Domino’s Pizza (LON: DOM) has lost its bite in recent years. The pizza chain master franchiser is still a highly cash generative business in the UK but its size, and competition, means that it is difficult to grow at previous rates. Interim figures will be published on 6 August and they are likely to show a decline in profit.

Interim pre-tax profit is expected to be 7% lower at £42.5m. However, underlying UK operating profit is likely to be higher. Interest costs will also be higher, though.

Net debt was £203.3m at the end of 2018 and capital investment means it is set to rise this year. It will be interesting to see what Domino’s decides to do with its interim dividend.

The UK is still growing by around 3%, although the second quarter may have been tougher. The overall rate of growth has also been held back by slower expansion.

The target remains 1,600 stores in the UK, but the company needs to find a way to improve the profitability of franchisees.

More franchisees need to be recruited in order to meet store opening expectations.

International

The main reason for the lower profit is higher losses on the less mature overseas franchises. Management knew that growth was slowing in the UK and it wanted to move into new markets so that the group can continue to grow.

These overseas operations are very different to the UK Domino’s business. They are still being built-up so they are not the cash cows that the UK is. DP Poland (LON: DPP) provides an example of how it can take a long time to reach a position where a Domino’s master franchise is generating cash.

Scale is one of the most important aspects required. The offering of the stores may also need to be tweaked to a local taste.

It is not necessarily a worry that the international operations are losing money, but there should start to be indications about whether they are likely to succeed. Domino’s has already written down the book values of some of these international investments – Norway for example.

Management may need to come to a decision on some of the outlets or even some of the territories that it is involved in overseas.

Full year

Despite all this, a modest improvement on the 2018 pre-tax profit of £93.4m is expected by some analysts this year. That would be based on 30 store openings in the UK.

Since floating on AIM nearly two decades ago, Domino’s has paid dividends totalling many times its flotation price. At 244.8p, the shares are trading on 15 times prospective 2019 earnings. Share buy backs are likely to hold up the share price, but it is unlikely to make much short term progress.