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Tue 28th Jul 2015 - Domino’s Pizza reports like-for-likes up 10.3%
Domino’s Pizza reports like-for-likes up 10.3%: Domino’s Pizza UK has reported UK like-for-like sales growth of 10.3% in the 26 weeks to 28 June, with system sales up 14% to £426.7m. A total of 21 (2014: 8) stores opened in the period. E-commerce system sales were ahead by 24.4% with app-based sales now representing the largest distribution channel, driving 51.6% of online sales. Profit after tax rose 29% to £25.4m. The company reported a ‘significant increase in franchisee profitability’. Meanwhile, losses in Germany have narrowed from £4.7m to £1.8m. The current year has made ‘an excellent start’ with like-for-likes “up more than 10%”. Chief executive David Wild said: “We’ve had a strong first half, driven by an excellent performance in our core UK business, which has again recorded double digit like-for-like sales growth. Our international operations have also shown improvements compared to last year. Our success in the UK is a result of the investment we have made in market-leading e-commerce initiatives. Our App has now been downloaded over ten million times and our App sales have overtaken desktop sales for the first time. The 21 new stores opened in the period are performing better than ever. Our roll out is well supported by our franchisees, who are benefiting from increased profitability and are seeing a good reaction from the UK consumer to our bundle deals and other initiatives. Whilst we are pleased with our performance in the first half, we face tougher comparators in the rest of the year. We have a continued programme of e-commerce initiatives and other marketing campaigns. The UK new store pipeline is solid and we are well-positioned for the future.” The company added: “The Group has improved its e-commerce platforms, investing an additional £1.4m compared to last year. In the UK they now represent 77.0% of all delivered sales, up from 69.7% in the prior period, with App based sales accounting for 51.6% of online sales, representing our largest distribution channel. The UK business is now truly digital enabled. Digital channels deliver a number of benefits for both the consumer and our Franchisees. From a consumer perspective, orders are more accurate and offers more easily accessed, ensuring that they get the best value. Franchisees benefit through store labour efficiencies and being better able to target local marketing campaigns, particularly through eCRM. The results of this strategy are clear, with online orders in the UK 21.8% ahead and average order value 2.1% ahead of the prior period. App based sales continues to drive much of our success, with orders 63.3% ahead and order value 2.5% ahead. Ten million consumers have now downloaded our Mobile App in the UK. Although we have a first class digital platform, there remains a lot of headroom to improve the customer experience further. In particular, our mobile web offering has been upgraded and improved in July 2015 with a new responsive design. This is an approach to design aimed at crafting sites to provide an optimal viewing and interaction experience-easy reading and navigation with a minimum of resizing, panning, and scrolling-across a wide range of devices (from desktop computer monitors to mobile phones). This enhances the usability for consumers on mobile devices, accessing the website improving engagement, conversion and ultimately sales and profitability. Early results have been encouraging. Over the half year we have also remained focused on simplifying the ordering process, allowing consumers to order food quickly through a few clicks on our website or mobile App. We have already introduced ‘saved payments’, using secure software which enables consumers to pay without re-entering their details. We will work in the second half of the year to deliver saved favourite baskets all towards the ultimate aim of ‘one touch’ ordering. We also have continued to innovate our product range, introducing interesting and new initiatives. During the period we launched ‘Pizza Legends’, giving consumers the ability to ‘create their own’ pizza. This was supported by a dedicated advertising campaign, supported by both online and offline media as well as franchisee local marketing. This has proved extremely popular and to date consumers have devised approximately 280,000 different pizzas. The ‘basket’ composition has continued to evolve in the UK, as the Group has focused on providing value orientated, full meal solutions to families through bundle offers. Pizza volumes are 6.1% ahead, side orders 8.4% ahead whilst dessert and drink volumes are 24.0% and 43.1% ahead of the prior period respectively. The profitability of drinks and some desserts are much lower as they are delivered to stores by the major brands on behalf of Franchisees. The Group will continue to seek to provide a complete meal to families moving forward. During the period, the UK opened 21 new stores (29 June 2014: 8). The performance of the new stores has been very pleasing, with average weekly unit sales (‘AWUS’) 11.8% ahead of similar openings in the prior period. These include both virgin territories and those existing areas which have been ‘split’, increasing density, improving service for customers, and increasing sales and profitability for the Franchisees. 10 of the 21 stores opened during the period were splits. The success of ‘splitting’ is expected to drive further store openings in urban areas. We expect to open at least 50 stores over the full year and have a very strong pipeline of identified sites for further openings. 4 ‘Extra’ stores were closed during July 2015, which were located at a number of service stations in the UK. The format was initially launched as a trial in 2013 but has not proved popular with customers. A full provision was made in 2014 for the costs associated with closing these stores. Our Franchisees sit at the heart of everything we do. They have both driven and shared in our success. The Group is committed to ensuring they are successful, and during the period we have seen their relative profitability rise through their own efficiencies and marketing efforts, but also through the benefit of lower food prices secured by the Group. During the period, the Group passed on savings in the region of £6m from lower food costs in cheese and dough. Moving forward for the balance of the year, the Group does not anticipate significant price changes in its food prices from its suppliers.” Douglas Jack, of Numis Securities, issued ‘Buy’ note with a 1000p price target. He said: “We are upgrading our 2015E PBT forecasts to £64.0m from £62.2m (consensus £63.1m) as a result of now assuming 6% like-for-like sales growth for the UK over the full year. We believe the resultant 25.5x P/E undervalues the company given its £19.2m net cash position, zero net rent, minimal capex, high digital orientation, and further upgrade potential.”


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