Coronavirus costs weigh on Domino's Pizza as local profits drop
Higher costs incurred for in-store cleaning and supporting struggling franchisees during the coronavirus pandemic have led pizza giant Domino's to report a weaker-than-expected full-year result.
The $6.6 billion fast-food chain reported a 7.3 per cent increase in earnings before interest, tax, depreciation and amortisation to $303 million for the year to June 28, alongside a 12.8 per cent increase in total network sales to $3.27 billion. Underlying revenue, which excludes franchise network sales, grew 32.7 per cent to $1.9 billion. Same-store sales growth across the network was 5.8 per cent.
However, these figures were short of analyst forecasts, which had predicted a bumper result as more consumers ordered home-delivery during the coronavirus lockdown.
Domino's has missed expectations due to coronavirus costs.Credit:Jason Alden
In its full-year report to investors, the company said it had seen a strong rise in sales thanks to COVID-19, with online trade across the network up 21.4 per cent to $2.36 billion. Net profit grew 3.3 per cent to $145.8 million.
At Domino's Australian and New Zealand operations, its largest with 833 stores, sales grew 5.1 per cent on a comparable basis, with total sales coming in at $1.2 billion.
Yet earnings fell 5.8 per cent to $129.4 million due to the company's expenditure on preventative measures against the coronavirus, which cost Domino's $14.4 million across its network.
"We decided early to invest to put people first and to ensure our franchisees could trade through this period; we provided financial support to some franchisees and paid for additional sanitiser and protective equipment so there could be no barrier to safety," local chief executive Nick Knight said.
"These were the right decisions and we will not hesitate to repeat them throughout this pandemic; we know this both could have a short-term effect on our profits, and is the right thing to do for our people and the long-term success of our business."
The pizza chain's international operations in Japan and Europe continued to grow, but also suffered from weaker earnings due to the pandemic.
European sales grew 5.1 per cent to €749.1 million ($1.23 billion) but profits dropped 1.5 per cent, again due to increased franchisee support. Japan sales boomed 25.9 per cent to ¥59.2 billion ($775 million) and earnings also shot up 30 per cent, prompting the company to lift its long-term outlook for the region to 1500 stores, 500 more stores than before.
Domino's also received $3.2 million in stimulus from governments across its divisions, including some JobKeeper payments, New Zealand's wage subsidy, and payroll tax relief.
A dividend of $1.19 for the full year, up 3.3 per cent, will be paid on September 10.
Trade for the new financial year was strong, with same-store sales up 11 per cent and 24 new stores opening. However, chief executive Don Meij said he remained wary of the virus and its impact on the company's profits.
"In ordinary times, I would be delighted with double-digit SSS (same-store sales), and network sales approaching 20 per cent. But these are not ordinary times," Mr Meij said.
"While I am very pleased with our performance so far, the nature of COVID-19 is we know governments could require a temporary restriction, or a market closure, at very short notice."
The business maintained its medium-term guidance of 3 per cent to 6 per cent same-store sales growth.
More to come.