Domino's Pizza Group, the leading pizza delivery firm, said it made a solid start to the year, with system sales rising by 12.3% to £164.1m in the 13 week period to 31 March driven by strong like-for-like sales growth in the latter part of the quarter.
The company said that despite the disruptive impact of the snow early in the quarter, like-for-like sales in the UK in 670 mature stores increased by 6.6% thanks to sales of new products such as the Domino's Hot Dog Stuffed Crust, a successful short-term price led promotion and some weaker comparative figures due to warmer weather last year.
It said that trading in the Republic of Ireland had been resilient throughout the period, with like-for-like sales, in Euros, up by 8.1% (2012: 1.5%).
The growth of the group’s e-commerce performance continues apace with 61.9% of all UK delivered sales (2012: 49.8% of UK delivered sales) coming via the internet. Sales taken through all online platforms were up 38.4% to £82.4m (2012: £59.5m) and, of this, 25.2% was taken through a mobile device (2012: 16.4%).
During the period, seven new stores (2012: six) were opened - five in the UK and two in Germany - and with a large number of locations in the pipeline, the company aims to open 60 new stores in the UK and 18 in Germany this year.
It said that its expansion in Germany continues to progress well and it is already seeing some “very successful stores, especially among our fledgling franchised community”.
The chain said that like-for-like sales, in Euros, in the six mature stores (2012: two mature stores) were showing “encouraging progress from a low base” and were up 40.3% in the period (2012: 3.7%).
The group said: “High performing UK franchisees are continuing to lead the way in the German expansion, with the first German franchisee about to come on board. The company continues to roll out corporate stores too and there are plans in place to accelerate the training programme needed to deliver store managers in the required numbers. Plans for a new commissary in North Rhine Westphalia are also moving forward and it is anticipated that this will be open in Q4this year.”
It said that the Swiss market is also undergoing “radical change” and that an intense programme of staff retraining, improved menu development and new marketing initiatives were “already paying off with the stores showing good growth over recent months”.
Like-for-like sales, in Swiss Francs, in the 10 mature stores were up 9.3% for the period. As planned, two stores have been closed as part of the overhaul of the estate and plans are “well underway” for a store refit and relocation programme this year.
Lance Batchelor, chief executive, said: “Domino's continues to show that there are still significant opportunities in our core UK and Republic of Ireland markets as well as the new territories of Germany and Switzerland, and we are in a great position to seize those opportunities.
“New product launches, a relentless focus on service, industry leading digital and online technology, an ever growing marketing budget, and a healthy pipeline of new sites are just some of the ways we continue to drive this terrific business forward.
"We know that the ongoing economic pressures are leading to a tough trading environment and we have extremely tough comps in the second quarter to overcome as well as food cost increases coming through during the year, but, with first class franchisees and a strong head office team, I expect, at this early stage in the year, that trading will be in line with market expectations for 2013.”
Analyst reaction
Douglas Jack at Numis said: “Trading is ahead of expectations: LFL sales rose 12.4% in the UK and 17.2% in the Republic of Ireland (ROI) over the last six weeks, by our estimates. Over the last 13 weeks, LFL sales rose 40.3% in Germany and 9.3% in Switzerland. Three months into the year, we believe it is too soon to upgrade forecasts, but the risk to numbers is clearly on the upside. Following yesterday’s excessive (8%) share price fall, our recommendation returns to Buy.
“We are holding our 2013E forecast which assumes LFL sales rise 3% and, very cautiously, assumes UK margins fall for the first time. We believe there is meaningful upside risk to our margin forecasts, such that the company is capable of sustaining a c.20% earnings growth rate (15% UK; 5% Europe) from 2014E. This would imply a 2014E 18x P/E. Given the high quality of the business model and cash flow, we would use yesterday’s sell off as a buying opportunity.”
