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. Irish sales in the first six months fell 5.9 per cent.
Shares in the UK’s largest pizza delivery chain fell 7.4 per cent 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 per cent since March 23rd, when the British government imposed a lockdown.
Group like-for-like sales were strong in the year to June 14th, 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.
Social distancing
"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 UK grew 3.7 per cent for the first half to June 14th, with sales from March 23rd onwards up 5.1 per cent. Domino’s blamed the larger Irish fall of 5.9 per cent 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. – Reuters
