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#Trading Update
Added 2 months ago

Dominos is following in the footsteps of Nanosonics with shares down a brutal 30% today. For many of us in microcap land these kind of drawdowns aren't that rare, but we're talking about multi-billion dollar companies here!

Amazing.

After market close yesterday, the pizza maker reported a 1.3% lift in same store sales, and a 8.8% jump in total network sales for the first half.

BUT, things weren't great in Asia which reported a 8.9% drop in same store sales, and a 1% pull back from the preceding half. Moreover, pre-tax profit for the first half is expected to be between $87-90m, a 15%-odd drop from the previous corresponding period (but up a bit on H2 FY23).

The company is talking about cost cutting, and was quick to point out that Aus/NZ had its best period in 6 years. Still, the market isn't having any of it.

On a trailing 12 month basis, the company has a PBT of about $163m. Let's call that $114m in net profit. So prior to today, shares were on a P/E of 44x, and are (at time of writing) on a trailing P/E of about 31x.

That seems tame relative to the Nanosonics' multiple, but it's another sign that the market has no tolerance for growth stocks that aren't, well, growing..

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#Bull Case
Last edited 3 months ago

Following a decent AGM in November, Domino's shares have perked up (along with the broader market of course), and have now inched up above a zone of resistance that has been a cap on the price a few times this year ($55-56).

A sustained push above these levels will give the shares a fair chance of eventually closing that post-HY results gap overhead to $70.

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#Business Model/Strategy
Added 4 months ago

Interesting article about Dominos rolling out improved tech in Singapore. Could be a trial for other (similar sized) markets, although their 'fortress strategy' might mean this is possible in many of their markets.

https://www.prnewswire.com/apac/news-releases/dominos-dxb-marks-the-future-of-delivery-301989980.html

The logical next step to this might be to send the pizza out raw and have it cooked on the back of the bike with pedal power by the time it arrives.

Reminds me of the debate a few years ago as to whether Dominos was a pizza company or a tech company.

Lots of talking heads flapping their gums over that nonsense at what must have been a relatively quite time in markets.

I even heard one fund manager saying they were looking to eventually use drone delivery (when that was a hot topic) to fly the slice right into your mouth!

Disc: Held.

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#Business Model/Strategy
stale
Last edited 9 months ago

Whilst not an investor, I find Domino's Pizza an interesting company as a franchisee.

Fast food companies, even those that find a special low-cost niche such as Dominos are significantly impacted by market cycles. Fortunately, Dominos has built themselves a good moat with their technology (OneDigital) and ability to deliver a hot pizza quickly at market beating prices, but they too are suffering.

 In their first half report released in February, they made the following comparisons with the same period in the last financial year.

4101c7591f4fd8de931c4bbbebec5ae3c01d4e.png

They operate in three broad regions: ANZ, Europe and Asia.

You can see from their market segment data that whilst ANZ performance is relatively flat (only a reduction of EBITDA of $1.62), but for Europe and Asia, the reduction is significant, particularly in Europe.

53d9f2679d3fa763044024300fd39fe43d1f7a.png

During the 2023 H1 period, they acquired Dominos Malaysia and Dominos Singapore, this is subsequent to their acquisition of Taiwan in 2021. They’ve also acquired Domino’s Cambodia in May this year.

Tuesday 2 weeks ago(13th June) they announced that they’re going to leave the Danish market (27 stores) and engage in a general optimisation program of their store network (closing underperforming stores). They estimate that this will improve EBIT by circa $30m in FY24 and deliver even bigger savings in future. Group CEO Dom Meij’s focus is on using this point in the cycle to focus on unifying their businesses and adapting global best practises and sharing more global services across the group.

This is a company that has dumped David Burness who has arguably made some poor investment decisions over his tenure of the ANZ business. He is being replaced by the APAC CEO Josh Kilimnik, and Don is bringing in his sister Kerri Hayman into COO role. Kerri used to work in her brothers store and currently owns 14 stores in the US which she will sell.

Whilst the unit economics involved are simmilar across all businesses, market sentiment to the category changes along with geography, culture and history. Look at Denmark for example, this business was bought as a distressed asset at a low price due to previous owners' regulatory failures. The ANZ franchise has not been able to turn negative perceptions around sufficiently to revive the brand there. Even with this aside, other Europan regions aren't loving Pizza as much as we do here in ANZ (note that UK is not part of the ANZ franchise).

Their opporutnity is to leverage consolidate their shared services across regions and acquistions. They've been very slow to do this. This will extend from their operating technology applications like OneDigital which provides the e-commerce eperience right though to back office IT, HR, Finance operations. As these crtical business operations services mature and start to rationalise and drive costs out, we'll see better performance in EMEA and the APAC businesses.

Not one i'll be investing in but certainly a great journey to follow.

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Valuation of $36.75
stale
Added one year ago

Update - 02/03/2023

Domino's 1H FY23 report was quite poor and punished by the market. I think the market's reaction was surprising given that at the AGM last year they did warn that they could see that this half would be weak. Shares did fall at the time down to around $50 before running back to $70 as the market seemingly forgot about this profit warning.

I did buy some shares at around $50 last year before selling after the profit warning was given and so I do not currently own shares.

EPS for 1H FY23 was 73.5c. EPS has been declining since the covid "boost". Although I do believe as they begin to grow their expansion, this can recover.

Doubling 1H FY23 earnings and giving them a PE of 25x (decreased due to a slow down in growth) gives them a valuation of $36.75

Disc: Not held.

Original Valuation - 07/09/2022

Just a simple 30x PE for now as I look further into the company.

FY22 NPAT of $158.7m

EPS: $1.83

30x PE = $55

DIsc: Not Held

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#Broker Views
stale
Added one year ago

After Domino's released 1H23 results (and the share price taking an almost 25% haircut so far today) here are some of the broker (investment bank) early views:


JP Morgan: Overweight with a 12m Price Target of $85

Key positives: 1) ANZ solid result. With fewer headwinds in Australia, Domino’s is seeing solid sales and earnings results, with -0.3% network sales growth and +5.2% EBIT growth. Project Ignite has driven a step up in store openings

Key negatives: 1) Response to inflation not resonating. Price rises have led to customer counts below expectations since December 2022, resulting in further work to do in order to “balance the value equation”. 2) Store growth run-rate behind >8% target. Domino’s opened just 79 stores organically in 1H23, with management noting new store additions may be below the 8%-10% p.a.growth target in next 3-5 years depending on franchisee sentiment. We forecast 7.0% organic store growth in FY23. 3) Franchisee profitability is now below pre-COVID levels, as EBITDA per franchisee has fallen to $101,100, a 7.5% EBITDA margin in the 12mths to September 2022 vs. $103,900 in the 12mths to September 2019

Outlook and Guidance: The 6 week trading update was soft at -2.2% YoY, implying 3.9% p.a. CAGR vs. pre-COVID levels. This reflects an improvement from the ~4% p.a. exit run-rate in 1H23. In FY23, management now expects SSS to be below the 3% - 6% target range in their 3-5yr outlook, and new store openings “may be below” the 3-5yr outlook of +8% - 10%. Labour and commodity pressures are expected to persist at a less intense level in FY24

Likely change to consensus: Large downgrades are expected given the softer sales outlook and admission that network expansion will below targets. Further investment in the health of the Franchisee may be required 


Morgan Stanley: Also Overweight with a Price Target of $85

Miss driven by lower sales in Asia and lower margins in Europe

Key Points:

Group SSS growth of -0.6% vs Cons. at +0.8%. ANZ +1.7% (vs Cons at +3.4%); Europe +0.3% (vs Cons at -0.5%) and Asia -6.6% (vs Cons at -2.9%)

EBIT margins: ANZ 15.7% (+80bpts YoY, vs Cons at 15%); Asia 9.4% (- 90bpts YoY, vs Cons at 10.7%); Europe 7% (-670bpts YoY, vs Cons at 8.9%)

Franchisee margin 7.5% (vs 9.8% @ 1Q22 and 10.3% @ 1Q21)

Guidance:

First 7 wks sales growth of +4.2%; SSS growth -2.2% (vs pcp of 1.7% and 2H22 of -4.3%)

FY23 SSS growth will be below annual 3-5 year outlook of +3-6% (vs Cons. 2.8%)

New store openings may be below 3-5yr outlook (vs Cons. 6% & 1H23 +2.1%)

Removed prior guidance “FY23 NPAT excluding ~A$7m FX headwinds expected to exceed FY22 NPAT” 


UBS: Buy with a 12m Price Target of $78

ONE LINER

1H23 below UBSe & mkt due to Asia & Europe; 2H23E SSSg to be below 3-5yr outlook

UBS COMMENT

1H23 result below UBSe & mkt, especially SSSg in Asia and EBIT for Asia & Europe (vs mkt). Sales to start 2H23E subdued, resulting in 3-5yr outlook targets to not be achieved in SSSg and that new store openings will not be achieved either. Given 2H23E sales headwinds and weaker 1H23 NPAT, we see downside risk to FY23E NPAT guidance


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#Capital Allocation
stale
Added one year ago

I understand it us hard to time, and they probably didn't know the put call was coming? but makes you wonder why they would raise capital when the share price has fallen from the lofty levels of over $160 a share to now.

45jb3f5gf5s9fl.pdf (asx.com.au)

Never held as still can't get over why it is so succesful.

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#capraise
stale
Added one year ago

Dominoes in trading halt... cap raise coming


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#Directorbuying
stale
Added one year ago

Don Meij ($1million +) and other directors all made on-market trades from 3-8 November. Note huge amounts, but age ol saying of plenty reasons why directors sell, but only one reason why directors buy....

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#AGM address
stale
Added one year ago
  • Outlook: challenging short-term, confident on medium to long-term
  • NPAT down! -12.5%
  • EPS down! -12.6%
  • Dividend slashed! -9.8%
  • ROE down from 49.4% to 42.3%
  • Added 438 stores
  • Acquired 10th market: Taiwan +156 stores
  • New markets: Malaysia, Singapore, Cambodia (expected 600+ stores)
  • Additional one-off investments in Denmark to lift brand image
  • Even with current headwinds still expect a strong year of store expansion
  • Expect to pass 8% organic store expansion target for new stores, determining factor is on sales momentum and ability to offset inflation for franchisees
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# yield
stale
Last edited one year ago

The yield on these babies just went up!!!

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#H1FY21 Results 17/2/21
stale
Added 3 years ago

Domino’s Pizza Enterprises Ltd Financial Results For the six months ended December 2020

Global Food sales of $1.84b (+16.5%) | Half Year EBIT1 $153.0m (+32.3%)

Highlights

~ Network sales: +16.5% to $1.84b

~Online sales: +25.4% to $1.42b • EBITDA: +23.8% to $218.7m

~ EBIT: +32.3% to $153.0m (International EBIT: +55.7% to $99.9m: 65.3% of Group EBIT)

~ Underlying NPAT (after Minority Interest): +32.8% to $96.2m

~ Free Cash flow: up +50.3% to $124.4m

~Japan: Management and franchisees have accelerated new store openings (+68) and sales (+42.6% to ¥36.7b) through new customers and higher frequency, lifting EBIT +112.3%, to ¥4.2b

~ Europe: Regional sales (+13.8%, to €435.7m), reflected local COVID conditions and management response. Positive in all countries led by notable growth in Germany. EBIT grew +18.2%, to €27.2m

~ ANZ: Experienced franchisees grew sales (+5.7% to $648.0m) and expanded their businesses with new stores and refranchising of corporate stores. Improved margins lifted EBIT +9.8% to $63.7m

View Attachment

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#COVID-19 Updates
stale
Added 4 years ago

24-Apr-2020:  COVID-19 Update No.4

25-Mar-2020:  COVID-19 Update No.3

19-Mar-2020:  COVID-19 Update No.2

16-Mar-2020:  Update on COVID-19 (No.1)

Disclosure:  I do NOT hold DMP shares.

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Valuation of $40.00
stale
Added 5 years ago
A lot of moving parts here, but the business is growing operating profit by ~15% and still has a long runway. I've annualised HY2019 NPAT and given that a PE of 25.
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