SHARES in Domino’s Pizza faltered yesterday after the company warned of larger than expected losses at its German business.
The Pizza chain said annual losses at its two-year-old German arm will be £2m to £3m more than it originally expected because of a weak performance at its directly-owned stores and extra training costs.
Shares in the firm, which have risen nearly 30 per cent so far this year, closed down 4.3 per cent yesterday as analysts downgraded their full-year profit forecasts.
However, it plans to push ahead with 12 more store openings in the second half of the year and said it will turn its directly-owned stores into franchises, which in contrast are performing well.
“In Germany, as in the UK, our franchisees run great stores,” Lance Batchelor, chief executive, said.
“Corporate stores have allowed us to test menus, develop marketing plans and understand the German consumer – but now that the ground work is done, it is time to drive our German expansion using our tried and tested franchise model,” he added.
In a trading statement for the 13 weeks to 30 June, Domino’s said like-for-like sales at its six German stores rose 11 per cent in the period, a big slowdown from the 40 per cent rise in the first quarter.
In its core UK market, where it runs around 700 stores, like-for-like sales grew a better-than-expected 6.1 per cent, driven by strong online growth, which made up 63 per cent of sales.
Comparable sales rose 4.9 per cent in Ireland and 6.2 per cent in Switzerland.
Analyst Views | Has your outlook for Domino's Pizza changed following the update?
SIMON FRENCH, PANMURE GORDON
The group’s German expansion has hit its first speed bump with corporate stores performing below expectations...The performance of the UK business in the second quarter is ahead of expectations reporting 6.1 per cent like-for-like sales growth, although the rate of new openings is disappointing.
NICK BATRAM, PEEL HUNT
The disappointing performance in Germany will undoubtedly hurt management credibility and we expect the shares to react accordingly...In the short term the UK outperformance will be insufficient to offset the pain in Germany, and our initial thoughts are we will have to cut our profit forecast by around £1-1.5m.
WAYNE BROWN, CANACCORD GENUITY
Domino’s has issued a mixed trading update leading to downgrades of around four per cent to our forecasts. We expect growth in Germany to be much more muted than originally anticipated as the business will take time to build consumer confidence, build brand awareness and educate the market.