Investors savaged shares in fast food giant Domino’s Pizza (DMP) yesterday, carving nearly $900 million from its market value after a 16% plunge in its share price, despite another solid result for the six months to December and sharp lift in dividend.
The shares were savaged by investors and they fell more than 14% to $53.56, the lowest price since February last year.
The company declared an 48.4 cents a share interim dividend, 50 per cent franked, up 39.5% on the previous corresponding half.
The results revealed that sales pushed through the billion dollar mark for the first time to $1.17 billion, up nearly 27% for the six months.
But these stellar results came as investor concerns continued about the company’s employee wages and conditions policies and concerns that some of the franchisees running its store network underpay staff to keep ahead of rising costs.
And its reported profit for the half fell short of market expectations, prompting investors to sell, sending its share price to a 52-week low.
Domino’s chief executive Don Meij was forced to defend the chain’s $5 pizza deal as he upgraded growth expectations for full-year underlying earnings and net profit by 32.5% on the back of the very strong first half.
Earnings before interest, tax, depreciation and amortisation in the six months through December jumped 33.6% to $116.2 million and net profit surged 30.8% to $59.7 million – slightly under market estimates of $60.83 million.
Domino’s network sales jumped by 26.8% to $1.17 billion, underpinning a 21.1% increase in the group’s overall revenue to $539.4 million.
Mr Meij said its cut-price pizza was profitable for franchisees and that there was no correlation between the underpayment of staff wages and store profitability.
He repeated previous comments that the company had zero tolerance for unethical behaviour including underpayment of wages or under-reporting of sales.
“I make no apologies for expecting the highest standards from our franchisees,” Mr Meij said yesterday. But investors were not listening.
"Due to our investment in proactive compliance we have identified some franchisees who have wilfully breached their obligations to team members."
Mr Meij made his comments after a Fairfax Media investigation into the company and its franchisees uncovered widespread underpayment of wages, the deliberate underpayment of penalties using a delivery scam and the illegal sale of sponsorships of migrants for as much as $150,000, according to the Sydney Morning Herald.
Mr Meij said the group had conducted 456 spot checks at its stores over the past three years and undertaken 102 store audits, 42 of which were still ongoing.
He said Domino’s claims it has investigated 88 complaints, with 25 still under review.
“This process has recovered a total of $4.5 million in unpaid superannuation and wages owed to team members by franchisees," the company said yesterday.
Same-store sales grew by an average rate of 9.4% across the company’s global network, which spans Australia, New Zealand, Belgium, France, Japan, Germany and the Netherlands.
Earnings for the group’s leading region Australian and New Zealand jumped 24% to $55.2 million, with 17.2% growth in revenue to $150.1 million.
Mr Meij said the trading results followed the start of a Sunday surcharge in January to allow for higher wages for employees working on that day.
"The Sunday surcharge followed extensive testing of the new pricing model in multiple markets, which saw stable or increasing sales prior to a national roll-out," Mr Meij said.
This surcharge and the added cost for Sunday deliveries is a major concern for investors.
Domino’s said it opened 27 new stores in the half and it plans to launch another 35 new stores before the end of the financial year on July 2 in Australia and New Zealand.
