Domino's Australia franchise slumps 7% as high costs take larger slice of profit

Dominos Pizza Enterprises

21/08/2024 02:37

Aug 21 (Reuters) - Shares in Australia-based Domino's
Pizza Enterprises Ltd  DMP.AX  slumped more than 7% on
Wednesday, after the franchise operator flagged a weak start to
fiscal 2025, as rising costs and frugal consumers weighed on
profitability.
    Domino's Pizza Enterprises runs the largest master franchise
of the U.S. pizza giant  DPZ.N  in 12 countries across Asia,
Europe, Australia, and New Zealand, with a total of 3,767
stores. Japan accounts for just over a quarter of those stores.
    High living costs, normalisation of work and social life
after the pandemic, and rising operational expenses have hurt
its profitability, with focus markets such as Japan struggling
to maintain its post-COVID momentum.
    Citi analysts in May had also flagged that cheaper fast-food
and local cuisine alternative, and low popularity and product
quality posed major challenges to the franchise's Japan
ambitions.
    Domino's has since announced closure of around 80 low-volume
stores in Japan, as sales decelerated despite higher advertising
spends. Sales in its biggest market were down 2.5% so far in
financial year 2025.
    Group-wide sales trended below its expectations, with
like-for-like growth down 1.3%.
    Visible Alpha consensus expects a 10% underlying net profit
growth in the first half of fiscal 2025, which Citi analysts say
"seems high", calling the business' underlying performance
"still less than optimal".
    "Weakness in early FY25 is disappointing and the market will
be looking for evidence the sales trend can improve," Jefferies
said.
    Shares of the franchise operator fell as much as 7.3% to
A$30.970, their biggest intraday fall since Aug. 2. The stock
was among the top 10 losers in the benchmark  .AXJO  as of 0135
GMT.
    Its underlying profit dropped 8% to A$120.4 million ($81.25
million) for the year ended June 30, but met Visible Alpha
consensus. Sales grew 4.6% to A$4.19 billion but missed A$4.22
billion consensus.
    
    

($1 = 1.4819 Australian dollars)

 (Reporting by Sameer Manekar in Bengaluru; Editing by Rashmi
Aich)
 ((Sameer.Manekar@thomsonreuters.com; Twitter: https://twitter.com/sameer_manekar;))