DP Poland (LON:DPP), the Domino’s Pizza franchise holder for Poland, is approaching a tipping point as regards profitably.
Back in September in its interim results it revealed it had slashed half year losses as underlying sales growth continued to run well into double figures.
For the first six months of 2015, underlying losses dropped to £774,000 from a loss of £1.3mln the year before, though statutory revenues were lower at £1.74mln (2014: £1.94mln) as a third of the 19 stores are now franchised instead of managed as previously. DP Poland only recognises royalty and commissary sales income from franchised outlets.
Online sales are taking a growing proportion, with 66% of deliveries in the first half made this way compared to 58% a year ago.
In February 2016, the company revealed it had notched up 13 consecutive quarters of double-digit percentage like-for-like (LFL) sales growth.
LFL system sales in 2015 were up 16% on the year before, while the LFL order count was up 14%.
The company added that 2016 has started strongly with “robust” LFL system sales growth in January of 29%.
While the top line continued to head north, shareholders were cheered by news that underlying earnings (EBITDA) across the estate were positive in every month of 2015.
The three most profitable company-owned (as opposed to sub-franchised) stores averaged EBITDA of £58,000 in 2015, up from £24,000 in 2014.
The company is also beginning to enjoy the benefits of a new commissary that supplies all Domino's Pizza stores in Poland with fresh dough, ingredients, boxes and other supplies.
It has a 50 store capacity but eventually may supply dough to 100 stores.
Peter Shaw, DP Poland's chief executive, had expected the commissary to have a beneficial impact on the cost of dough production, warehousing, order picking and goods handling, and so it did – only even more so than expected.
New store sites have also been a focus, with the company now having stores in five cities: Warsaw, Krakow, Wrocklaw, Gdansk and Szczecin.
Broker Peel Hunt said at the time of the interims: "We are encouraged by the direction of travel, which provides increasing support for our view that it has always been a question of when rather than if Domino’s Pizza would establish itself in Poland.
"The fund-raise in July has substantially reduced the risk that the company could not finance itself through to profitability. Our DCF [discounted cash flow] based on 282 stores in 2030 gives a fair value of 30p per share."
It rated the shares a 'buy'.
On the back of February's trading update, and the eye-catching pronouncement that LFL system sales in January were up 29% year-on-year, the shares rose 5.8% to 25.125p n a morning when equities in general were taking an absolute battering.