Domino's Pizza loses crisp in June quarter on higher base, lower walk-ins

Topics Domino's Pizza

Despite a major sporting event, higher promotion, and wider menu options, Jubilant FoodWorks-run Domino’s Pizza reported muted sales growth in the June quarter, as compared to the year-ago period.

 

The pizza chain reported 4.1 per cent same-store sales growth (SSG) in the quarter, as compared to 25.9 per cent growth in the June 2018 quarter. The company indicated that comparable growth was 5.8 per cent, given the splitting of stores to create multiple outlets in a given area. This is the second quarter in a row for which sales growth was in a mid-single digit.

 

In addition to a higher base, the firm highlighted the softness in walk-ins or dining segment. Besides the overall slowdown, there has also been a higher shift away from store visits towards online ordering.

 

The share of online orders is now higher than dining in stores. With the company continuing to split stores to manage the higher volumes at existing stores, the process is expected to put pressure on SSG even in forthcoming quarters. With competition intensifying from other chains and aggregators, Domino’s will have a difficult time in keeping SSG on a higher trend path.

 

Other reasons for concern are on the margins front, given the slowing growth, as well as higher costs. Margins in the quarter were down 70 basis points to 15.7 per cent, on a comparable basis. While a low single-digit price hike in June should help, costs are trending up — be it on the raw material front (dairy products), advertising and promotions, wage inflation, or technology investments.

 

This, coupled with the scaling up of its Chinese food format (Hong’s Kitchen) and Bangladesh operations, is expected to weigh on margins in the coming quarters.

 

While the company has indicated that overall sentiment has not deteriorated and that its strategy of expansion, as well as multiple stores at a location, will drive volume growth over the medium term, pressure in the near term is expected to remain.

 

Domino’s has, however, not scaled back on its new store count target of 100, for which the June quarter contributed 26 — a positive.

 

Given the muted sales growth numbers, the stock, which fell close to 6 per cent on Wednesday, could come under more pressure given the near-term headwinds.

 

With pressure on both discretionary and staple consumption, overall slowdown worries, and higher competition from aggregators, the company could face tougher times.



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