Domino's Pizza confident after strong first half

(Sharecast News) - Domino's Pizza Group reported "strong" performance in the UK and Ireland in its first half on Tuesday, with system sales of £752.3m, up 19.6%, with like-for-like system sales excluding splits up 19.3%, aided by the reduced rate of VAT.
The FTSE 250 company, which holds a master franchise to the US-based Domino's Pizza brand, said underlying profit before tax for the 26 weeks ended 27 June totalled £60.8m, up 27.7%, driven by the strength of its core business, and lower Covid-19-related costs.

Statutory profit after tax came in at £41.3m, up from £19.0m year-on-year, benefitting from the successful disposal of all but one of its loss making international operations.

Free cash flow performance was described as "strong" as well, increasing by 9.3% to £51.3m, while net debt narrowed to £177.6m from £202.1m a year earlier, as the net debt-to-EBITDA ratio came in at 1.36x on a continuing basis.

In line with the company's capital allocation philosophy and commitment to distribute surplus capital to shareholders, its board announced an additional £35m to the existing £45m share buyback programme, and would pay an interim dividend of 3.0p per share on 24 September.

Looking at the rest of the year, Domino's said the second half had started well, with "strong" total order count growth as it benefited from its new marketing campaign, and the extended involvement of the English football team in the Euros.

As the second half develops, the firm said it would operate within a "shifting and uncertain" landscape as the nation was "released from the restrictions" imposed by the Covid-19 pandemic.

The board said it believed that would benefit its collection business, which it expected to gradually recover toward order count levels more in line with 2019.

Its delivery business would face more competition as the hospitality trade reopened, but the company said the strength of its brand and its "continued investment" in developing its offer would enable the delivery business to maintain its performance.

The anniversary of the lower VAT rate, which was introduced in July 2020, had now passed, with Domino's noting that as the scheduled VAT rate increases were implemented, its system sales growth would be lower in the second half.

However, while changes in VAT impacted reported system sales growth, it had limited flow-through to profitability.

"I am delighted with the performance of the business in the year to date," said chief executive officer Dominic Paul.

"We've worked closely with our franchisees to maintain fantastic service levels to our customers, while continuing to prioritise the safety of our colleagues and customers.

"We have continued to invest in the business as we focus on delivering our strategy with the opening of a new state of the art supply chain centre in Scotland, the launch of our redesigned mobile ordering app, and the roll out of our supercharged marketing campaign which has strengthened our brand and significantly boosted awareness levels."

Paul said the strong trading in the first half provided the company with "firm foundations" for the delivery of its strategic growth objectives, building on its strengths in both delivery and collection.

"This will enable us to deliver strong system sales growth and increase our store numbers in the UK and Ireland.

"Whilst the external landscape remains uncertain, the second half has started well.

"I believe our agile business model leaves us well placed to capitalise on the significant opportunities ahead while continuing to invest in our strategy, which will deliver benefits for franchisees and shareholders alike."

At 0832 BST, shares in Domino's Pizza Group were up 4.31% at 440p.