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Morning Briefing for pub, restaurant and food wervice operators

Thu 2nd Oct 2014 - Domino’s UK reports 12.9% like-for-like growth
Domino’s UK reports 12.9% like-for-like growth: Domino’s UK has reported 12.9% like-for-like sales growth in its Third Quarter, the 13 weeks to 28 September. System sales grew to £165.7m. The Republic of Ireland saw 5.3% like-for-like sales growth to take turnover to 5.3m euros while Switzerland sales were up 7.6% to 3.4m Swiss francs and Germany saw a 9.9% like-for-like decline to takes sales to 2.5m euros. The company stated: “UK performance since the half year has been strong, with the fourth successive quarter of double-digit like-for-like sales growth. This has been achieved through improved economic conditions, continued emphasis on meal deal promotions and migration by our customers to on-line ordering where ticket remains higher. In the period, orders representing 70.9% of delivered sales were placed on-line (2013: 62.4%). Of these, participation of mobile devices was 49.3% (2013: 33.8%), reflecting the increased popularity of both our website and app. During the period we opened 13 new stores in the UK, bringing the year-to-date total to 21. In line with the usual second half weighting, we are on target to open 40-50 stores by the end of 2014. Helped by the continued economic recovery, especially in Dublin, ROI had its best quarter of the year so far. We recently launched “Pan Pizza” into this market and continue to grow market share. The transformation of our business in Germany is continuing, with reductions in delivery areas and local marketing spend, and a focus on pizza quality and operational effectiveness. As indicated at the half year, we have mothballed several underperforming stores. At the end of the quarter we had 11 corporate and 11 franchised outlets. Switzerland had an excellent quarter, reflecting the benefits of the store refurbishment and relocation programme. We recently strengthened the management and are confident of moving into profitability during the next quarter.” Chief executive David Wild said: “We are delighted with the like-for-like performance in our core UK business and remain on track for our targeted new store opening programme. We are building on our success on-line with the roll-out of our new website and a series of enhancements to continue to make it easy for our customers to order Domino’s. Progress in Germany is slower than we would have liked, but we are committed to the execution of our strategy. Our performance in Switzerland is encouraging. We face more challenging comparatives for the final quarter, but we remain confident of a satisfactory outcome for the year and are planning to build on this success in 2015.” City analyst Douglas Jack, of house broker Numis Securities, issuing a ‘Buy’ note with 710p share price target, said: “Trading was strong in Q3, with UK like-for-like sales up 12.9%. We are holding our forecasts overall, with an UK upgrade matching a small downgrade in Europe. We believe forecast risk still remains on the upside: in H1, underlying PBT rose 24%; in comparison, our H2 forecast is for PBT to increase by 11%. The 2015E P/E is 17.7x (versus 23x historical average) if one excludes the operations in mainland Europe, which Domino’s could exit if necessary. With UK franchisee profits up 17% and new store average sales up 12% in H1, there is plenty of growth in the UK. Given this and the upgrade risk, our recommendation is ‘Buy’.”
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