Domino’s Pizza Group Plc (LON:DOM) has announced its full year results for the year ended 31 December 2023
Continued sales growth in 2023 drives increased profit, cashflow and shareholder returns
Acquiring full control of Shorecal to meaningfully accelerate growth in Ireland7
Accelerating organic growth – expect in excess of 70 new stores in 2024, targeting in excess of 1,600 stores and £2.0bn system sales in 2028 and 2,000 stores, £2.5bn system sales by 2033
| 53 weeks to 31 December 2023 | 52 weeks to 24 December 2023(unaudited) | 52 weeks to 25 December 2022 | % change 52 weeks vs. 52 weeks | |
| System sales1 | £1,572m | £1,541m | £1,456m | +5.8% |
| Like-for-Like system sales growth (exc.splits & VAT)2, 3 | – | +5.7% | +5.3% | – |
| Group revenue | £679.8m | £667.0m | £600.3m | +11.1% |
| Underlying4, * EBITDA | £138.1m | £134.8m | £130.1m | +3.6% |
| Underlying* profit before tax | £101.7m | £99.0m | £98.9m | +0.1% |
| Statutory profit after tax | £115.0m | – | £81.6m | +40.9%** |
| Underlying* basic EPS | 18.4p | 18.0p | 18.8p | (4.3)% |
| Statutory basic EPS | 28.0p | – | 18.8p | +48.9%** |
| Full year dividend per share | 10.5p | – | 10.0p | +5.0% |
FY23 was a 53-week reporting period to 31 December 2023. For the purposes of comparability, growth rates in this release are given on a 52-week basis.
* Underlying excludes the £40.6m profit on disposal of the German associate and £1.3m relating to historic share compensation schemes. Further information within footnote 4.
** The 53-week column are the statutory numbers and the 52-week column are unaudited alternative performance measures. Like-for-like sales on a 53-week basis, profit after tax on a 52-week basis, statutory EPS and DPS are not shown as not meaningful.
Commenting on the results, Andrew Rennie, CEO said:
“Last year we continued to make strong strategic progress with 61 new store openings whilst offering our customers compelling value. These efforts delivered an increase in sales and shareholder returns with continued robust profit growth. I would like to thank our world-class franchisees and colleagues for their immense hard work and dedication in achieving these results.”
“In December I set out a framework for accelerating sustainable, long-term growth. Following a great year for store openings in 2023 we are accelerating our growth and expect to have 1,600 UK & Ireland stores delivering £2.0 billion of system sales by 2028 and 2,000 stores by 2033 delivering £2.5 billion of system sales. Crucially, we have alignment with our franchisees and there is a strong, motivated second generation talent coming through the franchisee ranks to help drive this growth.”
“Since March 2021, we have taken a disciplined approach to capital allocation by following a clear framework. We have prioritised investment in the core business to drive growth and I’m excited that today we’re acquiring full control of Shorecal to accelerate our Irish growth. We see a significant opportunity to meaningfully increase our Irish store count and deliver long-term, sustainable returns. We are committed to a progressive dividend policy and I’m pleased that we have increased the dividend by 5%. DPG is a highly cash-generative, asset light business and we have been able to announce £427m of shareholder returns since March 2021, whilst also continuing to invest in the business. We are rigorously focused on accelerating organic growth and pursuing value enhancing inorganic growth opportunities, to build a larger and more cash generative business, at pace but with discipline. We look forward to providing an update on these opportunities later in the year.”
New, upgraded medium and long-term targets
· Core UK & Ireland business remains primary focus for investment and growth with material increase in store numbers and system sales
· Now expect to have in excess of 1,600 stores in the UK & Ireland by the end of 2028 and in excess of 2,000 stores in 2033
· Now expect to deliver £2.0bn system sales in the UK & Ireland by the end of 2028 and in excess of £2.5bn system sales in the UK & Ireland in 2033
FY23 financial highlights
· Like-for-like system sales (exc. splits and VAT) up 5.7% (FY22: +5.3%)
· Q4 23 +0.4% against a tough comparator (Q4 22: +13.9%)
· Group revenue up 11.1% (53-week basis: +13.2%), driven by an increase in system sales volume, acceleration of store openings and the pass-through of increased food cost
· Underlying EBITDA up 3.6% (53-week basis: +6.1%), which includes £8.9m of previously guided technology platform costs and no contribution from Germany (FY22: £2.6m)
· Statutory profit after tax of £115.0m, +40.9%, driven by proceeds from the disposal of the German associate, generating a profit of £40.6m recorded in non-underlying results
· Strong free cash flow of £97.0m, up 22.8% vs. FY22
· Proposed final dividend of 7.2p per share, resulting in a total dividend for FY23 of 10.5p per share, up 5.0% vs. FY22
· £90m returned to shareholders through share buybacks in FY235
FY23 operational and strategic highlights
· Continued gain in UK takeaway market share6 gains: 7.2% market share in FY23, up from 7.1% in FY22 in a growing market and an uncertain consumer environment
· Acceleration of store openings with 61 new stores
· Expect to open in excess of 70 new stores in FY24
· Total orders of 70.5m on a 52-week basis, up 1.0% vs. FY22
· Collections grew to 25.3m orders, up 13.3% vs. FY22
· Delivery orders down 4.8% vs. FY22, with improved performance in Q4 vs. Q3
· Average franchisee store EBITDA up 9% vs. 2019
· Continued digital progress with significant growth in app customers and orders
· 9.0m active app customers, up 48% vs FY22 with app orders as a percentage of online orders at 73.8% (+21.6ppts vs.FY22)
· Following strong first full year on Just Eat, we started an Uber Eats trial in early January 2024 and now live across c.630 stores across the UK and Ireland
· Meaningful improvement in average delivery time to 25.0 minutes (FY22: 26.3 minutes) as a result of our franchise partners’ focus on service and GPS roll out across all stores
· Following recent investment in technology, development of new ecommerce platform delivered on time and on budget, building the foundations for more effective customer promotions, and potentially, a loyalty programme
· Separately today, in line with the growth framework we laid out in December 2023, we have announced the acquisition of the outstanding shares in Shorecal Limited7 which DPG does not own for c.£62m
· The acquisition is at an attractive multiple of 8x EBITDA and is expected to be earnings accretive in the first full year of ownership and significantly accretive in the long-term
· The acquisition will allow DPG to take control of a significant opportunity to materially increase the store count in the Republic of Ireland and Northern Ireland
· Shorecal’s existing Irish management will remain in role to accelerate the growth, supported by the experienced, and recently expanded, DPG team
· Domino’s Pizza Group is committed to an asset-light business model and our strategy will centre on acquiring, strengthening and then ultimately redistributing stores to world-class franchisees
Outlook, current trading and FY24 guidance
We have maintained strong momentum against our key strategic priorities in the first quarter of FY24 with a rapid deployment of the Uber Eats trial and 7 new stores opened, with a further 33 with planning consent or under construction. New store openings will accelerate and we now expect to open in excess of 70 stores in FY24.
We expect to see some food cost deflation in FY24 which, in line with our model, will be passed through to our franchise partners. In FY23 we proactively took action to reduce our cost base and this will partially offset the overall impact of inflation on our cost base in FY24. As a result, we expect to deliver FY24 Underlying EBITDA in line with current market expectations8, and so delivering another year of further profit growth, despite the continued uncertain consumer environment.
Trading in February 2024 has seen an improved sales and order trajectory following a slow January, in part because we tactically held back on marketing spend to support more strategic launches later in 2024. We expect the current trajectory to continue but, due to performance in January, we expect orders and like-for-like sales growth to be lower than in Q1 23. We are committed to offering our customers compelling value and a new £4 lunch offer will be launching shortly, providing an incremental opportunity to target different parts of the day. We are confident that our focus on our strategic priorities will deliver order count and like-for-like sales growth in FY24.
We remain focused on accelerating our execution and delivering sustainable, profitable growth. Our asset-light business model and value proposition mean we are well placed to succeed in an uncertain trading environment, and we are confident that we will make further financial and strategic progress.
We are confident that our business model will continue to deliver meaningful free cash flow growth over the medium-to-long term and, as well as building a larger and more cash generative business, we remain committed to returning surplus cash to shareholders.
Domino’s Pizza Group’s technical guidance for FY24 is as follows:
· FY23 was a 53-week year
· Accounting treatment of technology platform costs to impact EBITDA by low single digit millions
· Underlying depreciation & amortisation of between £19m to £22m
· Underlying interest (excluding foreign exchange movements) in the range of £16m to £19m
· Estimated underlying effective tax rate of c.24% for the full year
· Capital investment of c.£20m
· Net debt at year-end between £250m and £270m
Results meeting
A results meeting and Q&A for investors and analysts will be held at 09:30 GMT today. The webcast and presentation can be accessed here and will also be available on the Results, Reports and Presentations page of our corporate website.
In addition, we will replay the webcast and Q&A at 16:00 GMT today for North American based investors not able to join the live presentation at 09:30 GMT this morning. Please click here to register.
Notes
1. System sales represent the sum of all sales made by both franchised and corporate stores to consumers in UK & Ireland. These are excluding VAT.
2. Like-for-like (excluding splits) system sales performance is calculated for UK & Ireland against a comparable 52-week period in the prior period for mature stores which were not in territories split in the current period or comparable period. Mature stores are defined as those opened prior to 26th December 2021.
3. Q1 22 had a lower rate of VAT which is therefore included in the FY comparator. An adjustment for the change in VAT rates described for system sales relates to the impact of changes in the VAT applied on hot takeaway food where the VAT inclusive price to customers did not change. The VAT rate in the UK decreased from 20% to 5% on 15 July 2020, increased to 12.5% on 1 October 2021 and reverted back to 20% on 1 April 2022. System sales are consistently reported on an exclusive of VAT basis. However, where the inclusive of VAT price of an order remained the same on a total basis to the customer, over the period of reduced VAT the exclusive of VAT price reported in system sales increased. This leads to an increase in system sales from 15 July 2020 through to 31 September 2021 when the VAT rate was reduced from 20% to 5%. From 1 October 2021, the rate increased from 5% to 12.5%. Where the inclusive of VAT price of an order remained the same on a total basis, this leads to a decrease in system sales compared to the period from 15 July 2020 and an increase in system sales compared to the period before 15 July 2020. With the increase in VAT from 1 April 2022 back up to 20%, where the inclusive of VAT price remained the same to the consumer, there has been a negative impact on system sales compared to the period from 15 July 2020 – 30 September 2021 and 1 October 21 – 31 March 2022, as the exclusive of VAT price of an order decreased.
As an example, for an order where the inclusive of VAT price is £27:
· From 15 July 2020 to 31 September 2021, during the period where VAT was 5%, the reported system sale would be £25.71
· From 1 October 2021 to 31 March 2022, during the period where VAT was 12.5%, the reported system sale would be £24.00
· From 1 April 2022 onwards, where the VAT rate is 20%, the reported system sale would be £22.50
In Ireland, the VAT rate for hot takeaway food reduced from 13.5% to 9% on 1 November 2020 and reverted to 13.5% on 1 September 2023.
4. Underlying is defined as statutory performance excluding discontinued operations, and items classified as non-underlying which includes significant non-recurring items or items directly related to merger and acquisition activity and related instruments as set out in note 3. For FY23, Underlying excludes the £40.6m profit on disposal of the German associate as well as the £1.3m tax charge relating to historical share-based compensation arrangements.
5. A £20m share buyback programme completed on 25 August 2023. The £70m share buyback programme started on 29 August 2023 and at 31 December 2023 we had executed £63.9m. The remaining £6.1m of the programme completed on 12 January 2024.
6. Kantar Worldwide Panel, bespoke market definition. FY23 is 52 weeks to 24 December 2023, FY22 is 52 weeks to 25 December 2022. Takeaway market combines both Delivery and Collection. Previously DPG had disclosed quarterly market share. This gives the annual market share for FY23 and for FY22.
7. See separate RNS. Subject to Ireland competition commission clearance.
8. Current mean of FY24 Underlying EBITDA expectations is £147.9m with a range of £139.6m – £153.2m. Based on 8 analysts’ forecasts.
