Domino’s cuts dividend on profit drop amid cost of living pressures

The fast food pizza chain has seen the strongest growth in Australia in six years as cost of living pressures force many consumers to trade down as it launches a new range of cheap $5 meals.

Domino’s Pizza plans to open more stores in its booming Australia and New Zealand markets as it looks to maximise demand for online delivery and also from customers trading down amid cost of living pressures.

Strong growth in its local network of stores comes as the group posted a 9.2 per cent slide in its interim net profit to $58m and slashed its dividend as a slowdown in international markets hit the bottom line.

But the company — which in January issued its fourth profit warning in three years — revealed revenue for the December half was up 11 per cent to $1.27bn.

Domino chief executive Don Meij said that the company still needed to get the balance right in international markets, including Japan, which he noted expansion had been poorly timed, but added it had seen an improvement with positive sales in the first seven weeks of 2024.

“Where we have done well is because of the execution of our plan,” he said. “There have been some nuances that have impacted us in Japan, which saw less demand for delivery as people returned to eating out, but the tide is turning with sales up 6.7 per cent,” he said.

In Australia and New Zealand, Domino’s had the strongest sales growth in six years, with customers increasingly choosing Domino’s over other quick service restaurant options, especially for delivered meals.

Mr Meij told The Australian that the Reserve Bank’s rapid increase in interest rates combined with cost of living pressures had resulted in an increase in customer trading down when spending on restaurants to fast food operators such as Domino’s.

“While there is a tailwind in our industry from down trading occurring at the moment, which we are benefiting from. We can’t take that for granted, and we need to meet and cater to their needs on what they want,” he said.

Domino’s has launched a new $5 menu this week in a bid to help drive growth for offline customers.

More than half of its Australian stores have expanded their trading hours to meet the demand for lunchtime and late-night orders, especially through delivery, where Domino’s is reaching more customers on its own channels and through aggregators including Uber.

Delivery growth more than offset a recent decline in offline carry-out orders, with the company this week launching new products developed for these high frequency customers, including the $5 or Less Range in Australia/New Zealand.

“Our $5 or less menu with products like Meltzz, pepperoni and cheese loaded bread, lava cake means that there is always something with appealing value on the menu when someone walks into our store,” he said. “In addition to it being a good price, it also offers good margins for franchises.”

Mr Meij said that the fast food industry will continue to remain buoyant and competitive as more customers turn to the sector in a bid to get better bang for buck. He added that Domino’s had plans to roll out more stores in existing markets that it serves and had demonstrated recovery.

“We will be looking to expand in the markets that we operate — where we have had a good recovery, which includes Australia. We will look to lift our store count,” he said.

“Domino’s needs six to nine months of recovery in the markets not doing as well before we look to add more stores.”

The half-year profit, although sharply down, was in line with market expectations.

The company’s statutory profit before tax from continuing operations of $83.7m includes $6m of significant items. Excluding these items, the underlying profit before tax for continuing operations was $89.6m, 19.3 per cent down on the prior corresponding period.

E&P Financial said that there were some positives in the first half and signs of improving confidence in international markets.

“In our view there were some positives in the first half result, with a material period on period uplift in earnings, and improvement in franchisee profitability. Same-store sales growth momentum remains solid in ANZ and Germany, has turned positive in Japan but is still weak in France and Malaysia,” the firm said.

Domino’s offered no detailed forward guidance for the remainder of the fiscal year, but Mr Meij said that the group is focused on implementing its strategy to rebuild average weekly customer counts, and franchise partner profitability.

The company declared an interim dividend of 55.5c a share, down from 67.4c, which will be paid on March 27.

Domino’s shares were up 1.6 per cent to $40.24 in a lower market on Wednesday afternoon.

Originally published as Domino’s cuts dividend on profit drop amid cost of living pressures