* Drops annual guidance
* H1 U.K. like-for-like sales up 3.7%
* Unclear on future social distancing costs
* Shares down 7.4%
(Adds analysts, updates shares)
June 17 (Reuters) - Domino's Pizza Group on
Wednesday said core earnings for the first half would be lower
than last year, dragged down by weak results from its Irish
operations and the cost of social distancing measures at its
restaurants.
Shares in the United Kingdom's largest pizza delivery chain
fell 7.4% in mid-session trade after the company also withdrew
its full-year guidance, citing uncertainties related to
restrictions to limit the spread of the novel coronavirus.
The stock has risen 22% since March 23, when the British
government imposed a nationwide lockdown.
Group like-for-like sales were strong in the year to June
14, with an increase in the delivery order count and growth in
items per order.
But costs related to measures, such as re-routing to stop
two-person deliveries, ensuring all restaurants remain closed
during restocking and contact-free delivery boxes, offset any
benefits.
The company also made less profit from the average basket
size of orders during the lockdown, as people ordered more sides
and desserts, which compared to pizzas, have much lower margins.
"The expenses relating to increased health and safety
procedures have worried traders," CMC Markets analyst David
Madden said. "It is a case of two steps forward and one step
backwards."
Domino's said it could not predict how long the changes
related to social distancing and associated costs would
continue, but said this year's EBITDA (earnings before interest,
tax, depreciation and amortisation) would be lower than last
year's.
Like-for-like sales in the United Kingdom grew 3.7% for the
first half to June 14, with sales from March 23 onwards up 5.1%.
In contrast, sales at its smaller Ireland unit fell 5.9%,
which Domino's blamed on a deeper fall in consumer spending
during the lockdown.
"Strong delivery performance is helpful...but we think
current operational difficulties will add to ongoing challenges
to franchisee profitability," brokerage Jefferies said.
(Reporting by Tanishaa Nadkar and Siddharth Cavale in
Bengaluru; Editing by Krishna Chandra Eluri and Barbara Lewis)