The Domino's Pizza Enterprises Ltd. (ASX: DMP) share price has been slammed following the release of its half year report.
Here are five key takeaways from the report that sent the Domino's share price down 9%:
- Profit rose 30.8%
- Full-year profit guidance was upgraded
- Group same store sales rose 9.4%
- A 50% franked interim dividend of 48.4 cents per share payable in March
- Domino's acknowledged it has 42 store audits and 25 individual complaint investigations ongoing
The final point on that list is particularly important to investors following recent allegations that Domino's franchisee employees are not being paid correctly or sometimes not at all.
Domino's says it has a 'zero tolerance' approach towards unethical behaviour. "I make no apologies for expecting the highest standards from our franchisees," Domino's CEO Don Meij said.
Meij said the pizza chain rights owner works collaboratively with the Fair Work Ombudsman and has an internal compliance program independently audited by Ernst & Young.
"Due to our investment in proactive compliance we have identified some franchisees who have wilfully breached their obligations to their team members," Meij added.
In three years he said his company has conducted 102 store audits, with 42 ongoing; and has investigated 88 individual complaints, with 25 ongoing.
"This process has recovered a total of $4.5m in unpaid superannuation and wages owed to team members by franchisees. This amount represents 0.8% of the labour costs in our franchise network for the period."
He said the company had removed four franchisees operating seven stores due to a breach of employment obligations. Another 22 franchisees "chose to exit the system", the company's ASX announcement read.
"Our franchisee profitability figures clearly show there is no reason, nor excuse, for this behaviour," Mr Meij said.
Domino's said profitability of franchisees remains a company focus, with a goal of getting the payback period to between three years and five years. That's how long it takes franchisees to get back what they put into the business after Domino's has taken its slice.
Domino's said today's strong half-year profit was a result of new initiatives, technology and innovation. The company recently released its most significant menu upgrade in eight years.
"Our Thickshakes, handcrafted and made from real ice-cream as opposed to soft serve, are performing to our very high expectations," Mr Meij said.
Buy, hold or sell Dominos
The Domino's share price shot 9% lower today upon the release of the results. Perhaps it was the revelations around employment underpayments? Or maybe it missed analyst expectations?
Whatever the reason, Domino's shares still appear very expensive in my opinion. Even at today's prices, in fact, they change hands at 47.5 times the coming year's profits.
