Domino’s Pizza Group has reported a 10.3% rise in pre-tax profit excluding its Germany and Swiss operations to £25.7m in the 26 weeks to 30 June on sales up 13.8% to £326.5m, and announced the departure of chief financial officer Lee Ginsberg.
The performance in Germany affected the overall performance, with profit before tax including Germany and Switzerland and after exceptional items down from £21.5m to £11.6m.
A total of 22 new stores opened in the period (2012: 23) with two closures (2012: 1) resulting in a total of 825 stores as at 30 June 2013 (2012: 748). Diluted earnings per share, excluding Germany and Switzerland, were up 12.8% to 12.05p and the interim dividend increased by 7.6% to 7.10p per share.
Mobile platforms now account for 27.5% of online sales and “I expect this to continue growing fast,” said Lance Batchelor, chief executive.
Like-for-like sales growth in the UK accelerated to 6.4% from 5.7% in 2012.
The company said: “The core UK business has continued the strong momentum established in Q1 with system sales in the second quarter rising by 11.7% to £147.6m (2012: £132.2m).
Like-for-like sales were also strong, running at 6.1% (2012: 8.1%) for the second quarter and 6.4% (2012: 5.7%) for the first half. These results are particularly pleasing as they come on top of very strong comparatives from last year, highlighting the underlying strength of the core UK business.
“E-commerce continued its outstanding performance, now accounting for 63.3% (2012: 52.4%) of UK delivered sales for the first half. This figure is expected to rise further as we continue to develop our in-house web and digital marketing expertise and launch the latest version of our website in the second half.”
Domino’s opened 10 stores in the UK in Q2, making a total of 15 (2012: 19) in H1. “As in 2012, the store opening programme is heavily weighted towards the second half of the year and we anticipate opening a comparable number of new stores to last year.”
Of its German business, the firm said: “The German business has also delivered strong like-for-like sales from its six mature stores, albeit from a lower base. The franchised stores, in particular, are producing pleasing results, with sales growth levels higher than expected. Seven stores have been opened in the territory in the period.
“Despite the strong like-for-likes, AWUS in Germany for the corporate stores is tracking significantly behind both our expectations and the franchised stores and, as a result, this territory as a whole has delivered lower than expected sales in the first half. This sales shortfall, combined with higher costs associated with training new team members and developing new products, resulted in losses, pre-exceptionals, for the half-year that were around £1.5m higher than expected. For the full year, losses, pre-exceptionals and other one-off costs, are now expected to be £2m to £3m higher than originally anticipated.”
Batchelor said: “I am pleased with the overall results for the first half - particularly the core UK and Ireland businesses which have shown strong like-for-like sales growth against challenging comparatives. Our franchise system leads the leisure sector and, with the majority of our business coming via a web and mobile platform, we are now truly an online retailer.
“In our fledgling German business, as in the UK, our franchisees are those with the expertise to run great stores. Our Corporate stores have allowed us to test menus, develop marketing plans and understand the German consumer and are growing steadily. However the ground work is done and it is time to drive our German expansion using our tried and tested franchise model.
“We know the best way to get great results from stores is to put them in the hands of franchisees - and with five world-class franchisees now operating in the German market and more arriving shortly, we are excited about the future in this territory.”
Ginsberg is to retire and stand down at the 2014 AGM “after a decade of outstanding service to Domino’s”, said Stephen Hemsley, non-executive chairman.
“We have begun our search for his successor who needs to display the same insight and entrepreneurial talents as Lee has contributed to our business. Lee has agreed to provide us with every assistance in the recruitment and handover to his successor. It is far too early to say goodbyes, but when Lee does go he will certainly be missed.”
Douglas Jack at Numis issued an Add recommendation at a 700p Target Price.
He said: “H1 PBT was flat, at £22.2m (we forecast £22.1m), with EPS up 5.4% and the dividend up 7.6%. H1 was held back by higher German losses, which should peak at £5-6m this year. Partly due to the conversion of corporate stores to franchise, we are reducing our 2014E forecast loss for Germany to £2.0m (from £2.5m), upgrading 2014E PBT by £0.5m, such that we forecast group PBT growth of 19% (21% EPS) next year. We would use recent share price weakness to buy into this growth.
“We are holding our 2013E forecasts (assuming 4% LFL UK sales/30bps margin improvement) and upgrading 2014E by £0.5m reflecting the German franchise conversion programme. This contributes to the resumption of strong growth next year, which recent weakness has brought an opportunity to buy into, in our view.”
