Domino's Pizza Group PLC's (LSE:DOM) shares fell 15% on Tuesday after the company posted a sharp drop in first-half profit and warned that consumer confidence remains weak, leading it to cut profit guidance for the year.
The group said underlying profit before tax for the six months to 29 June fell nearly 15% to £43.7 million, while statutory profit before tax dropped by almost a third to £40.5 million.
Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) slipped 7.4% to £63.9 million, as the business contended with flat order volumes, lower like-for-like sales and increased employment costs.
Commenting on the results, chief executive Andrew Rennie said: “There’s no getting away from the fact that the market has become tougher both for us and our franchisees, and that’s meant that the positive performance across the first four months didn’t continue into May and June.
"Given weaker consumer confidence, increased employment costs and uncertainty ahead of the Autumn Statement, franchisees are taking a more cautious approach to store openings for the time being.”
Results and guidance
Despite delivering modest revenue growth of 1.4% to £331.5 million, Domino’s saw total orders flat in the first half, with like-for-like sales slipping 0.1%.
The group opened 11 new stores in the period but now expects full-year store openings to be in the mid-twenties, as franchisees respond to a more challenging operating environment.
The company now expects full-year underlying EBITDA in a range of £130 million to £140 million, down from previous expectations.
Outlook
Trading showed signs of improvement towards the end of July, but the company said consumer confidence remains weak, with sales growth under pressure and franchisees adopting a more cautious stance.
Domino’s said it remains confident in its long-term strategy, citing growth opportunities in the Republic of Ireland and ongoing investments in automation and customer loyalty.
Rennie added: “Despite these near-term challenges, we remain confident in our strategy and the prospects for our resilient, market-leading business. That confidence is demonstrated by our decision to increase the interim dividend, and we also continue to assess a range of accretive growth opportunities.”
An interim dividend of 3.6p per share was declared, up from 3.5p a year ago, reflecting what the board called “confidence in the business” despite the near-term challenges.
Analyst and market reaction
Following the results, Shore Capital has placed its 'buy' rating under review. In a note, it said: "We note ongoing headwinds from low consumer confidence and slowing income tracker data, particularly for the lower quintiles, along with potential impacts of weight-loss injections on the sector, although data remains low on the latter.
"We anticipate a negative share price reaction this morning."
In the opening exchanges, the stock fell 36.2p to 209.8p.