Proactive Investors - Run By Investors For Investors

Domino's Pizza profits hit by growing pains in 2018 but recovery expected this year

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"
Domino
Domino’s lifted its full year dividend by 5.6%

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.  

READ: Domino’s warns on profits as international struggles overshadow record Christmas in UK

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. 

View full DOM profile View Profile

Domino's Pizza Timeline

Related Articles

Oil pollution
July 02 2018
A name change might be in order if PCG pulls the trigger on two investments it is mulling
Theme Park
March 28 2019
Canaccord Genuity upgraded its rating for accesso to ‘buy’ from hold’ following the e-ticketing and guest experience firm’s recent full-year 2018 results

© Proactive Investors 2019

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use