Domino’s Pizza shares fall 7% amid franchise row

December 12, 2018

Shares in Domino’s Pizza Group have dived 7% amid reports of an escalating row between the firm and its franchisees.

According to the Sunday Times, 11 of the company’s biggest franchisees have written to the board threatening to “declare war” on the firm unless they get a bigger slice of the company’s profits.

They warned they could stop opening new stores if their demands were not met.

Related: Fast Food Franchises in the UK – 10 Things Every Would-Be Franchisee Must Know

Domino’s declined to comment.

In total the firm has about 70 franchisees to whom it supplies ingredients and other goods and services.

But the disgruntled operators, which have set up a group called Domino’s Franchise Association UK & Ireland, say they face rising costs and want more support from the company.

They also say they are being asked to open more sites in existing locations – something that benefits the wider company and customers but eats into their profits.

A record 95 new Domino’s stores were opened in 2017 – mostly by the biggest franchisees – but the firm is targeting a more modest 60 this year, in part because of the row.

Related: Pizza chain giant Domino’s is facing pressure over reports today that its relationship with its franchisees has worsened

It’s put pressure on the FTSE 250 firm’s shares, which are down by about a third since June. Some analysts believe Domino’s Pizza will be unable to meet a goal of having of 1,600 stores in the UK – up from the current 1,060 – while the conflict rumbles on.

Despite the market moves, sales at the group sales have been growing, climbing 6% to £303.3m in the third quarter.

The firm also continues to open stores despite a wider consumer spending slowdown driven by concerns about Brexit and a rise in inflation.

Source: BBC

UK’s Domino’s shares rise on buyback, organic sales rise

October 19, 2018

Domino’s Pizza Inc’s (DPZ.N) UK franchise Domino’s Pizza Group (DOM.L) launched a 25 million pound share buyback on Thursday after posting a 6 percent rise in organic sales due to a rise in website and app orders.

Domino’s shares rose as much as 8 percent after investors shrugged off comments that pointed to full-year pre-tax profit at the bottom of the company’s previous guidance range.

Much like its parent company, Domino’s UK franchise has been focusing on sales through online channels to fend off competition from app-based services like Just Eat (JE.L) and Deliveroo, which provide round-the-clock food delivery.

Online orders in Britain increased 11.4 percent in the quarter ended Sept. 30 compared to the previous year and accounted for 78.3 percent of all deliveries.

Related: Fast Food Franchises in the UK – 10 Things Every Would-Be Franchisee Must Know

Domino’s, which has been investing in order tracking technology for its delivery business, said the system was now live in 603 UK stores, leading to more efficient labour management and a better customer experience.

The company also said its international operations, spanning Switzerland, Iceland, Norway, Sweden and Germany, would break even for the full year.

“Our businesses continue to trade well, despite the evident uncertainty among UK consumers, and hot weather across Europe for much of the quarter,” Chief Executive Officer David Wild said.

Domino’s said it would start its new share buyback immediately.

The company bought back shares worth 36.6 million pounds in 2017 and said in March that it expects to buy back 50 million pounds worth in 2018, completing 21.1 million pounds of it in the first quarter. It has not disclosed any purchases since.

Domino’s, which sells almost 90 million pizzas every year to customers around the UK, now expects pretax profit to be in the middle of a range of market expectations that it calculates as between 93 million and 99.6 million pounds.

That would point to profit close to the bottom of previous market estimates of between 95.9 million pounds and 101.4 million pounds, which the company said in August it would be in line with.

Shares of the company were up 5.3 percent at 274.4 pence at 0733 GMT.

Source: UK Reuters

Domino’s Pizza U.K.: A Safe 3.3% Dividend Yield With More Dividend Hikes Expected

October 14, 2018

Domino’s Pizza UK disappointed the market as its overseas division didn’t perform well due to increasing labor costs.

The situation should improve in the current semester.

The dividend is 100% safe and will very likely continue to increase.

After taking profits around the 350 pence level, I am getting increasingly interested in getting back in.

It has been approximately a year since my first article on Domino’s Pizza Group PLC (OTC:DPUKF) which holds the master franchise for Domino’s stores in the UK, Ireland and some countries on the European mainland. On top of that, the company also has a controlling stake in the owners of the master franchise agreements in Iceland, Norway and Sweden. So although the company’s name refers to Domino’s UK, the total reach is much wider than just the two islands.

Domino's Pizza

Source: Yahoo Finance

Whenever I’m talking about ‘Domino’s’ in this article, I am referring to this specific company and not the worldwide Domino’s Pizza (DPZ) listed on the NYSE. Domino’s UK obviously also has a listing on the London Stock Exchange, which is actually more liquid than the OTC listing (which makes a lot of sense). The ticker symbol in the UK is DOM, and the average daily volume in London is approximately 2.9 million shares per day (but this was due to a few very high volume days over the summer). The current market capitalization is 1.29B GBP.

Related: Fast Food Franchises in the UK – 10 Things Every Would-Be Franchisee Must Know

The share price weakness was caused by a shift in the H1 financial results

Domino’s reported decent financial results, but the market appeared to be a bit spooked by the increasing labor expenses in Norway which had a negative impact on the company’s financial performance as those increases could not be (fully) passed on to the customers. On top of that, the financial media also mentioned interest expenses increased compared to the first half of last year, but I don’t think this 0.5M GBP interest expense increase had a meaningful impact on the market’s perception. The difficult transition in Norway where Domino’s is converting Dolly Dimple places into Domino’s Pizza stores appears to be the main reason for the market’s panic reaction, which overlooked the CEO’s attempt to reassure the market as he stated the performance would improve in the second half of the year.

Source: Seeking Alpha

UK and Ireland deliver for Domino’s Pizza Group in first half

August 7, 2018

Domino’s Pizza Group issued its interim results for the 26 weeks ended 1 July on Tuesday, reporting a 12.3% year-on-year improvement in group system sales to £616.6m.

The FTSE 250 company, which holds the master franchise to the American takeaway brand in the United Kingdom, Ireland, Germany, Switzerland, Liechtenstein and Luxembourg, as well as minority interests in the franchises for Iceland, Norway and Sweden, said growth in the period had been driven by its UK operations, with its full-year outlook confirmed.

UK system sales were up 8.3%, with 22 new stores opened in the period, and 5.9% like-for-like growth reported.

Republic of Ireland sales were ahead 2.5%.

Domino’s Pizza Group also reported “strong” local currency international growth, with Switzerland up 13.0%, Iceland ahead 5.5%, Domino’s Norway surging 180.5%, and Sweden rising 56.4%.

Underlying profit before tax rose 2.5% year-on-year to £45.7m, with underlying basic earnings per share up 6.8% to 7.8p.

On a statutory basis, profit before tax was down 9.7% to £41.7m, with basic earnings per share falling 6.5% to 7.2p.

Statutory revenue was 22.6% higher at £259.1m.

Non-underlying expenses of £4.0m were reported, which related to merger and acquisition integration, and IT and supply chain transformation cash outflow, the board said.

Net debt stood at £182.1m, with the firm’s net debt-to-last 12 months EBITDA being 1.62x at period end.

The board declared an interim dividend of 4.05p, up 8.0% year-on-year, and following £38.9m of share purchases in the first half.

On the strategic front, Domino’s Pizza Group said it made a number of “digital investments” to support franchisee efficiency and drive customer engagement during the period, with GPS technology now in 603 UK and Republic of Ireland stores.

It said that was leading to “significant” labour efficiencies, with first half franchisee store profitability up 5.3%.

The firm was also planning investment in new e-commerce and app platforms, which it said would improve the customer experience further.

Domino’s Pizza Group also said it had a “strong operational focus” in its acquired businesses, with volume-driven growth up and staff turnover down in London.

Related: UK’s Domino’s shares rise on buyback, organic sales rise

In its international acquired businesses, the firm said labour cost issues affected the first half, with actions taken now coming into effect.

The company’s Warrington Supply Chain Centre was now operational, with production ramped to 130 stores.

Full year underlying profit before tax was expected to be in line with current market expectations, the board claimed.

Around 60 new UK stores were planned for 2018, with the company remaining “uncertain” on the timing of several of them, and an unchanged long term target of 1,600 new stores.

Total group capital expenditure for the year would be around £30m, the board said, with its £50m share purchase programme being completed.

“It’s been another good trading period for Domino’s,” said chief executive officer David Wild.

Related: Fast Food Franchises in the UK – 10 Things Every Would-Be Franchisee Must Know

“In the UK, despite continued consumer uncertainty, we’ve achieved further like-for-like growth by maintaining our clear focus on product, service and value for customers.

“Our ongoing investments in supply chain infrastructure and our IT platform will support future growth and customer engagement.”

Wild said Domino’s was “proud” to be one of the most successful franchise businesses in the UK, adding that it would continue to work with its franchisee partners to promote the brand and the strength of the system.

“Whilst our international businesses continue to make good progress with customers and sales, it has taken us some time to refine the operating model and cost base at store level, particularly in Norway.

“We are confident that the changes we have made will result in a better performance in the second half, and believe that these businesses offer significant long term growth potential as we export our expertise in digital, supply chain and franchisee management.”

The company’s board expected that full year underlying profit before tax would be in line with current market expectations, Wild added.

“Our confidence in the future is underlined by continued growth in the dividend, and our ongoing investment in our own shares through the buyback programme.”

Source: LSE

Domino’s feels the heat over tensions with franchisees amid rising supply chain costs

August 1, 2018

Pizza chain giant Domino’s is facing pressure over reports today that its relationship with its franchisees has worsened.

The alleged discontent comes in the wake of growing pressure on franchisees to open more outlets in existing areas, which can often lead to profit for Domino’s but higher costs for franchisees.

The FTSE 250 firm opened a record 95 new stores last year in the UK, including 34 in the fourth quarter. However, Domino’s insists that while rising supply chain costs have always been passed on to franchisees, more stores “benefit both parties long term” and that the rate of openings, particularly at the end of 2017, “pulled forward the first half of 2018 pipeline”.

Related: Fast Food Franchises in the UK – 10 Things Every Would-Be Franchisee Must Know

Franchisee upset has become a more prominent issue in recent months, with 11 big franchises recently creating Domino’s Franchise Association UK and Ireland as a response to the strained relations.

Last night a spokesperson for Domino’s told City A.M.: “We are proud to have worked for many years with the most successful franchisees in the world.”

The firm said that last year it invested £4m to help absorb the costs inflicted on franchisees when new sites opened. David Wild, who is chief executive of the global pizza chain, took over the role in 2014 and earned £1.6m last year.

Yesterday a source told the Sunday Times that Wild’s “hard-man” behaviour was stoking the current unrest within the company. Despite the contentious rows brewing, the firm has enjoyed a strong performance in the last year, with sales of £311m in the first three months of the year, up 18 per cent from the same period last year.

The UK’s largest pizza delivery company said that online orders had helped to offset the impact of unusually chilly weather in the first quarter. Domino’s, which was founded in 1960, now operates more than 1,000 stores across the UK, and also has stores in Ireland, Switzerland, Germany and the US.

Source: City A.M.

Franchise Brands’ strong core the key to growth plans

April 6, 2018

Franchise Brands PLC (LON:FRAN) does what it says on the tin – it owns branded businesses and franchises them out.

Under its umbrella, the company currently has four businesses but is in the process of beefing up its infrastructure, especially IT, after which it will add more.

That strengthened infrastructure is key to what is, in effect, a classic buy and build strategy.

As more brands are added, more benefit (and profit) is extracted out of the management hub at the centre.

Stephen Hemsley, executive chairman and co-founder, is confident the plan will deliver substantial gains for shareholders.

And he has plenty of experience to draw on.

Twenty years of making dough

In a 20-year career at the Domino’s Pizza franchise in the UK, he steered the group from an early stage start-up to a market cap of £1.6bn currently.

Hemsley was finance director at first, then chief executive and finally chairman and he still retains links to Domino’s through a non-executive seat on the board.

His plans for Franchise Brands contain much of what he learnt during that time at the pizza delivery business.

Most franchise owners and managers are great at building a relationship with their franchisees, he says, but a lack of critical mass means they struggle with the support services requirements.

Finances are handled poorly, they recruit badly, have weak IT systems and lack marketing sophistication.

While a good relationship with the franchisees can compensate some way for this, Hemsley, and long-standing business partner Nigel Wray, believe a better option is to provide those skills to the franchises.

Sum of the parts

Brands with common characteristics can leverage a centralised support services function, so the sum of the parts becomes greater than each business individually – and that is what Franchise Brands aims to do.

It may sound like Domino’s UK pizza business, but there is one major difference.

Domino’s UK had an exclusive licence with the US owner, a master franchise, but this time Franchise Brands owns the brands itself, which crucially gives it complete control of marketing, branding and the other support services.

The four bands currently in the portfolio are Metro Rod (drainage and plumbing); ChipsAway (minor car paintwork repairs), Barking Mad (dog sitting) and Ovenclean (cleaning ovens).

All brands and IP are owned by the company, with direct franchises to operators in most cases, though ChipsAway does have some master licences overseas.

Metro Rod points the way

It is the most profitable currently, but Metro Rod is the largest and most recent incomer, having been acquired for £28.4mln in April 2017, and will become increasingly important.

Hemsley says the potential of the business has surprised the company since it took over, especially the fact it is in effect two businesses.

Metro Plumb, a specialist plumbing service, effectively was thrown in for nothing and ultimately might have even more potential than Metro Rod, which specialises in drains cleaning and maintenance.

Both companies are B2B business, not domestic, working for utilities, businesses supplying emergency repair services and there are huge opportunities for each, Hemsley believes.

At Metro Rod, the initial thought was it would be competing with the four heavyweights in the sector, but in fact, the market contains 1,500 smaller players and that diversity gives a lot of scope to build market share.

“Out of a business worth £750mln, we have a market share of £35mln”.

Brand building

Metro Rod has also been a little neglected. Formed 30 years ago, it has changed hands a few times since, but this is the first time a specialist franchising team has held the management reins for more than 20 years.

Brand building features heavily in the rejuvenation plans.

“It’s all in the sales and marketing – professionalising this to raise the profile of the brand and the understanding of what we do.”

Adding Metro Rod has also allowed Franchise Brands to strengthen its IT infrastructure – it never had the scale previously – and finance function with a chief financial officer now on board as well.

That has freed up the three managing directors, which now includes one to run Metro Rod, within the business, just to focus on building the franchise networks not the back-office or admin stuff.

These investments will dampen profits in the short term as the additional central costs will outrun the growth in the income received from franchisees, but as sales pick up or more brands are added, the rewards will come through increasing rapidly.

That was how it worked at Domino’s, Hemsley says.

Invest first, profits later

Initially, royalty income from franchise businesses struggle to keep up with central costs, but once the system is in place and annualised, any further expansion drops straight to the bottom line.

“At Domino’s we had five years of growing overheads as costs rose as fast as income.

“But once everything was in place, profits went from £5mln to £100mln.”

House broker Allenby Capital expects Franchise Brand’s profits in 2018 to rise to £2.81mln from £2.1mln, on revenues of £33mln (£24.3mln).

Cash generation is good as commercial risks and capital expenditure are borne by the franchisees.

Franchise also pays a dividend, 0.5p in 2017, while Hemsley and Wray still own stakes of 26.4% and 27.8% respectively.

Executing the strategy for Metro Rod will take 18 months but after that point, Hemsley says the incremental turnover starts to come through on annualised overhead costs.

“From 2019 onwards – it will start to get interesting”.

At 73.5p, Franchise Brands is valued at £55mln.

Source: Proactive Investors