ii view: Domino's Pizza headwinds seen into 2022

Growing sales are now battling supply chain and wage inflation concerns. Buy, sell or hold?

Third-quarter trading update to 26 September

• Like-for-like sales up 8.8% to £375.8 million
• Opened five new stores in the quarter

Chief executive Dominic Paul said:

"We have delivered another strong quarter and demonstrated excellent momentum in the business which reflects the hard work and commitment of our franchisees and colleagues.  We have built on our strong performance through the pandemic as restrictions have been lifted, with our collections business continuing its recovery and our total order count growing in a profitable and sustainable way.

“Our supply chain continues to deliver outstanding results, despite the well-publicised inflationary pressures and challenging labour market, which is testament to the skill and dedication of our teams.  While we see these pressures continuing into 2022, our success in managing them to date provides us with confidence that our growth momentum will be sustained.  We're proud to be creating new jobs to support that growth and today are announcing that we are recruiting 8,000 new colleagues across the UK and Ireland.”

ii round-up:

Domino's Pizza Group (LSE:DOM) holds the master franchise agreement to own, operate and franchise Domino's stores in the UK and the Republic of Ireland.

It operates over 1,200 outlets across the two nations.

For a round-up of this latest trading update, please click here. 

ii view:

It opened its first UK outlet back in 1985. The FTSE 250-listed company holds the master franchise agreement to own, operate and franchise Domino's stores in the UK and the Republic of Ireland. In October 2019, it decided to sell all its directly operated international operations to allow management to focus on the core UK and Irish businesses. The sale of its Swiss operations back in September completed its exit overseas. 

For investors, the ongoing reopening of its outlets during the pandemic offers reassurance. Continued new outlet openings and a concentration on its UK and Irish outlets, given the sale of its overseas businesses, are not to be forgotten. Neither is growth in orders via its mobile app, which accounted for over 40% of these latest sales, or a forecast future dividend yield of over 2.5%. 

But broader supply chain issues, driver shortages and wage inflation could all impede growth going forward. The temporary reduction in VAT is due to return to its 20% level this coming April, while the firm’s relationship with its franchisees has not always proved smooth. In all, given a series of potential headwinds and a current consensus analyst estimate fair value of 365p, and despite a dip in price recently, the shares are arguably up with events for now. 

Positives: 

• Digital sales growth
• Ongoing share buyback programme

Negatives:

• Reduced geographical diversity
• Intense competition

The average rating of stock market analysts:

Weak hold