August 7, 2018 / 10:29 AM / 8 days ago

Overseas costs drag on profits at Domino's Pizza; shares slide

(Reuters) - Rising overseas costs, particularly in Norway, overshadowed an improvement in sales at Domino’s Pizza Group (DOM.L), pushing first-half pre-tax profit down almost 10 percent and sending the company’s shares to an 11-month low.

FILE PHOTO A Domino's Pizza restaurant is seen in Los Angeles, California, U.S. July 18, 2018. REUTERS/Lucy Nicholson/File Photo

Domino’s has been focusing on its online and overseas businesses but has struggled to control in-store costs, especially in Norway where it has 34 own-brand stores and is converting the Dolly Dimple stores it acquired in 2017.

“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,” said Chief Executive Officer David Wild.

Although sales rose more than 180 percent in Norway, losses climbed because of increased labor costs, but Wild indicated that performance would improve in the second half of the year.

Statutory pretax profit fell 9.7 percent to 41.7 million pounds from 46.2 million pounds a year ago.

Overseas costs also contributed to a rise in net debt to 182.1 million pounds from 61 million pounds last year, along with share repurchases and dividend distributions.

Shares were down almost 10 pct at 287 pence at 0955 GMT (5.55 a.m. ET).

A strong performance in the UK, the company’s home base where it controls about 46 percent of the pizza delivery market, helped offset the international results.

The UK’s biggest pizza delivery firm sold 8.2 million pizzas during the FIFA World Cup. UK sales rose 8.3 percent in the six months ended July 1, contributing to an overall rise in sales of 12.8 percent to 616.6 million pounds.

Online sales in the UK, which account for 79 percent of total sales in the country, rose 14 percent.

Domino’s is banking on technology which allows customers to track their orders, with a complete rollout targeted for the third quarter of 2018.

The company said it is in the advanced stages of naming an interim chief financial officer after former CFO Rachel Osborne stepped down in June in a shock departure. Wild said the person would definitely be from outside the company.

Reporting by Sangameswaran S in Bengaluru; Editing by Bernard Orr and Kirsten Donovan

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