Shares in Domino’s Pizza (LON:DOM) took a dive on Tuesday as it revealed its German expansion will take longer than originally thought.
The pizza delivery firm, which has 825 stores in the UK, Ireland, Germany and Switzerland, said annual losses in Germany are expected to be £2mln to £3mln more than expected due to additional training costs and a poor financial performance from corporate stores compared with franchised ones.
Domino’s plans to transform most of the corporate stores in Germany into franchises to combat this in a move that mirrors its UK strategy a decade ago.
Recent legislation in part of Germany to impose a minimum wage will increase the break-even of stores, it added, meaning stores will need to be supported for longer.
Chief executive Lance Batchelor said: “The uncertainty is driven by a lack of clarity about any rollout of such new minimum wage across other German regions, the exact impact on stores, and what mitigating actions may be possible. This is frustrating and creating barriers to job creation, but it is a reality and we will have to deal with it.
“As a result we have decided that we will proceed more cautiously with our German expansion, opening fewer stores in 2013 and 2014 than originally predicted.
“This will postpone breakeven in the German market to 2016 or 2017. We will work closely in partnership with our franchisees, to ensure that store level economics are really robust. Only then will we accelerate the rollout.”
In the first half of the year, Domino’s pre-tax profits fell to £11.6mln from £21.5mln in 2012 on sales of £131mln, up from £112.7mln the year before.
The company also revealed that chief financial officer Lee Ginsberg has decided to retire and will step down at the 2014 AGM.
Panmure Gordon stuck to its ‘sell’ recommendation on the shares, with the 380p target price suggesting a big drop for the stock.
“We will review our 2014-15E forecasts post the analyst presentation but believe the risk is on the downside given the delay in forecast breakeven in Germany,” said analyst Simon French.
The shares slumped 45p to 555p each.