Domino's global growth strategy gets upsized as earnings surge

Domino's global growth strategy gets upsized as earnings surge

Photo: Domino's Australia, via Facebook.

Domino's Pizza Enterprises (ASX:DMP) has picked up the pace of global expansion, with Japan pushing the company to record store openings for the year and helping to drive net profit 32.9 per cent higher to $184 million.

The result was delivered on a 15.4 per cent increase in revenue to $2.19 billion as Domino's opened 285 new stores globally, with Japan accounting for 126, or nearly half of that number.

This represents a 10.7 per cent expansion of store numbers by Domino's in FY21, exceeding the company's three-to-five-year outlook of 7-9 per cent. The company has lifted its target to between 9 and 12 per cent store growth over that period.

In a sign that the consumer appetite for Domino's has been sustained throughout the pandemic, the company increased global food sales across its network by $476.5 million to $3.74 billion an increase of 14.6 per cent on the previous year and a healthy 9.3 per cent on a same-store basis.

While the pace of total food sales eased to 12.8 per cent in the second half, same-store sales critically gathered pace to 10.2 per cent.

Online sales grew sharply across the network, surging 21.5 per cent to $2.93 billion, representing 78 per cent of total sales.

CEO Don Meij described the number of new stores opened in FY21 as a 'remarkable achievement' given the conditions of the past year.

"We remain of the view Domino's performance throughout COVID is a direct result of our long-term investments and strategy; fortressing our markets, digital delivery, 3TEN and indeed franchising itself," Meij says.

"In every market, our fortressing strategy demonstrates that more stores allow for increased marketing investment and increased customer demand, needing more stores to meet this demand.

"The results this year highlight the importance of franchisee profitability, particularly returns on new stores, to our growth."

While there is good reason for Domino's to expect further growth in the year ahead, buoyed by the company achieving foreign investment approval to proceed with an expansion into Taiwan, Domino's Australia/New Zealand CEO Nick Knight points out that there is more to the group's success than a COVID-led pizza binge.

"It would be easy to say that Domino's was destined to grow throughout this time - that is incorrect," says Knight.

"Our recent performance owes credit for our decision to invest in Operations 360 and to operate a larger number of corporate stores, with higher costs, where former franchisees no longer had the passion or capability to excel in this business.

"Make no mistake trading conditions have been challenging and we see this continuing into FY22. But we have seen a lift in operational performance and a resulting improvement in franchisee profitability, because our refranchising and new stores have come from within."

Domino's increased sales in Australia and New Zealand by 6.5 per cent to $1.29 billion after opening 30 new stores. Same-store sales were up 4.5 per cent. However, EBIT surged 14.1 per cent to $116.8 million.

The company's performance in Europe was another highlight for the year, with sales up 23 per cent to 921.5m ($1.48 billion) and 129 new stores. Same-store sales were up 12.1 per cent, while EBIT rebounded 48.3 per cent to 55.2 million ($89 million).

"We invested in the future of the German market with two acquisitions, and the results of a unified, national brand and a regional approach to store development are clear in the record store openings (more than 40) and shared profit for Domino's and our franchisees," says Meij.

"Similarly, in France, we made targeted investments in our franchisees in FY19-20, and in-store development teams, delivering strong year-on-year growth in new store openings (more than 38 in FY21)."

At the start of FY22, Domino's had 2974 stores globally, with a further 26 opened in FY22. It's the beginnings of what Domino's expects to be a year of record store openings. It plans to open its 3,000th store in the next two months, climbing to 4,000 in calendar 2023, and 5,000 in 2026-27.

The company is now targeting to have 6650 stores by 2033, increasing its expectations for Europe's Benelux region to more than 200 stores and in Japan to more than 500 stores. Taiwan is also expected to ultimately support up to 400 stores.

Domino's has expanded its debt facilities, at lower margins, to put it into position for future strategic acquisitions.

The company has declared a final dividend of 85.1c per share, 70 per cent franked, to be paid on 9 September 2021 with a record date of 25 August 2021.

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