Inflation cuts a slice off Domino’s Pizza profits in HY1

Domino’s Pizza shares fell 1.7% to 285.6p in late morning trading on Tuesday on the back of a HY1 2022 underlying pre-tax profit drop of 16.3% to £50.9 million compared to £60.8 million the last year.

The fast food company reported a 5.6% decline in system sales to £710.5 million against £752.3 million, and a like-for-like system sales fall of 6.4% year-on-year due to the change in VAT rates.

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Domino’s Pizza highlighted a slight group revenue uptick of 0.2% to £278.3 million from £277.8 million.

The pizza franchise also mentioned an underlying EBITDA slide of 11.4% to £63.5 million compared to £71.7 million.

The firm added a statutory pre-tax profit growth of £800,000 to £42.1 million on the back of international losses and non-underlying items incurred in the last year offsetting inflation and costs incurred in HY1 2022.

Inflationary costs cut into profits

Domino’s Pizza commented it expected its profitability to be weighted in HY2, with food cost inflation passed onto franchisees on a lagged basis and the impact expected to come through in HY2.

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“A £20 pizza may feel like a rather less affordable treat to many people, however, and there were some signals in Domino’s latest numbers to worry shareholders,” said AJ Bell investment director Russ Mould.

“There is always a slightly concerning situation if a company finds itself needing a strong second half to meet full year forecasts, often the recipe for an eventual profit warning.”

The group noted a net debt increase of 33.1% to £236.4 million from £177.6 million, along with successfully refinanced existing bank debt facilities with a new £200 million revolving credit facility and a £200 million private placement facility.

The takeaway group reported a statutory basic EPS rise of 6.7% to 9.5p compared to 8.9p the year before.

Domino’s Pizza said it was on track to meet market expectations in FY 2022, and reiterated its underlying EBITDA guidance for the financial term after passing on inflationary costs to customers.

“I’m proud that in the first half Domino’s grew order count, attracted more customers, and increased underlying sales despite unusually challenging market conditions,” said Domino’s Pizza CEO Dominic Paul.

“This is testament to the hard work of our world-class franchisees and all our colleagues across the system, and I’d like to thank them all.”

Share buyback and dividend

The company also announced the launch of a £20 million share buyback programme, which is set to launch immediately.

Domino’s Pizza hiked its HY1 dividend 6.7% to 3.2p against 3p in the previous year.

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