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THE Domino’s Pizza share price has climbed a mountain since the start of the year, before giving back a significant proportion of those gains this autumn. Today’s third quarter trading update appears to have been greeted with relative indifference, with the shares flat in early trade.

Underlying like-for-like sales grew by 8.8% in the 13 weeks ending 26 September. A 9.5% increase in total orders was driven by a 40.3% rise in collections as consumers got out and about again. Collection orders – the most profitable and labour efficient part of the Domino’s Pizza business – have still to make it back to pre-pandemic levels but are now at 82% of the level seen in 2019.

The company’s planned exit from underperforming European markets continues, with the disposal of operations in Switzerland now complete. The company is well on its way to achieving 30 new UK stores in 2021, with the addition of five new stores during the period bringing the openings year-to-date to 18.  

The “stay at home” bonanza is clearly over, with deliveries rising by only 3.0% in the quarter compared with the same period last year. For Domino’s Pizza as well as businesses such as Ocado and Just Eat, the debate continues over whether the pandemic delivered simply temporary aberrations in demand or hastened a longer term switch in consumer habits.    

However, based on these results, customers seem to still like the Domino’s experience. Continuing underlying sales growth – albeit slower than the 17.5% rate seen during the same period a year ago – should support the company’s earnings forecasts and the multiple the market applies to them going forward.

The launch of a “Domin-Oh-Hoo-Hoo” campaign targeting families and friends reuniting post lockdown and introductions of an in-car collection service and new ordering app in the first half of the year suggests Domino’s has thought the market through and is ready for the fight. Take-up of the new app has been strong, with it now accounting for 42% of sales.

Domino’s Pizza remains the clear number one for franchised pizza outlets in the UK, but that also puts it in prime position to feel the labour market squeeze. The tailwind of a 5% VAT rate came to an end on 30 September, replaced by a 12.5% rate that lasts until next March.

Rising fuel prices won’t help either. Nor will the pressures on supply chains, from which a new supply chain centre in Cambuslang, Scotland is unlikely to prove immune. However, Domino’s says its supply chain has delivered 99.9% availability with 99.8% accuracy so far, which is impressive.

The company paid an interim dividend of 3.0 pence in September and is continuing with its £80 million drip-feed share buyback programme. Even so, trading on around 19 times historic earnings, a fair amount of good news now appears to be baked into the share price1.

More on Domino’s Pizza

Source:

1 Bloomberg, 14.10.21

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