Domino's Pizza's UK sales outweigh 'disappointing' international performance

Domino's Pizza reported first quarter sales growth with its UK performance was spurred on by the opening of four new stores amid a dispute with franchisees, though its international business is no longer expected to break even across the full year.

The takeaway giant recorded group system sales of £324.4m for the 13 weeks ended 31 March, a 4.3% increase on the same period last year, as sales from the UK and Republic of Ireland increased by 4.8% to £299.3m after opening four new stores, down from nine new store openings in the first quarter of 2018.

UK like-for-like sales climbed by 3.1% and online sales jumped by 8.5%, while the same stats rose by 6.8% and 18.5% respectively in the Republic of Ireland.

The drop in store openings comes amid a dispute with franchisees, some of whom are refusing to open new stores unless they receive a greater share of company profits.

David Wild, chief executive of Domino's, said: "With continued like-for-like growth, the year has started well across our core UK and Republic of Ireland markets, which account for 90% of our business. Our digital expertise remains a key driver of customer engagement, with online accounting for a record 81.7% of total sales in the UK. We remain in open and ongoing dialogue with our UK franchisees, actively exploring win-win solutions for stimulating growth and new store openings."

The FTSE 250-traded company added that a "healthy" pipeline of new stores remains but acknowledged the impact of the franchisee dispute.

Meanwhile, international sales dropped 2.0% as like-for-like sales dropped by 8.4% in Switzerland amid "trading challenges" in Geneva stores and by 4.6% in Iceland amid a weak market, while a 1.0% drop in local currency sales meant that the Norwegian performance fell short of expectations.

"Internationally, performance remains disappointing and trading visibility is limited. As we outlined at the full year results, we have new management in Norway, Sweden and Switzerland, and a heightened focus on store level performance. However, given persistently weak system sales in all our International markets we no longer expect this part of our business to break-even this year," said Wild.

Analysts at Numis cut their profit before tax estimates by 5% in response to the poor showing from international markets, stating that some investors will question the rationale of deploying capital into loss-making markets after the second warning on international revenues in the space of seven months.

Even so, the analysts said the company's shares were "attractively valued" and added that they support its cash generative model despite the disappointing international business.

Meanwhile, Russ Mould, investment director at AJ Bell, said: "One of the key concerns about the future prospects of pizza takeaway business Domino’s is that it has reached saturation point in its core UK market. This puts the onus on its overseas operations to deliver growth and is probably why today’s update and its gloomy prognosis for the international arm has resulted in such a negative market reaction."

Domino's Pizza Group's shares were down 3.14% at 252.60p at 1301 BST.