The Domino’s Pizza Enterprises Ltd. (ASX: DMP) share price is under the spotlight after the company released its FY22 result and announced acquisitions.
Domino’s is an ASX-listed franchisor of Domino’s outlets in a number of markets, but it’s a different business to Domino’s in the US and the UK.
Domino’s FY22 result
Here are some of the highlights from the report:
- Network sales grew 4.6% to $3.92 billion
- Total revenue increased 4.1% to $2.29 billion
- Same store sales fell 0.3%
- EBIT (EBIT explained) fell by 10.5% to $262.9 million
- Underlying net profit after tax (NPAT) declined 12.5% to $165 million
- Statutory net profit dropped 14% to $158.7 million
- Operating cashflow sank 49.1% to $190.1 million
- 450 new stores added (15.3% of the network), with 156 of those being acquired (Taiwan)
While total EBIT did fall, it was a mixed bag between geographic regions. Profitability is important for the Domino’s share price.
European EBIT fell 11% to $78.8 million. It was comparing against strong comparatives. France’s menu “didn’t resonate with returning value-focused, carry-out customers”. In Germany it had to pay a final royalty ‘step-up’ of $3.9 million.
ANZ EBIT increased 2.8% to $121.2 million. This was helped by opening new stores and was achieved despite a temporary closure of some NZ stores for between two weeks to up to a month.
Asia EBIT sank 23.1% to $85 million, which was the majority of the cause of the overall decline of EBIT for Domino’s. The Japan segment appeared to suffer due to the lifting of the national state of emergency and volume fell to a new normal. However, in the second half, franchise profitability remained “elevated” compared to pre-COVID. This gives management confidence for the store roll-out opportunity.
Inflation
Domino’s outlined a multi-pronged plan to respond to inflation, starting with its supply chain efficiencies, and operations and technology investments, to make it a very efficient food delivery. The company wants to ensure strong unit economics and that it has the lowest cost of operations and it can pass those savings through to customers.
It said it has slightly increased some prices and it’s likely to increase prices some more.
Dividend
In a surprising move, Domino’s decided to decrease its annual dividend by 9.8% to 156.5 cents per share.
Asian acquisition
Domino’s has entered into a binding agreement to acquire and enter three new markets – Malaysia, Singapore and Cambodia, comprising 287 corporate stores. It made $21 million of normalised EBITDA in FY22.
The acquisition price is equivalent to A$214 million. This was around 10 times the normalised FY22 EBITDA. It will fund this through debt facilities.
This deal means Domino’s increases its future store count outlook in Asia from 2,400 stores to 3,000 stores by 2033.
FY23 trading update and outlook
Domino’s said that it has opened 13 new stores in the new financial year, but network sales are down 2.4% and same store sales are down 1.1%. Domino’s is comparing against a very strong comparable period.
Management said that with menu innovation in new markets, and new technology being rolled out, there is positive sales momentum and it expects “to be within” its 3% to 6% outlook for same store sales this year.
It said that opening new stores (closer to customers) improves unit economics, builds customer satisfaction and loyalty and will help it be the most efficient and sustainable delivery fast food business.
Domino’s is an interesting business. It’s a global ASX success story, which is about to become even more global. Organic growth is important, so it’ll be interesting to see how same store sales growth looks after it stops comparing against locked down periods.
It could be worth owning for the long-term, but I’m not sure what a good price is for the ASX share. Prior to the market opening, the Domino’s share price had fallen 45% in 2022.
