More pressure yesterday on one of 2016’s high fliers – Domino’s Pizza Enterprises (DMP) as investor concerns about labour disputes and costs came to the fore again.
Amid revelations the Fair Work Ombudsman is investigating some franchisees for alleged underpayment of staff, the shares fell more than 5% at one stage yesterday before ending the day at $58.40.
So far in 2017, the shares are down around 10%, but the bigger fall has been from the all time high of $80.69 last August.
Yesterday’s fall took the drop to 27% and investors are now looking to the group’s interim results and analysts briefing for reassurance. That will be held tomorrow week.
Fairfax Media report that a spokesman for the ombudsman said: “In recent months FWO has conducted a number of site visits at Domino’s outlets across the country. These visits are continuing and as such it would be inappropriate to make further comment at this stage."
It’s unclear how many complaints have been made about Domino’s stores.
Fairfax said Domino’s said it had “no tolerance for any franchisee failing to meet their obligations to their employees and is leading our industry in this effort".
“Domino’s will take action against any franchisee found to be breaching their obligations, which can include terminating their sub-franchisee agreement and withholding back-payments for employees from the proceeds of any sale."
Domino’s shares have fallen in recent months on concerns about rising labour costs and fears the introduction of a 10% surcharge on orders made on Sunday will reduce demand among its price-sensitive customers. There have been reports of young staff being underpaid and investigations, but yesterday’s comments from the FWC are the most definite.
The surcharge that is worrying the market was started early last month to help pay for a 25% loading for drivers and store staff working on Sundays. These workers had missed out on penalty rates under an old industrial agreement struck between the company and the union, the Shop, Distributive and Allied Employees Association (SDA).
In fact, that deal, struck in 2009 and expired in 2013, and left staff with overall pay rates well below the current legal minimum.
Domino’s also increased employee pay in August (as the shares peaked) after investment bank Deutsche Bank suggested Domino’s workers were missing out on penalty rates worth at least $32 million because it paid a lower base than competitors and didn’t pay weekend penalty rate as stipulated in the award.
The company is expected to update shareholders on a new deal with the union at its half-year results on February 15.
That agreement with the union is expected to be finalised by July and Domino’s is also waiting on a separate ruling from the industrial watchdog on weekend penalty rates.
The company’s share price would be volatile while this industrial matters are sorted out and investors struggle to get a handle on the company’s cost base and its impact on profits.
