Shares in pizza delivery chain Domino’s (DOM) slump 9.8% to 286.7p following disappointing like-for-like sales growth, sluggish international growth and a cautious outlook.
UK like-for-like sales growth slowed to 4.7% in its second quarter, down from 5.9% for the first half as a whole, as people enjoyed the heatwave and ordered less pizza.
CAUTIOUS OUTLOOK IN THE UK
Domino’s says the UK trading environment continues to be ‘uncertain,’ warning of squeezed incomes and inflationary pressures from higher wages and food costs, as well as business rates.
Future store openings have been cut back from 65 to 75 in March to 60, implying a more disciplined approach to openings to avoid cannibalising sales and/or that the UK market is worse than anticipated.
Overseas, system sales from international operations soared 116.4% year-on-year to £51.5m. Unfortunately underlying profits in Iceland and Germany were offset by losses in Switzerland, Norway and Sweden.
Canaccord Genuity’s Nigel Parson believes Domino’s delivered a strong performance during the heatwave and is optimistic that international operations will be ‘material growth drivers.’
AJ Bell investment director Russ Mould is concerned about high debt.
He notes net debt at Domino's trebled year-on-year to £182.1m following heavy investment in the business and returns to shareholders.
The weak outlook in the UK is also worrying as it accounts for the vast majority of its sales.
Mould adds: 'The group's caution on the UK, which still accounts for more than 80% of revenue, chimes with the tone adopted by many other consumer-facing businesses but the company is seeing little relief internationally either.
'Here the company is still struggling to perfect the same formula which has underpinned its success in the UK.'
