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Morning Briefing for pub, restaurant and food wervice operators

Mon 23rd Mar 2015 - Domino’s Poland reports “step-change” in store performance
Domino’s Poland reports “step-change” in store performance: Domino’s Poland has reported system sales up 35% for the full year to 31 December 2014. It has seen nine consecutive quarters of double digit like-for-like system sales growth. It reported a step-change in store Ebitda performance and Group Ebitda up 15% pre-exceptionals. DP Poland has the exclusive right to develop, operate and franchise Domino’s Pizza stores in Poland. It currently operates 12 corporate stores in Warsaw and Krakow and franchises 6 stores in Warsaw. System sales were £3.96m in 2014 versus £2.93m in the previous year. Like-for-like system sales in January 2015 were up 18%, and rose 16% in February 2015. Total stores Ebitda was positive for each month of Quarter Four of 2014. Top three corporate stores averaged +£24,000 Ebitda each in 2014 versus -£12,000 each in 2013. The oldest corporate store delivered Ebitda of £34,000 in 2014. Significant new store openings are targeted for 2015. Peter Shaw, chief executive of DP Poland ,said: “As announced in February, we have seen significant improvements in system sales and store Ebitda. With our most mature corporate stores delivering continuous year-on-year Ebitda growth and a 15% improvement in Group Ebitda, pre-exceptionals, the business is in a markedly stronger position than it was 12 months ago. For 2015 we will continue to focus on store performance while regaining momentum in store roll-out. The planned expansion of the store estate and the requisite expansion of commissary capacity will require us to consider sources of financing, including a potential issuance of equity in due course. We have a compelling consumer offer, strong operations and effective marketing, as assessed by our franchisor, DPI, and as such we anticipate 2015 to be another year of significant progress.” Chairman Nicholas Donaldson said: “For 2014 we took the decision to focus on store performance over store roll-out, to ‘prove the model’ before investing in further store openings. As reported in the 2014 interim statement, by the half-year point a number of corporate stores were consistently Ebitda positive. The second half of 2014 saw store profitability improve further and by the fourth quarter the store estate as a whole was Ebitda positive. This was a significant point in the development of Domino’s in Poland as, whilst we slowed down the expected rate of revenue growth, we saw more stores cross the threshold into sustained profitability. The store estate is now starting to make a meaningful contribution to the central costs of running the business. As well as improving store performance we saw important developments in store franchising. The acquisition of five corporate stores by franchisees in November 2014 has, we believe, laid the foundation for the establishment of franchising of Domino’s Pizza stores in Poland. I am delighted that some of our most experienced managers have now taken this step into franchising, having lived and breathed Domino’s since our first store opened and becoming convinced of the potential to build their own successful Domino’s franchised businesses. Our first franchisees have demonstrated their ambition and I am confident that their example will attract others. The development of franchising will bring a significant change to the shape and nature of the business as our commissary becomes a profit centre. Looking to 2015 we are preparing to open a number of corporate stores in new cities, as well as possible further openings in Krakow and Warsaw, where we are already established. These new store openings will maintain our momentum and, I believe, demonstrate to potential and existing franchisees the opportunities for Domino’s beyond Warsaw and Krakow. It is still early days and we are conscious that at this stage in our development we cannot currently expect franchisees to open stores in unproven cities unless we are willing to do so ourselves. The longer term roll-out of stores will be dependent on a compelling franchise proposition, with attractive investment levels and returns. The figures for January and February of 2015 suggest that our strong sales performance is set to continue, with a growing contribution from the store estate to central costs. We continue to focus on keeping costs tightly under control and reducing where possible. Essential investment in marketing and operations, that looks disproportionate in the early phases of a business, begins to look more appropriate as traction takes hold and the business starts to grow strongly. While there remains a long journey ahead to reach Group profitability, your board feels as enthused as ever about the opportunity for Domino’s Pizza in this substantial market. That enthusiasm is now backed by the strong supporting evidence of continually improving store performance, correlating with the historic development of Domino’s in established markets.”

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