Shares in pizza delivery firm Domino’s (DOM) have jumped 8.4% to 282.6p as investors celebrate its £25m share buyback to lift a struggling share price, but we remain sceptical on a poor set of results.
Shares at Domino’s are currently close to 52 week lows on a mixed performance throughout 2018.
And hidden in the trading update is a trim in profit guidance as Domino’s warns it expects underlying pre-tax profit to be in the middle of the range of £93m to £99.6m in the year to 31 December 2018.
In August, underlying pre-tax profit was guided to be in line with expectations of between £95.9m and £101.4m.
UK like-for-like sales have risen 2.2%, excluding store splits in the 13 weeks to 30 September, but this is significantly lower than 8.1% like-for-like sales in the 13 weeks to 24 September.
The heatwave is being used as an excuse yet again alongside uncertainty among UK consumers.
Sales growth is also declining in the Republic of Ireland with rising sales of 3.3%, down from 13.3%, while international sales growth have dropped from 25.1% to 5.8%.
One of the key issues looming over Domino’s shares are concerns that new stores are cannibalising existing stores. This has been reflected in a cut in new store openings this year and a depressed share price.
AJ Bell investment director Russ Mould argues the World Cup should have been a major catalyst, but this does not appear to be the case.
Liberum analyst Wayne Brown remains bearish on Domino’s prospects and says slower like-for-like growth suggests franchisee margins will decline further in the second half of 2018.
