Pizza delivery service Domino’s (DOM) is bouncing back from a weaker performance in the first half of 2017 as UK like-for-like sales jumped 8.1% in the 13 weeks to 24 September.
The company says full year underlying pre-tax profit is expected to ‘at least’ meet market expectations despite continued uncertainty in the UK.
Domino’s believes its new advertising campaign ‘The Official Food of Everything’ helped drive online sales, citing a record 200,000 online orders - or 140 a minute on the last Saturday in September.
Shares in the company are up 13.7% to 343.8p.
WHY HAS DOMINO’S STRUGGLED THIS YEAR?
Earlier this year, Domino’s suffered a slowdown in UK sales as intense competition bit into its trading performance.
Shares in the pizza delivery firm tumbled over the summer as brokers grew cautious on its outlook. They were particularly concerned about increased price discounting, a weak consumer backdrop and new stores cannibalising existing sites.
SALES GROWTH EXCEEDS FORECASTS
Numis analyst Richard Stuber is impressed with the trading update as like-for-like sales growth beat his anticipated 5.5%, partially due to a weaker comparative trading period.
Stuber has raised UK like-for-like sales expectations for the year to 31 December 2017 to 4.7% and highlights that Domino’s is stealing market share.
Pre-tax profit forecasts have also been hiked by 1% to £88.7m and earnings per share by 2% to 14.5p. However, the analyst’s pre-tax profit forecast is below consensus of £89.6m.
N+1 Singer’s Sahill Shan reiterates ‘hold’ but sees scope for the rating to nudge up as Domino’s pushes through its setback earlier this year, citing ‘favourable weather’ as partially responsible for sales growth.
‘NOTHING HAS CHANGED’
Not everyone is convinced.
Liberum’s Wayne Brown believes that nothing has changed as the performance has been driven by the weather and a poor comparative period.
‘The long-term like-for-like sales trend is clear and we see no abatements to the pressure on franchisee margins’ says Brown.
He flags the performance was supported partially by the gross margin investment earlier this year and warns if the firm maintains sales growth using this strategy, it could lead to ‘further margin pressure.’
Domino’s trades on 20.5 times forecast earnings per share for the year to 31 December 2018.
