Domino's delivers record earnings as digital sales dominate

Domino's delivers record earnings as digital sales dominate

Domino's Pizza Enterprises (ASX: DMP) has has reported record earnings and significant sales growth as more customers turn to online ordering during the COVID-19 pandemic.

However, despite a lift in local sales earnings dropped by 5 per cent in Australia and New Zealand.

The company's 'Zero Contact' delivery model paid off with most of the world stuck at home in the second half of FY20, especially in Japan - accounting for around a quarter of total sales - where the company posted record performance across multiple metrics;.

Announcing its FY20 results this morning, Domino's says growth in delivery increased global food sales to more than $3 billion for the first time.

The company's overall success was backed by 21.4 per cent growth in digital sales which made up 72.1 per cent of total sales for the full year.

Ultimately, the Brisbane-based outfit's strong position globally resulted in a profit of $138.4 million, up 19.4 per cent year on year, and a record full year EBITDA of $303 million.

"Customers want high quality meals, delivered fast, ordered online, for an affordable price COVID-19 has not changed these dynamics," says DMP CEO and managing director Don Meij.

"This requires a world-class digital platform and even more stores, built closer to customers.

"These have been the keys to meeting rapid changes in customer ordering patterns, and will remain the keys to our future, for the duration of COVID-19 and beyond."

During FY20 Domino's opened more than 163 stores, including approximately 78 in Europe and 75 in Japan.

Success in Japan, resulting from a new strategy for the market implemented over the last two years, has lifted Domino's expectations for the country.

Management has lifted the long-term outlook for Japan to 1,500 stores, meaning 500 new stores will eventually come online.

This optimism comes as Domino's has well and truly cracked the Japanese market, with sales up 26 per cent to $775.5 million and 29.9 per cent EBITDA growth.

Domino's Japan president and CEO Josh Kilimnik says his focus was on building on increased demand, with COVID-19 bringing forward previously forecast growth in both carry-out and delivery.

"Because of the clear plan we've applied to broaden our offering beyond peak holiday periods to more every-day meals, we have been able to grow the pizza category with both new customers, and increased ordering frequency from existing customers," says Kilimnik.

"When serving a new customer, it is vital their first experience is positive, and we were pleased our online ordering system, enhanced store penetration, and market-leading delivery times have impressed customers.

"With high levels of satisfaction from new and existing customers, management believes it is within the control of our people to retain many of our recent gains and deliver future growth."

In Europe, EBITDA was down 1.5 per cent thanks to COVID-19 restrictions, but sales ultimately rose by 5.1 per cent during the year despite store closures.

A similar story played out back home, with Australia and New Zealand EBITDA dropping by 5.8 per cent.

However, sales ultimately rose by 4.1 per cent to hit $1.2 billion, which Australia/New Zealand CEO Nick Knight says reflects the resilience of the business down under.

"We have developed, tested and implemented new methods of operating from Zero Contact Delivery right through to Car Park Delivery in record timeframes, all to ensure we can serve our customers safely," says Knight.

"Having a network of experienced, people-focused franchisees has been critical to our trading so far and will be as long as we are living with COVID-19.

"For the Full Year, industry data shows we grew 3.5x our nearest pizza competitor in spend."

The company is currently riding high on the tail end of FY20, during which sales performance materially lifted in the months of April to June.

The company expects network sales growth of 18.5 per cent, and is planning on opening 24 new stores.

"In ordinary times, I would be delighted with double digit SSS, and network sales approaching 20 per cent. But these are not ordinary times," says Meij.

"While I am very pleased with our performance so far, the nature of COVID-19 is we know governments could require a temporary restriction, or a market closure, at very short notice.

"What is in our control is how we respond to our environment, and customer expectations. The performance of our people during COVID-19 underpins our confidence in the long-term future of our business 5500 stores by 2033."

Domino's will pay shareholders a final dividend of 52.6 cents per share.

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