Domino’s like-for-like (lfl) sales and order growth in Q1 has been met with a mixed reaction from analysts.

In an update yesterday (22 April) Domino’s Pizza Group reported lfl system sales were up 18.5% for the 13 weeks to 28 March 2021, with system sales in the UK & Ireland up 18.7% to £371.3m. While its collection business saw continued to see sales down on 2019 numbers, order counts for its delivery business were up 6.8% for the quarter.

Liberum noted that its growth continued to be boosted by the temporary reduction of VAT rates, “the benefits of which have only been partly passed on by the franchisees to the consumer”. It also said that while delivery order count was up for the UK & Ireland, it was below that of the 11.8% growth seen in Q3 2020.

The continued declines in total order count versus aggregators like Just Eat – which saw its order count grow 96% in the UK over the same period, as well as the deceleration in delivery system sales lfl growth over the course of 2020, despite lower VAT, “is a worrying sign”, it said.

Conversely Peel Hunt described Domino’s lfl sales growth as continuing to “surge”. The analyst was optimistic that its collection orders – down 35% year-on-year – would recover as commuters return.

“Most of the lfl sales is price-driven (due to the VAT cut). Although it is less profitable than volume growth to Domino’s Pizza, it still drives the national advertising fund, which drives LFL sales higher,” said the note from Peel Hunt.

“All this increases franchisee profits, improving their ability to open more stores. All combined, this increases the long-term growth prospects of the Domino’s system, which we believe should drive a re-rating of the company’s shares. Our target price assumes a return to the historic average of 23x PE,” it said. Peel Hunt said it was holding its current forecasts but has increased its target price from 425p to 450p “to reflect the rising probability that the upgrade cycle will continue”.

The note from Liberum added that it remained sceptical about the “new strategic plan” which it described as not being new and lacking ambition, with no buy-in from franchisees. “With no restart of national campaigns, we find it hard to see how the growth targets will be achieved,” it said. “With the order counts still negative and the cost of the new franchise offer unknown, we remain ‘sell’, it added.

Meanwhile Berenberg said that while it thinks the new management is taking a far more sensible approach in its attempts to create value for Domino’s, “we still struggle to look past two large problems – the magnitude of competition and the still unresolved franchise dispute”. As a result it retains its sell rating.