Domino’s Pizza shares slump despite buyback as company lowers guidance
Domino’s has reported a strong second quarter boosted by the Euro 2024 championship, as the fast-food giant announced a share buyback programme of £20m.
However, the firm has also warned about future prospects. In a statement this morning, the company said that it expected earnings to fall at the lower end of its guidance for the year.
Shares in the company slumped by as much as seven per cent in early deals after the warning.
Domino’s said its underlying profit before tax at the company rose by 0.8 per cent to reach £51.3m in the 26 weeks ended June 30, while underlying profit after tax fell by £0.9m to reach £38.7m.
Total orders meanwhile fell by 0.9 per cent to 35.1m, as group revenue dropped by 1.8 per cent to £326.8m.
After two months of a buoyant stock price, shares in the London-listed company dropped 14 per cent in July.
Domino’s told markets that the new £20m buyback programme was “reflecting confidence in future prospects”, having, since March 2021, announced £461m of shareholder returns comprising £185m in dividends and £276m in share buybacks, already.
The pizza chain said it expected underlying earnings before interest, tax, depreciation and amortization to come in at the low range of its guidance, “given the slower start to [the year] and the greater pass-through of food costs to franchise partners.”
Chief executive Andrew Rennie said: “We now have good momentum in the business with our strategic initiatives gaining traction and our trading performance accelerating steadily against strong comparatives from last year. In the second quarter we grew orders, with a notable improvement from the middle of May and importantly have halted the trend of declining delivery orders.
These are now returning to growth and this momentum has continued through June and July, helped by a good performance through the Men’s Euro Football tournament.
“In our core UK & Ireland business, we see significant opportunity for further growth through opening new stores, an exciting new loyalty trial to drive frequency and a focus on value and service, especially in the delivery channel. There is alignment with our franchise partners and tangible energy across the system to capitalise on this opportunity.”
The group opened 22 new stores in the first half of the year, with a further 38 in the pipeline. Domino’s expects to open 70 stores in the financial year 2024.
Domino’s has around 1,200 stores across the UK and Ireland, including 104 sites in London alone.
Net debt increased by £52.6m during the period to £285.4m, largely due to a new £100m loan signed during the year.
The group disposed of its German arm for £40.6m and its corporate stores for £11.2m during the period.
Analyst at AJ Bell, Russ Mould, called Domino’s results “soggy”.
“The company has been affected by passing on a greater proportion of easing food costs to its franchise partners – presumably to help sustain a positive relationship given historic issues with franchisees,” he said.
“While a recent boost in business during the Euros football tournament is obviously welcome it is also transitory and the fear will be that a difficult first few months of 2024 are more reflective of people’s willingness and ability to shell out £20-plus on a pizza.
“The company has tried to signal some confidence in the outlook with a £20 million share buyback programme but the market appears unconvinced by this for now and Domino’s really needs to serve up a strong second half to win investors round,” Pattinson said.
Jefferies analysts, however, rated the stock a ‘buy’, and added that they “see upside from multiple growth accelerators, including new Irish franchisee acquisition, loyalty programme ramp, Uber Eats roll-out, collection growth and increased store roll-out”.