European expansion slices Domino’s profits
Shares in pizza-maker slide to 11-month low as costs from new overseas outlets have impact on earnings
SPIRALLING overseas costs took a bite out of profits at Domino’s Pizza as the World Cup redeemed the company from recent sluggish demand during the recent heatwave. Domino’s, which is dominant in the UK but expanding across Europe, admitted its Norwegian roll-out had not gone to plan. Holding down costs in the country had been “more of a challenge than we expected”, said chief executive David Wild.
Domino’s half-year profit before tax fell 9.7pc to £41.7m on revenue of £259.1m. Shares in Domino’s slipped to an 11-month low, falling 9.7pc to 287.2p.
Problems in Norway cost Domino’s £2.1m, one of a number of additional charges it shouldered during the six months to June. It was also hit by a £1.9m charge for its Warrington supply centre, £1.4m of costs from the conversion of stores in its German joint venture and £4.2m from tax, amortisation and a German market access fee.
In the UK meanwhile, Domino’s reduced the number of stores it plans to open in 2018 to 60 from April guidance of between 65 to 75. Last year the pizza company opened 95 outlets.
Domino’s sold more than 8.2m pizzas during the Fifa World Cup, with England games providing an average sales boost of 15.2pc, which offset the impact of the recent hot weather. Mr Wild said: “It’s very nice, but it’s not great for selling pizza.”
Emma-lou Montgomery, associate director at Fidelity Personal Investing, said: “The hot weather has eaten into sales and there are visible signs of a slowdown as its number of store openings has been sliced.
“Domino’s, which is heavily dependent on the UK market, says it is confident it will remain on track, but clearly has its Scandi invasion in mind when it comes to longer-term growth.”
Mr Wild also responded to recent reports of unrest among Domino’s franchisees. Given that they were “entrepreneurs” he said there would always be a degree of “tension” with the master franchisee in the UK. However, the reduced guidance on new store openings did not indicate any lack of demand from franchisees wanting work with the company. He said: “There is a lot of interest in opening Domino’s stores. One of the things we are looking to do is refresh our franchisee base.”