Domino’s Pizza Group PLC (LON:DOM) served up a 24% drop in 2018 pre-tax profit after experiencing some “growing pains” in some international markets but the company expects an improved performance this year.
The company said pre-tax profit fell to £61.9mln last year from £81.4mln in 2017, reflecting £31.5mln in exceptional costs related to its international expansion and impairments in Norway, Sweden and Sweden.
Domino’s opened 81 new stores across the group, including 58 in the UK.
Excluding items, underlying pre-tax profit dipped 1.1% to £93.4mln as losses in Norway, Sweden and Switzerland offset growth in the UK, Iceland and rest of the world divisions.
Group system sales, which include franchised and corporate stores in the UK, Republic of Ireland, Switzerland and Nordics, edged up 9% to £1.26bn.
The UK, which accounts for 87% of system sales, grew by 7.1% on a reported basis and 4.6% on a like-for-like basis.
Outside the UK, Ireland system sales increased 7.1% or 4.6% on a like-for-like basis while pro forma international sales rose by 7.7%.
Statutory revenue gained 12.5% to £534.3mln.
Domino’s recommended a total dividend for the year of 9.5p per share, up 5.6% on the previous year.
Store openings to be scaled back in 2019
Chief executive David Wild said 2018 was a mixed year with the UK and Ireland extending Domino’s “excellent track record of growth and cash generation” and international markets experiencing “some “growing pains which have hampered our overall financial performance. “
“These are all good markets, with more than 100 million population, good appetites for pizza and little, if any, global brand competition,” he said of the international markets.
“This is why we have strengthened our management teams and are committing disciplined capital to support future development.
“We expect an improved performance from international, with the business targeted to break even this year.”
Domino’s plans to scale back the number of store openings in this year given ongoing discussions with franchisees over commercial terms.
Capital expenditure is expected to be £25mln to £30mln in 2019.
The group estimates further growth in the UK.
In morning trading, shares rose 4.3% to 240p.
Backlash by franchisees and overseas problems continue to drag on Domino's, says analyst
AJ Bell investment director, Russ Mould, said: “Overseas operations continue to be problematic and there has been a backlash against the company by many of its UK franchisees.
“The latter face rising costs and Domino’s decision to split geographical territories means new stores may be less profitable. As such, franchisees have joined forces to lobby for a greater share of profits.
“These two issues have been hanging over Domino’s for some time and today’s full-year results don’t install any confidence that they will be resolved soon."
Mould added that Domino's language is increasingly cautious and that the outlook is gloomy, particularly in light of a slowing UK roll-out and ongoing discussions with franchisees.
He noted that Domino's did not provide comment on current trading, which may lead some people to speculate that performance hasn't improved, and there was also no new share buyback despite the stock trading close to a four-year low.