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Domino’s Pizza Enterprises Ltd. (ASX:DMP) shares tumble on profit miss

Domino’s Pizza Enterprises Ltd. (ASX: DMP) reported a record full year net profit after tax (NPAT) of $136 million today, 15% higher than last year and also lifted its full year dividend by 15% to 107.8 cents per share.

The results were boosted by 308 new stores that were added to the Domino’s portfolio in FY 2018 (a rate of almost 6 new stores per week).

Same store sales were also higher in Australia (+4.5%) and Europe (+5.7%) although growth in Japan (0.9%) was lagging the other markets as expected.

France winning the Soccer World Cup (the tournament started just before the year ended) did not provide a boost to sales in that country with increased food costs affecting sales.

What did management have to say

CEO Don Meij was pleased with the results and highlighted the strong sales growth in Australia and Europe as a sign that the company was delivering on its multi-market strategy.

He said, “Less than four years ago we surpassed $1 billion in sales, and this year Group Network Sales reached $2.59 billion – this continues to be a fast growth business. We delivered on positive growth in all markets but after consecutive years of significant and compounding growth, our bar for success is even higher”.

Outlook

Looking ahead, Domino’s expects robust group sales growth to continue with annual same store sales growth of 3% – 6% and annual store growth of 7% – 9% over the next 3 to 5 years.

Foolish takeaway

Overall, I think because the company delivered weak first half results, the full year results were quite positive.

Going forward, I think sales in Europe will play a significant role in driving growth for the business, but that growth comes at a cost with annual CAPEX forecast to be between $60 million – $70 million.

I think there is plenty of room for growth in this business and it could be a good addition to a diversified portfolio given today’s share price falls.

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Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned.

You can find Kevin on Twitter @KevinGandiya.

The Motley Fool Australia has recommended 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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