The Domino's Pizza Enterprises Ltd (ASX: DMP) share price will be one to watch on Wednesday after the pizza chain operator released a mixed half year result.
For the six months ended December 31, Domino's delivered global food sales growth of 14.6% to $1.43 billion and a 12.1% lift in earnings before interest and tax (EBIT) to $108.3 million.
Revenue rose 23.7% to $702 million, underlying EBITDA rose 12.1% to $137.2 million, net profit after tax increased 8.4% to $68.2 million, and earnings per share came in at 80.2 cents per share.
What were the drivers of the result?
ANZ network sales grew 6.2% to $592.5 million during the half. This was the result of a combination of 13 new store openings and same store sales (SSS) growth of 3.5%. Although Domino's grew its market share in the pizza and fast food categories, management revealed that it had expectations to do better and has fallen short of internal targets.
Over in Europe the company's sales increased 17.4% to €349.9 million thanks to a 2.3% increase in SSS and the addition of 33 new stores. Management advised that its Benelux operations continue to lead their industry and the conversion of acquired Hallo Pizza stores in Germany have exceeded expectations, however its performance in France held back overall growth.
Pleasingly, the company's Japan segment returned to form during the half. It achieved sales growth of 9% to ¥22,936 million following a 4.8% lift in SSS and the addition of 31 new stores. The release explains that new management initiatives have materially grown unit economics and drove EBITDA growth of 34.3% on the prior corresponding period.
The positive performance in Japan and updated modelling in Belgium has led to the company increasing its future store outlook by 250 stores to 4,900 by 2025-2028.
What's next?
Management revealed that its sales have been positive in the first seven trading weeks of the second half, with SSS growth of 4%.
During the period 13 new organic stores have been constructed and opened for trading. However, new store builds are expected to be slightly lower than originally guided. It expects new store openings in the range of 200 to 215 this year.
Domino's expects SSS for the full year to be within guidance, but at the mid-to-lower end of its 3% to 6% range. As a result, full year EBIT is expected to be at the lower end of its guidance range of $227 million to $247 million.
Should you invest?
Overall, I thought this was a decent result from Domino's, but it appears to have fallen a touch short of expectations.
As I mentioned here, Goldman Sachs was expecting revenue of $661.3 million, EBITDA of $142.6 million, and net profit after tax of $74.1 million. Although the company beat on the top line, it appears to have missed on every other metric.
Although I think it could be a good long-term investment, I would suggest investors keep their powder dry for now and wait for the dust to settle on this result.
In the meantime, fellow quick service restaurant operator Collins Foods Ltd (ASX: CKF) or infant formula company A2 Milk Company Ltd (ASX: A2M) could be worth considering.
