Domino’s Pizza Group PLC (LON:DOM) shares dropped in early trading Tuesday as it cautioned on the UK’s trading environment and like-for-like (LFL) sales in the second quarter came in lower than the first despite a boost from the World Cup.
The FTSE 250-pizza chain operator reported LFL sales growth in the UK & Ireland of 5.9% in the period, up from 2.4% growth in the first half of 2017, while its underlying profit before tax grew 2.5% to £45.7mln and UK & Ireland sales rose 8.1% to £565.1mln.
READ: Domino's Pizza Group off to encouraging start to the year
In terms of quarterly numbers, the firm reported UK LFL sales growth in the second quarter of 4.7%, lower than the 7% reported in the first quarter as the hot weather offset a boost from the World Cup period.
The group added that the UK trading environment continued to be “uncertain” as consumer disposable incomes remained flat and “operators in the casual dining sector continue to experience inflationary pressures from the national living wage, food costs and business rates”.
In terms of its total group system sales, which include its operations in the UK & Ireland, Switzerland, Iceland, Norway, Sweden and Germany, the group reported 12.8% growth to £616.6mln, while also increasing its interim dividend by 8% to 4.05p per share.
However, the group said that losses for its Norway operation had been “higher than anticipated” in the first half due to labour cost ratios coming in above budget.
More focused and disciplined approach
Looking ahead, Domino’s chief executive David Wild said the group expected underlying pre-tax profits for the full year to be “in line with current market expectations” of between £95.9mln-£101.4mln, adding that the group would also complete its £50mln share buyback programme.
Wild added that while it had taken the company “some time to refine the operating model and cost base at store level” in its international business, particularly in Norway, the company was confident that changes made would “result in a better performance in H2”.
Commenting on the results, Neil Wilson, chief market analyst at Markets.com, said that the company’s plans to open 60 new stores in the UK this year, as opposed to a previous estimate of between 65-75 in April, reflected “a more focused and disciplined approach to openings in what is undoubtedly a trickier market, but it might also signal some deeper worries about the UK market”.
Wilson added: “Flat real incomes and the inflationary pressures affecting the casual dining sector from the national living wage, food costs and business rates are all weighing. But Domino’s seems able to shrug off such concerns and continues to deliver in terms of top line sales as well as underlying profits. Its franchise model also means it gets a lot for its investment in new stores”.
Shares were down 11.4% to 281.6p.