Domino’s Pizza Group Plc Strong UK performance; weaker sales in some international markets

Domino’s Pizza Group Plc (LON:DOM), today announced Q4 trading update.

Q4 Highlights

· Organic Group system sales up 5.8%

· UK system sales up 6.0% and UK LFL sales up 4.5%

o Busiest week ever in the run-up to Christmas

o Strong digital performance: online sales up 10.8%

· 1,261 stores group-wide; 25 new stores opened in Q4, UK & ROI at 59 openings for 2018, creating more than 2,000 jobs

· Strong UK & ROI performance offset by weaker International sales progress and business integration challenges in Norway: full year Underlying PBT now expected to be at the lower end of the consensus range of £93.9m-£98.2m

Capital markets event and initial outlook for 2019

· UK delivered food market expected to be worth £9.3bn by 2022; CAGR 8%. Domino’s aims to maintain market share over this period

· Potential for 1,600 stores in the UK reaffirmed, providing attractive returns for both Domino’s shareholders and franchisees

· 2019 store pipeline similar to 2018 at the same time last year

· Continued UK & ROI growth; increased investment in International – breakeven result expected

David Wild, Domino’s Chief Executive Officer, said:

“I’m pleased with the continued strong performance in the UK and Ireland, where we opened a further 59 stores. Many families decided to kick off the festive season with a Domino’s, with the Friday before Christmas breaking all records as we sold more than 535,000 pizzas – equivalent to 12 every second.

“Our international businesses offer significant long term potential, but we have experienced growing pains this year, particularly in Norway, where we have faced business integration challenges. Looking ahead, we will invest further in robust teams and infrastructure in our newer markets, to create a solid platform for profitable growth.

“The UK delivered food market is vibrant and we estimate that it will grow at a compound rate of 8% a year to 2022. We aim to maintain our share of this market, thanks to over 30 years of experience in delivery, a leading brand, great-tasting pizza and superior franchisees.”

1 Organic growth represents year-on-year performance on a constant currency basis and excluding the impact of acquisitions or disposals.

UK & ROI

UK and ROI system sales were up 6.2% in the quarter. In the UK, system sales rose 6.0%, with like-for-like growth, excluding stores in split territories, of 4.5%. Like-for-like volume growth was 0.6% and ticket growth was 3.9%. Franchisees opened a further 16 stores in the period, taking the total for the year to 58. 29 franchisees opened at least one store during the year.

Online sales in the UK were up 10.8%, representing a record 80.1% of sales during the period. The night of the Strictly Come Dancing Final, Saturday 15th December, saw a new online record with sales up 25% compared to the same day the prior year. During our biggest ever week, we sold a record number of pizzas the Friday before Christmas, helped by our ongoing product innovation, including our increasingly popular Cheeseburger pizza.

ROI system sales were up 10.2% on a constant currency basis. Like-for-like sales, excluding stores in split territories, grew 7.5%.

International

Overall system sales growth in our controlled international operations was 1.6% on a constant currency basis. During the quarter we established an International management team for the first time, under the leadership of Simon Wallis, taking responsibility for the development of all our markets outside of UK & ROI. Simon is developing the infrastructure required to enable us to grow successfully in these markets. As a result of weaker Q4 sales in a number of markets, which continued to be weather-affected, and business integration challenges in Norway, we now expect International (including Germany) to make a loss of £3-4m for the 2018 year.

Switzerland achieved constant currency system sales growth of (0.6)%, with like-for-like performance of (7.7)% reflecting the strong performance in the prior period, and the temporary closure of our busiest store due to fire damage. We opened one new store in the period, ending the year with 20.

In Iceland, constant currency system sales were up 1.5%, with like-for-like performance of (0.7)%. A further two stores were opened in Q4, taking the total to 25.

In Norway, we now trade from 42 Domino’s branded outlets, adding a further four stores during the period. System sales growth in local currency from the Domino’s chain was 47.5%, supported by the ongoing conversion of Dolly Dimple’s stores. Like-for-like performance of (6.4)% reflects the continued impact of unseasonably warm and dry weather, and delivery area reduction as we converted Dolly Dimple’s stores. The process of integrating the two Norwegian operations we acquired in the first half of 2017 has proven more complex and challenging than expected. During the quarter we have significantly strengthened the local management team of the Norwegian business, scaling up the local finance team in particular.

In Sweden, constant currency system sales were up 34.7%. We opened two new stores in Q4, taking the total to nine.

In Germany, progress on the conversion of Hallo Pizza outlets continues to be good as we build nationwide scale under the Domino’s brand.

Capital markets event

This morning, Domino’s is hosting a capital markets event for analysts and investors at the offices of Goldman Sachs, Peterborough Court, 133 Fleet Street, London EC4A 2BB starting at 10.00am, with registration from 9.30am. The event will also be webcast live at https://www.investis-live.com/dominos/5c3c9cc7cad1ac0c003ae5a1/omdd and will be available for replay shortly afterwards.

The purpose of the event is to revisit several of the main elements of the Domino’s investment case focusing on the UK business, including the structure of the Domino’s franchise agreement in the UK, the attractive economics of the Domino’s system, the strong forecast growth of the UK delivered food market, and the evidence underpinning the 1,600 UK store target.

Initial outlook for 2019

We expect continued growth in the UK and ROI this year. As usual, the significant majority of UK growth is expected to come from like-for-like growth and the contribution from last year’s new stores. The overall pipeline for new UK stores is similar to the same point in 2018.

In our International operations, we plan to invest in central functions and infrastructure to support much bigger businesses. While this will have an impact on overall profitability in the short term, we are confident of the long term opportunities these markets offer. At this early stage we expect International (including Germany) to break even in 2019.