The chief executive of Domino’s is set to step down, the pizza chain said today as it revealed that profits plunged in the first half of 2019.
David Wild has informed the board that he will “retire from his role”, with the retailer kicking off a search for his successor.
The pizzeria blamed its international business for weighing down profits as profit before tax dropped 27 per cent year on year to hit £30.5m for the six months to June.
Group sales climbed 4.7 per cent, however, to land at £645.8m. Revenue rose 3.5 per cent to £295.6m, while UK and Ireland like-for-like sales climbed 3.9 per cent compared to 2018.
Domino’s added over £50m onto its debt pile for the period, though, bringing net debt up 31 per cent to £238.8m, guiding to a year-end target of £220m-£230m.
Basic earnings per share plummeted 26.4 per cent to just 5.3p.
But Domino’s still raised its interim dividend 3.7 per cent year on year to 4.2p per share.
Why it’s interesting
Domino’s CEO’s departure comes as the chain is embroiled in a war with franchisees who want a bigger slice of profits, while the firm battles with a European expansion.
Today management warned they do not expect to reach a settlement with franchisees until 2020.
“Domino’s franchisee model is great for expanding rapidly while maintaining margins, but franchisees have worked out that it is to their cost and want more share in profits,” Markets.com chief analyst Neil Wilson said.
“[Wild’s] faced a tough battle with franchisees that is still ongoing, and it’s been a struggle to break into the European market as easily as in the UK,” he added.
In the UK, like-for-like sales growth fell year on year, while international losses mounted up to £6.4m in Domino’s half-year.
“In international markets although there is certainly scope for expansion, management is currently finding it hard going,” Wilson said, “making investors more cautious about the near-term prospects.”
Peel Hunt cut back its full-year profit before tax forecast four per cent to £91m on news of Domino’s international woes.
“The shares are inexpensive in our view, but new innovations are needed to rebuild like-for-like sales and franchisee profitability if the company is to recover its previous rating,” the broker warned.
Still, Domino’s share price rose 2.7 per cent despite the struggles.
What Domino’s said
Chief executive David Wild said:
“Our core UK and Republic of Ireland markets delivered a good performance, with system sales up 5.5 per cent and underlying operating profit up 7.1 per cent. Digital remains a key driver of customer engagement, with online now accounting for 82% of total sales in the UK.
“The relationship with our UK and Ireland franchisees is very important to the long-term sustainable growth of the system. We are actively involved in detailed discussions and are giving these considerable focus and attention.
“Whilst dialogue is continuing, new store openings are being delayed and some of our working practices are being impacted. The situation is complex, and we expect resolution will take some time, likely into 2020. We are committed to working with our franchisees to agree sustainable win-win solutions.”
“The performance of our International business is very challenging and trading visibility remains limited. The weakest performance was in Norway, although we also saw increasing losses in Sweden and Switzerland.
“Iceland profitability was impacted by the weak macroeconomic backdrop. We are very focused on improving our operational capability across our International markets and will provide a further update at our full year results.”