What to look for when Domino’s Pizza Enterprises Ltd (ASX:DMP) reports its results

One of the most highly anticipated results this month will come from pizza chain operator Domino’s Pizza Enterprises Ltd (ASX: DMP) on August 14.

After a soft first-half to FY 2018 the company will need to have had a stunning second-half to meet its net profit after tax growth guidance of 20%.

Management expects to reach this guidance through ongoing improvements to same store sales in all markets, supported by customer-focused initiatives including menu items that introduce and retain new customers.

It expects same store sales growth to be between 6% and 8% in its ANZ and Europe segments, whereas in Japan a modest 0.2% increase is expected. This will be supported by 310 to 330 new store openings, which include Hallo Pizza conversions.

One broker that doesn’t expect Domino’s to achieve its guidance is Goldman Sachs.

According to a recent note out of the investment bank, its analysts expect same stores sales growth of 4.5% in ANZ, 7.1% in Europe, and 1.4% in Japan.

The culminative effect of this will be revenue of $1,169.4 million and net profit after tax of $135.4 million. This equates to growth of 9% and 14.2%, respectively, year-on-year.

The broker expects this to lead to earnings per share of $1.59.

What about FY 2019?

Almost as important as Domino’s result in FY 2018 will be its guidance for FY 2019, especially given its shares are changing hands at 32x estimated full-year earnings.

Goldman Sachs has forecast earnings before interest, tax, depreciation, and amortisation (EBITDA) of $305.4 million next year, up over 19% from its FY 2018 estimate. Anything less than this could potentially put pressure on its shares.

Should you invest?

In the first-half of FY 2018 management didn’t just provide its short-term guidance, it provided its long-term store expansion guidance as well.

Management advised that it intends to grow its store network to 4,650 stores by 2025. This includes 1,200 stores in ANZ, 2,600 throughout Europe, and 850 stores in Japan.

Which means a massive 112% increase on the 2,193 stores in operation at the end of the first half.

I believe this increase and its plan to widen its margins meaningfully over the period will result in strong long-term earnings growth, which makes Domino’s a great buy and hold investment option regardless of what happens in FY 2018.

In light of this, I would put it up there will Collins Foods Ltd (ASX: CKF) as a share to buy and a vastly superior option to Retail Food Group Limited (ASX: RFG). Though it may be prudent to make a small purchase now and then another purchase post-results.

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Motley Fool contributor James Mickleboro owns shares of Collins Foods Limited. The Motley Fool Australia has recommended Collins Foods Limited and Domino's Pizza Enterprises Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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