Domino’s steps up expansion despite sharp fall in sales growth

A STEEP decline in the rate of UK sales growth made Domino’s one of the biggest stock market fallers yesterday as it revealed it would be spending £4m of its own money to fight off sharp food price rises.

Comparable sales at its UK stores rose 2.4pc even when so-called “split territories”, where an existing site gives some of its delivery addresses to a new store, were excluded.

The figures were even worse when this factor was baked into the numbers, with analysts suggesting UK like-for-like sales were in fact up just 0.1pc as the company pushes ahead with plans to open a record number of stores this year.

Both figures are a major drop from the 13pc rate of growth for the same sixmonth period last year and even though David Wild, the firm’s chief executive, had been warning such “extraordinary” numbers were unlikely to be repeated, investors sent shares down 5.6pc to 263.7p.

Total sales rose nearly 20pc to £211m, helping push pre-tax profits up by roughly 19pc to £46.2m, but some analysts highlighted concerns about the amount of money more mature stores were making given rising costs.

Mr Wild said the company would be investing £4m in a bid to keep a lid on food price inflation and make its products more competitive.

The takeaway business sources many of its ingredients from Europe and the price of these has risen in pounds as sterling has weakened against the euro since the EU referendum. Mr Wild said its franchisees had seen food costs rise by 4.5pc in the past year and that they had passed on roughly three percentage points of this. But the company has agreed what Mr Wild called a “coordinated campaign with our franchisees to attack the market in the autumn”, with the planned investment aimed at preventing more food price rises and being accompanied by a ramped up marketing campaign in September.

The move suggests Domino’s is bracing itself for stiff competition in the growing delivered food market even though Mr Wild said the company’s franchisees clearly had confidence in the brand with plans to open 90 stores this year – above its record of 81 last year.

But some analysts are cautious. “We expect the stock to further de-rate in the face of increased competition, not least from the wider roll-out of Nando’s delivery, with Nando’s customers overlapping significantly with Domino’s,” Simon French, a Cenkos analyst, said.

Brokerage Peel Hunt also reduced its full-year adjusted pre-tax profit estimate, from £94.6m to £90m, to reflect its expectations for 1pc full-year likefor-like sales growth. It said its predictions meant it “cautiously anticipates minimal benefit from the £4m investment” aimed at preventing price rises.

The company’s new factory in Warrington should open next year and have capacity to serve 600-700 stores. Mr Wild said the level of automation at the site would be beyond that of its existing Milton Keynes facility but would create 200 jobs. Domino’s also announced a deal with Amazon’s voice activated technology Alexa, which it hopes will make it easier for customers to order pizza and enable them to track its progress with GPS technology.