Domino’s profit falls despite bumper sales year

By Dean Blake | 21 Aug 2019 View comments

Quick Service Restaurant, (QSR) Domino’s profit has fallen short of targets, despite a solid improvement on the group’s revenue and online sales.

The pizza chain’s net profit slipped 4.6 per cent to $115.9m, with growth in Australia and New Zealand softer than anticipated.

However, the business’ efforts in Japan and Europe saw international EBITDA improve to $154.5m– overshadowing the local result of $127.9m.

“Our international operations today account for more than half of our earnings, and they will be the largest driver of our future growth,” Domino’s group chief executive and managing director Don Meij said.

Global sales grew by 11.9 per cent to $2.9bn, while global online sales grew 18.2 per cent over the year to $1.9 bn, processing more than 66 million orders – or more than 2 orders per second.

Domino’s profit performance

According to Australia and New Zealand chief executive Nick Knight, in addition to the softer domestic Domino’s profit performance, the team made some decisions which created short-term headwinds for the business – but which they are confident will result in medium and long-term benefits.

“We are confident in the progress of our strategic initiatives, including our investment in technology and new marketing campaigns,” Knight said.

“Our world-first DOM Pizza Checker is already helping to deliver meaningful improvements to the quality of our pizzas, which customers recognise.”

Australian and New Zealand sales grew 4.6 per cent to $1.17bn, or 2.4 per cent on a same-store-sales basis.

Ongoing issues

Operations 360, the business’ initiative to deliver performance data to franchisees, allowing the opportunity to learn from mistakes, as well as provide advice and training, has also led to the exit of 22 under-performing franchisees.

Knight noted that, in some cases, this was due to franchisees having been found to have deliberately underpaid staff.

Meij said domestic margins were compressed due to an increased number of corporate stores to make up for these exiting franchisees.

Domino’s is facing a class action lawsuit from in-store and delivery staff who claim to have been underpaid over a five-year period.

According to the claim, Domino’s told franchisees to pay delivery drivers and in-store workers under a series of incorrect employment agreements. Domino’s rejects the claim, and confirmed in June that it would defend the proceeding.

An informal poll on Inside Franchise Business sister site, Inside Retail in late June found that, while many believe the recent string of retail underpayments are the result of unintentional mistakes, almost 60 per cent of the over 200 respondents believe them to be an intentional decision to cut costs.

Domino’s expects same-store-sales growth to grow at a rate of between three and six per cent annually over the next three to five years.

The QSR chain additionally will grow store count by between seven and nine per cent annually over the same period, intending to invest further into the growth of its network.