ii view: Domino's Pizza serves up tasty annual profit

8th March 2022 14:57

It's been a poor 2022 for Domino's shares and headwinds persist, but a dispute with franchisees is now behind it.

Full-year results to 26 December 2021

System sales up 11.2% to £1.49 billion
Revenue up 11% to £561 million
Adjusted pre-tax profit up 12.5% to £114 million
Final dividend of 6.8p per share
Total full year dividend up 7.7% to 9.8p per share
Net debt up 16% to £199.7 million

Chief executive Dominic Paul said:

This was a transformational year for Domino's. Our performance continues to be strong, and we have made significant progress against our strategic plan, all while delivering on our ambition to return excess capital to shareholders.

"This year has started well, and we now have the right strategy and a strong senior team in place to continue to drive the business forward. We remain focussed on accelerating the sustainable growth of our system together, to deliver a better future through food people love."

ii round-up:

Domino's Pizza Group (LSE:DOM) today reported both improved profits due to benefits from lower Covid-related costs, and expectations for sales growth as it resolved a dispute with its franchise store holders.

Adjusted pre-tax profit rose 12.5% to £114 million, with an acceleration in underlying system sales growth forecast given expected increased store openings following a dispute resolution with its franchisees.

Domino's shares rose around 4% in UK trading, having already gained by over a quarter since pandemic market lows in March 2020. Shares for Premier Inn and Beefeater owner Whitbread (LSE:WTB) are up by a similar amount, while the FTSE All Share index is up by just over 40%.

Domino’s holds the master franchise agreement to own, operate and franchise Domino's stores in the UK and the Republic of Ireland. It operates over 1,220 outlets across the two nations, having in late 2019 decided to sell all its directly operated international operations to give increased focus.

Adjusting for a temporary VAT benefit, adjusted like-for-like system sales grew by 5.5% to £1.49 billion. The total dividend payment for the full year rose 7.7% to 9.8p per share, with a new £46 million share buyback now commencing.

Trading in the first quarter was summarised as "starting well", aided by its first national price campaign for several years and made possible given the previous resolution with franchisees.

Domino’s Annual General Meeting is scheduled for 5 May.

ii view:

The company opened its first UK outlet in 1985. The FTSE-250 listed company holds the master franchise agreement from the US Domino’s company to own, operate and franchise Domino's stores in the UK and the Republic of Ireland. It also retains associate investments in both Germany and Luxembourg.

For investors, broader supply chain issues, driver shortages and wage inflation all offer potential headwinds. The temporary reduction in VAT is due to return to its 20% level as of early April, while the firm’s relationship with its franchisees has on occasion offered challenges. Crucially, the conflict in Ukraine is set to raise the cost of wheat which, despite hedging against this particular cost increase, will have an effect on Domino's.

On the upside, increased management focus after selling its overseas operations and the previous resolution with franchisees are clear positives. A renewed strategy concentrating on areas such as delivery and product and value is being pursued, while its focus on shareholder returns is underlined by a new £46 million share buyback programme following 2020’s £80 million scheme. In all, and with a series of potential headwinds sat against what appears to be a reinvigorated business, grounds for longer-term optimism look to exist.

Positives:

Over 90% of sales via digital channels
A new share buyback programme

Negatives:

Reduced geographical diversity
Intense competition

The average rating of stock market analysts:

Hold

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