Domino's Goes Cold As Growth Slows
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Back to earth for one time high flying fast food giant, Domino’s Pizza as profit growth slowed sharply, a new menu in japan was botched and the company trimmed its sales growth forecasts for Australia and NZ.
That, rather than a big rise in dividend, saw the shares sell off, losing more than 9% at one stage yesterday. They ended the day down 6% at $46.50.
The company yesterday revealed 5.5% rise in half-year profit to $62.9 million - compared to previous years, that’s a shadow of the high double digital gains that were being reported.
The company said on Wednesday that total sales in its network, which extends to Europe and Japan, grew 7.1% in the six months to December 31.
At its network of Australian and New Zealand stores comparable (same store) sales grew a respectable 3.7%. Including 25 new stores across the ANZ network, total sales grew 7.6% to $558 million. Earnings rose 16.2% to $64.1 million.
Sales were strong in Europe, growing 12% in total and 7.7% on a comparable basis.
But the overall rise in sales was lower that Domino’s had expected and the company has revised its guidance for comparable sales growth for the full year from 7% to 9% down to 6% to 8%.
Complicating the matter for Dominos has been months of bad publicity about underpaying staff, employees being harassed and exploited, and the company being dragged to acknowledge this and lift wages.
Its slow sales growth in Australia was complicated by problems in Japan, where it has 503 stores.
Comparable sales fell 1.9% and total sales grew only 1.4% after it introduced a smaller menu over Christmas that customers rejected.
Domino's chief executive Don Meij said an "action plan" was in place to improve Japanese business in the second half.
"Our sales have been flat in Japan and we expect an improved performance in the market," he said.
Bottom-line net profit, after one-off costs for acquisitions, legal action, wage audits and share buyback costs, rose 18.2 per cent to $59.8 million.
Domino’s increased its interim dividend from 48.4 cents a share to 58.1 cents, 40% franked.
That wasn’t enough for investors. This is supposed to be a growth stock, not an income generator.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.