Domino’s pizza franchise company DP Eurasia (DPEU) delivered strong first-half growth in revenues, up 21.6% to TRY 462.5m, driven by continuing like-for-like growth trends in both Turkey (+7.7%) and Russia (+4.7%).

The shares dipped 1.9% to 95.2p on disappointment over lower profit margins  in Russia, due to lower like-for-like growth and stiffer competition.

Chief executive Aslan Saranga said: ‘We are pleased to report another strong set of results for the first half of 2019. We've continued to grow our store portfolio, adding 64 stores over the last twelve months and reaching a total of 736 stores.’

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The medium-term target is to open 25 to 30 stores a year in Turkey, the majority of them franchised, while in Russia, where the footprint is smaller, the target is to open 40 to 60 a year, with a mix of company owned and franchise stores.

The potential store count is 900 in Turkey and 1,500 in Russia, so the company still has a long runway ahead, especially in Russia.

ONLINE AND APPS DRIVING GROWTH

Online revenues continue to take a higher share of the pie, and remain a key driver of like-for-like sales growth. Total online systems sales growth of 42.5% catapulted the share of online to 67.5% from 59.3% a year earlier. Apps led the category, seeing 33% and 14% like-for-like growth respectively in Turkey and Russia.

The only fly in the ointment seems to be margin pressures in Russia, which saw adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) margins fall from 4.8% to 3.4%.

Meanwhile, because of the company’s greater size in Turkey, where it is market leader, economies of scale and greater purchasing power led to a slight increase in EBITDA margins to 10.4%.

This is a credible performance given the tough macro backdrop in Turkey where inflation is running in the mid-teens, although the rate is down on the 25% seen last year. The company was able to increase prices without seeing an impact on order volumes.

There is clearly scope to improve margins through driving greater scale in relatively underpenetrated Russia. DP Eurasia expects to appoint a new chief executive for the region by the year end.

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Issue Date: 11 Sep 2019