Domino’s Pizza UK & Ireland, the takeaway pizza operator, this morning reported like-for-like sales growth of 2.4% in 607 stores for 26 weeks to 26 June 2011 and said it expected to see stronger growth in the second half of the year. The operator said profit before tax and exceptional items had increased by 14.8% to £20.1m during the first half of the year - off the back of a sales rise of 9% to £258.4m, compared with £237.1m in 2010. Pre-tax profit after exceptional items rose from £17m to £19m, while revenue climbed 11.8% to £102.2m. Operating margin climbed from 19.1% to 19.8%, while total dividend increased 22.2% to 5.50p per share. It also reported a growth in its e-commerce business of 50.9%, resulting in total online sales of £85m, up from £56.9m the year before. Online sales accounted for 41.9% of UK delivered sales (2010: 32.7%) during the period. The group opened 22 new stores in the period (2010: 19) with one closure (2010: nil), its first in five years, resulting in a total of 688 stores as at 26 June against 627 last year. It said it remained on track for 60 openings this year (2010: 57). Since the beginning of the year, the company has recruited four new franchisees (2010: six), welcomed one former franchisee back to the system and also includes Moto amongst its franchisees, with the opening of its first motorway service station store at Leigh Delamere East on the M4. Its franchisee to store ratio currently stands at 5.2 (2010: 4.6). Earlier this year, the group acquired a 75% interest in the master franchise for Domino's Pizza in Germany at a cost of £8.6m. It said that the move into the country is “well underway but, although we are learning very quickly about the nuances of our new market, it is early days”. It plans to open at least four more stores in Germany by the year end, bringing the total to six stores. Its operations in the country will be overseen by its International development director, Patricia Thomas, with Brett Stallworthy moving from his position as head of franchise support for the UK and Ireland to the role of market director for Germany. Chris Moore, chief executive, said: "I am delighted to announce a good set of results in what can only be described as a very tough operating climate. It is a real achievement to deliver like-for-like sales growth of 2.4% across 607 stores against a comparative figure of 13.7% (553 stores) and a VAT rise of 2.5%. "The coming months provide fantastic opportunities for the Company. While the first half of the year has been tough, we are delighted that we are still showing good growth in the UK and the latter half of the year comes with lower comparatives (9.9% for Q3 2010 against 17.2% for Q2 2010) so we are confident we will see our like-for-like sales grow more strongly in the next 26 weeks. Our marketing spend to the year end will be three times the amount for the second half of 2010 and, combined with some great new products and a heavyweight brand campaign in the coming months, we are very excited about the future.” Lance Batchelor formally took up his new role as deputy chief executive on 27 June. The company said Batchelor was spending the first few months of his tenure visiting many of its franchisees and gaining a “|comprehensive understanding of the franchised model and our business as a whole”. Analyst reaction Douglas Jack at Numis, said: “First half PBT, up 15% to £20.1m, was ahead of our £19.6m forecast despite only 2.4% LFL sales growth. We estimate that 80% of H1's growth derived from expansion (57 new stores in 2010; 22 in H1 2011) and a 70bps increase in EBIT margins. We are holding forecasts, but we believe the risk is firmly on the upside: due to H1’s strength, our consensus-in-line forecasts assume PBT slows to 6% in H2E despite management being ‘confident’ of ‘LFL sales growing more strongly’. “We are holding our forecasts (Buy: TP 600p) but firmly believe there should be scope for upgrades later in H2E. Our forecasts assume just 3.5% LFL sales and 20bps margin growth in H2E. Cost inflation (in cheese) may require up to a 1% price increase in H2E; 25-30% of 2012E’s food basket has already been locked in at the same or lower levels than 2011E. Management’s confidence is reflected in the 22% dividend increase.”