Domino's Pizza facing diminished profitability due to increased workforce expenses and decreasing sales velocity

Domino's Faces Challenging Trading Conditions, Plans for 2026 Loyalty Programme Rollout

Domino's Pizza, the global leader in pizza delivery, has reported a mixed set of results for the 26 weeks ending June 29, 2023. The company's operational performance has remained strong, consolidating its market leadership, but it has faced difficulties due to weaker consumer confidence and increased employment costs.

In the first half of the year, Domino's opened only 11 stores, a significant decrease from previous years. This cautious approach to store openings is being adopted by franchisees worldwide, including Domino's Pizza Enterprises in Australia and BENELUX, and the Domino's Pizza Group in the UK and Ireland. These regions have faced store closures and loss pressures due to increased costs and competitive challenges.

The company's underlying earnings before interest, tax, depreciation, and amortization (EBITDA) fell 7.4% to £63.9m, and the expected underlying EBITDA for the full year is between £130m and £140m, a 7.5% downgrade on previous estimates. Underlying profit before tax fell 14.8% to £43.7m.

The system sales and order count growth decelerated in the second quarter due to consumer weakness. This was compounded by a 10% minimum wage increase last year and a further significant labour cost increase this year, which has led to a decline in franchise partner profitability.

Despite these challenges, Domino's is actively investing in strategic growth areas. The positive performance of the company in the first four months did not continue into May and June, with overall sales growing only 1.3% to £777.8m and revenue growing 1.4% to £331.5m during the same period.

Peel Hunt has rated Domino's as a 'buy' but lowered its target share price for the company to 450p. The company's supply chain automation initiatives are on track to deliver further efficiencies, with the planned rollout of its loyalty programme set for 2026.

In conclusion, while Domino's has faced a difficult market backdrop, it remains committed to its strategic growth initiatives and is looking forward to the rollout of its loyalty programme in 2026.

Domino's Pizza facing diminished profitability due to increased workforce expenses and decreasing sales velocity