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Domino's Pizza CEO and chairman step down amid row with franchisees as profits drop

Domino's Pizza said new store openings are being delayed and some of its working practices are being impacted as talks to settle a row with franchisees continue

Domino's Pizza -
Net debt ballooned in the first half as Domino's stockpiled ahead of Brexit

Domino’s Pizza Group PLC (LON:DOM) has announced the departure of its chief executive and chairman alongside a 7.4% drop in first-half profit and an update on a dispute with franchisees.

Former Tesco executive David Wild is to retire as chief executive of the pizza takeaway chain after more than five years in the role.

Stephen Hemsley, the group’s previous chief executive, is stepping down after nine years as non-executive chairman.

The news comes amid a row between Domino’s and its franchisees, who run most of its 1,100 stores, over how profits are shared.

Franchise fisticuffs?

Earlier this year, Domino’s management team was accused of misleading investors over the state of relations with franchisees after suggesting a resolution could be reached.

A letter sent to Domino’s from a group of disgruntled store owners said the comments were “extremely misleading”, because Wild and the board were “at total odds with the franchisees”.

Franchisees have refused to open new stores until they are granted a greater share of its profits.

In the company’s interim results on Tuesday, Wild said: "The relationship with our UK and Ireland franchisees is very important to the long-term sustainable growth of the system.

“We are actively involved in detailed discussions and are giving these considerable focus and attention.

“Whilst dialogue is continuing, new store openings are being delayed and some of our working practices are being impacted.”

He said he expects a resolution “will take some time, likely into 2020” but the group is “committed to working with our franchisees to agree on sustainable win-win solutions”.

Domino’s opened eight new stores in the first half, including two corporate-owned stores and six through franchisees in the UK and Ireland, and closed one in the UK.

The company made an underlying pre-tax profit of £42.3mln for the period, compared with £45.7mln a year ago, reflecting losses from its international arm.  

Group system sales increased 4.7% to £645.8mln with UK sales up 5.3% and Ireland up 8% but international sales down 3.4%.

On a like-for-like basis, UK system sales grew 3.9%, slowing from the 5.9% growth reported last year.

Net debt rose to £238.8mln from £182.1mln due to an extra £22mln in working capital for stock building ahead of Brexit and to address some “timing issues” that are expected to unwind.

For the 2019 financial year, Domino’s expects net debt of £220mln to £230mln and capital expenditure of £25mln to £30mln. There is no further share buyback planned of the year.

Quick facts: Domino's Pizza Group PLC

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