Domino’s: Higher employment costs and slowing sales dampen profitability
New store openings at Domino’s have been lower than expected as it franchisees struggle with lower profitability in a tough market.
Just 11 stores have been opened in the year to date, with new openings in the full year expect to be in the mid twenties as franchisees becomes “cautious… given increased employment costs,” Domino’s said.
“Having faced a 10 per cent minimum wage increase [last year], our franchise partners faced a further significant labour cost increase [this year]… as a result, franchise partner profitability declined,” the company added.
Overall sales at Domino’s grew 1.3 per cent to £777.8m in the 26 weeks to June 29, while revenue grew 1.4 per cent to £331.5m.
Underlying earnings before interest, tax, depreciation and amortization (EBITDA) fell 7.4 per cent to £63.9m, while underlying profit before tax fell 14.8 per cent to £43.7m.
The company expects underlying EBITDA for the full year to be £130m to £140m, a 7.5 per cent downgrade on previous estimates.
Difficult market conditions
Chief executive Andrew Rennie said that the market backdrop has become “more difficult”.
“There’s no getting away from the fact that the market has become tougher both for us and our franchisees, and that’s meant that the positive performance across the first four months didn’t continue into May and June.
“Given weaker consumer confidence, increased employment costs and uncertainty ahead of the Autumn Statement, franchisees are taking a more cautious approach to store openings for the time being,” he said.
Peel Hunt rated Domino’s a ‘buy’ but lowered its target share price for the company to 450p.
“Despite a challenging market backdrop, Domino’s continues to consolidate its market leadership… However, system sales and order count growth decelerated in [the second quarter] amid consumer weakness.”
“Operationally, the loyalty programme trial is progressing well with a 2026 rollout planned, and supply chain automation initiatives remain on track to deliver further efficiencies. While trading conditions remain tough, Domino’s is actively investing in strategic growth areas.”