Domino's Pizza shares fall after profit guidance cut
Shares in the pizza delivery group dropped more than 15 per cent on Tuesday after it said it expected underlying earnings before interest, taxation, depreciation and amortisation (ebitda) of between £130 million and £140 million, down from a previous range of £140.8 million and £149.7 million.
The shares fell 41p, or 16.7 per cent, to 205p in afternoon trading.
Andrew Rennie, chief executive, said there was 'no getting away from the fact' that the market had become tougher. That had meant that a strong performance across the first four months did not continue into May and June.
The government has refused to rule out another round of tax increases in the autumn budget despite warnings of job cuts and higher shop prices. Businesses have faced higher labour costs since employers' national insurance contributions increased in April alongside a rise in the national living wage. Retailers are also concerned about the knock-on impact of Labour's workers' rights bill on the sector.
Papa John's, the Kentucky-based fast-food chain, announced the closure of 74 of its UK pizza takeaway stores on Tuesday as its UK business revealed pre-tax losses of £21.8 million.
Rennie said a tough backdrop and uncertainty over tax hikes in autumn had led consumers to 'sit back on their heels', adding: 'I'm definitely concerned about more tax hikes, particularly for our franchisees.'
Domino's operates a franchise structure in Britain with its UK-listed entity, Domino's Pizza Group, acting as the master franchiser. The company said average profitability at its UK stores fell 5 per cent to £77,000 over the half-year after a significant increase in labour costs, with franchisees also taking a 'more cautious approach' to opening new outlets.
'We're a small business with lots of entrepreneurs so the cost hits them much more than it does us,' Rennie said. 'We're talking tens of millions.'
However, he insisted the pizza chain was well-positioned to 'weather the storm' and would not 'cut corners on services or products' in response.
'When you've been around 40 years, you want to be around another 40,' he said. 'You don't make short-term decisions that are going to hurt the business … It's a moment in time, it's going to pass.'
Founded by the philanthropist Tom Monaghan in 1960, Domino's opened its first UK store in Luton in 1985. Rennie opened his own Domino's store in Darwin, Australia, at the age of 26. These days, the company delivers more than 106 million pizzas to its UK customer base each year and is listed on London's FTSE 250 exchange.
Domino's reported a 14.8 per cent decline in underlying pre-tax profit for the 26 weeks ended 29 June, down to £43.7 million. On a statutory basis, profit dropped by nearly a third to £40.5 million.
Group revenue increased overall by 1.4 per cent to £331.5 million, alongside a 1.3 per cent rise in wider system sales to £777.8 million as Domino's benefited from 'exceptional demand' for its Ultimate Hot Honey Pepperoni Pizza and partnerships with the delivery services Just Eat and Uber Eats.
So far this year the company has opened 11 new stores with nine franchise partners.
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