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Domino’s (ASX:DMP) share price in focus on weak FY23, turnaround in FY24

The Domino’s Pizza Enterprises Ltd (ASX: DMP) share price is in focus as the food business announced its FY23 result.

Domino’s is a franchisor of Domino’s outlets in a number of markets such as Australia, Japan, Germany and France.

Domino’s Pizza Enterprises share price

FY23 result

Here are some of the highlights from the 12 months to June 2023:

  • Network sales grew by 2.2% to $4 billion
  • Network store count increased 11.7% to 3,782 stores
  • EBITDA (EBITDA explained) fell 12.4% to $347.2 million
  • EBIT dropped 23.3% to $201.7 million
  • Net profit after tax (NPAT) dropped 25.7% to $122.6 million
  • Profit / earnings per share (EPS) sank 26.9% to 139.4 cents
  • Annual dividend per share down 29.7% to 110 cents

Domino’s said that total sales grew because of higher menu prices, but there were fewer meals sold. It said margins and earnings were impacted by that decision to increase menu prices.

Introducing a ‘delivery service fee’ did not resonate with some customers, leading to them ordering less. The company has now removed a majority of these fees. Some menu price increases were “accepted” by customers though.

The business is looking to rebalance the value equation, and it doesn’t expect to pass on pricing increases this year.

Domino’s recently announced that it was exiting the Danish market, closing underperforming corporate stores and accelerating the refranchising of others, as well as streamlining operations. These initiatives are expected to deliver network savings of between $50 million to $60 million in FY24, rising to $80 million to $94 million in FY25.

Outlook in FY24 for the Domino’s share price

The company believes that an earnings improvement in FY24 relies on rebuilding “customer frequency and order volumes, with new products a proven path to increasing orders from new and returning customers.”

The trading update was promising. In FY24 so far it has seen overall network sales growth of 12.6% and 2.8% same store sales growth.

Europe has seen same store sales growth of 6.6%, while ANZ has seen same store sales growth of 6.6% too. Asian same store sales had declined 7.8%.

Management believe its pricing for customers now “appropriately balances” the costs for stores, while delivering customers value.

It’s expecting to deliver “material sales and earnings improvements” in FY24. Margin recovery is occurring in Europe and ANZ, the company is “cautiously optimistic” depending on the speed of Asia returning to volume growth.

It is good to see that Domino’s is expecting a recovery in FY24, but it has a long way to go to win back investor confidence. Margin improvements are good, but I think FY24 brings into question how profitable Domino’s can be if it keeps adding more and more outlets in the same markets. Hopefully Europe can deliver long-term growth.

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