Domino’s Pizza Group PLC (LON:DOM) has warned that profits for the year just gone will be at the lower end of its estimates after it experienced “growing pains” in some of its international markets in the final quarter of 2018.
The pizza delivery giant blamed the “unseasonably warm and dry weather” as like-for-like sales slumped in Norway, where it is still struggling to integrate the Dolly Dimple’s chain it acquired almost two years ago.
READ: Domino’s upgraded after woeful share price performance in 2018
Like-for-likes in Iceland also fell during the quarter, as they did in Switzerland where a fire temporarily closed its busiest store.
In total, international sales fell 2.0% to £26.6mln (Q4 187: £27.1mln) and Domino’s now expects this division to have made a loss of between £3mln-£4mln last year.
That, in turn, will dent group profitability, with the FTSE 250 firm guiding for underlying pre-tax profits at the lower end of the consensus range of £93.9mln-£98.2mln.
“Our international businesses offer significant long-term potential, but we have experienced growing pains this year, particularly in Norway, where we have faced business integration challenges,” said chief executive David Wild.
“Looking ahead, we will invest further in robust teams and infrastructure in our newer markets, to create a solid platform for profitable growth.”
Busiest ever Christmas
The profit warning overshadowed what had been a record Christmas for Domino’s UK – the main part of the group that accounts for more than 90% of total sales.
Sales in the UK and Ireland climbed 6.2% in the three months ended 31 December to £312.9mln (Q4 17: £294.7mln), a period which included its busiest ever week in the run-up to Christmas Day. Like-for-like growth was also strong at 4.5%.
Domino’s Cheeseburger pizza is proving a hit with customers, as is the online app, through which more than 80% of orders were placed during the quarter.
The strong showing in its home market helped group sales to rise 5.5% to £339.5mln in the period.
UK food market ‘vibrant’
“I'm pleased with the continued strong performance in the UK and Ireland, where we opened a further 59 stores,” said CEO Wild.
“Many families decided to kick off the festive season with a Domino's, with the Friday before Christmas breaking all records as we sold more than 535,000 pizzas - equivalent to 12 every second.”
“The UK delivered food market is vibrant and we estimate that it will grow at a compound rate of 8% a year to 2022. We aim to maintain our share of this market, thanks to over 30 years of experience in delivery, a leading brand, great-tasting pizza and superior franchisees.”
City broker repeats its ‘sell’ recommendation
“Overall Q4 Systems sales missed our estimates by 5.4%,” said Liberum analyst Wayne Brown.
“A cut to the guidance of between 2-3% to PBT will weigh on the shares. International performance has deteriorated but note the group has owned Switzerland since 2011 and has never been profitable. Norway is now requiring more capex and infrastructure spend.
“Our ‘sell’ thesis remains concerned about the lack of earnings visibility in what should be a highly dependable business. UK openings are at risk of being cut materially in our view as the transfer of profits from franchisees to Plc has gone too far in our view.
“With International now requiring more investment we see more reasons for RoCe and earnings declines in FY19. Sell.”
Domino’s shares were down 5.4% to 259.3p in mid-morning trade on Tuesday, although they had been as low as 245.5p earlier in the session.
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