An eleventh consecutive quarter of double-digit sales growth at Domino’s Pizza franchise DP Poland (DPP:AIM) sends shares in the £24 million cap 6.9% higher to 19.5p, but challenging times are again on the horizon.
Like-for-like sales are up 16% in the six months to 30 June and the group’s EBITDA (earnings before interest, tax, depreciation and amortisation) loss has narrowed by 40% to £773,591.
DP Poland had previously struggled to get the Domino’s brand accepted by Polish consumers but today’s results suggest it’s starting to gain traction.
For the first time revenue minus direct costs has turned positive and the group is now planning to expand into a third (undisclosed) Polish city, alongside Warsaw and Krakow, in October.
Chief executive Peter Shaw says the buoyant consumer economy will benefit its sales performance in the second half but he warns the falling unemployment rate could result in a rise in labour costs.
He admits the store roll-out will impact the bottom line before the stores hit breakeven.
‘Our most recent store openings provide encouragement that these new stores will outperform our original store openings and, perhaps more encouraging still, our most established stores look set to deliver a very healthy level of store EBITDA for 2015, supporting our original vision that the Polish consumer would come to love Domino's Pizza,’ says Shaw.
Shaw previously told Shares the new stores outside of Warsaw and Krakow will be smaller with significantly lower rents but that take-up will be lower because the Domino’s brand hasn’t been established in other parts of Poland.
Establishing the brand in Warsaw has been a challenging task. It took a long time to get the stores EBITDA positive and DP Poland has previously said reaching group profitability will be a long journey.
Investors should brace themselves for wider losses, at least in the short-term.