viewDomino's Pizza Group PLC

Domino's Pizza warns on profits as overseas sales cool

New management teams in Norway, Switzerland and Sweden have not yet been able to reverse the “persistently weak” sales trend

Analysts were quick to cut back their forecasts after the Domino's Pizza update

Domino's Pizza Group PLC (LON:DOM) has warned that its international business is unlikely to break even this year, while in the UK and Ireland prices are up at the expense of volumes.

Group sales of £324.4mln for the 13 weeks to 31 March were up 4.3% on the same period last year, with the core UK and Republic of Ireland arm contributing £299.3mln, which was a 4.8% improvement, helped by a contribution from seven store openings in the year to date and 58 last year.

But international LFL sales were down 2% to £25.1mln, with like-for-like in Switzerland down 8.4%, Iceland falling 4.6% and total growth in Norway down 1%.

New management teams were installed in Norway, Switzerland and Sweden, but group chief executive David Wild said that the “persistently weak” sales in all overseas markets, “we no longer expect this part of our business to break-even this year”.

He said the focus on international costs and capital deployment was being further tightened and an update would be provided at the half-year results.

LFL sales for the UK were up 3.1% and the ROI by 6.8%, against what was the toughest comparative quarter of the year, as the proportion of digital sales plumped up from 78.9% to 81.7% and the new cheeseburger pizza became one of its most popular pizzas ever.

Order volumes, however, were down 2.7% on a LFL basis, though prices were up 5.1%. Items per order increased 0.7%.

New store openings continue to be slowed by the long-running dispute with franchisees about how to split profits, as talks continue. There were 11 new store openings in total, of which four were in the UK and with one closure, to end the quarter with a total of 1,106 and a “healthy pipeline” awaiting.

“We remain in open and ongoing dialogue with our UK franchisees, actively exploring win-win solutions for stimulating growth and new store openings,” Wild said.

Analysts were quick to cut back their forecasts after the update.

Broker Peel Hunt downgraded its rating to ‘add’ from ‘buy’ as it cut its full-year forecast for profit before tax by £5mln as a result of a new assumption that overseas operations lose £6.4m compared to a previous forecast of £1.4m.

House broker Numis kept its full estimate for UK is unchanged but now assuming no improvement in international losses from the £4mln last time led to a 5% cut to group PBT of £95mln, which is around 3% below consensus.

Domino's shares were down 5% to 248.06p after two hours of trading on Tuesday.

Quick facts: Domino's Pizza Group PLC

Price: 367 GBX

Market: LSE
Market Cap: £1.69 billion

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