forecast.

It is aiming for 4900 stores globally between 2025 and 2028.

The company will pay an interim dividend of 62.7 cents, partially franked, up 4.6 cents from a year ago.

Domino's will no longer provide yearly guidance updates, but three to five-year outlooks.

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