Shares in Domino’s Pizza Group fell sharply after the UK-based company warned investors of higher depreciation costs and an end to cash flows from its German affiliate. The announcement overshadowed a strong fourth quarter for the group, which had record sales thanks in part to the FIFA World Cup. This article will delve deeper into the reasons behind the drop and how the company plans to address the issue.
Reasons behind the Drop:
The pandemic had led to a significant increase in demand for delivery and takeaway services, which benefited Domino’s Pizza Group. However, as the pandemic came to an end, restaurants were able to reclaim some of their lost market share. This led to a slowdown in the company’s business last year, which affected its full-year pretax profit. The pretax profit fell to £99 million from £114 million a year earlier, while adjusted earnings per share fell by 7.4% to 18.8p.
Additionally, the company changed its accounting treatment for investment in its cloud-based technology platform, which resulted in underlying earnings before interest, taxes, depreciation, and amortization to fall. Furthermore, the company expects no contribution from Germany to its 2023 earnings due to the sale of the business, which will yield around £79 million in cash.
Response to the Issue:
Despite the drop in shares, the company remains optimistic about the future. Domino’s Pizza Group reported a strong start to 2023, with like-for-like system sales up by 10.8% in the first 10 weeks, and orders up by 2.5%. New app customers also increased by 46%. The company hopes that this year’s expected cash flows, combined with the sale of the German operation, will free up to £100 million for shareholder returns this year.
Furthermore, the company plans to address the issue of higher depreciation costs by investing in its stores and operations. The company will focus on updating its technology, refurbishing its stores, and improving its delivery and customer service. The company also plans to expand its menu and offer more options for customers.
The drop in shares for Domino’s Pizza Group may be a cause for concern for some investors, but the company remains optimistic about its future. With a strong start to 2023 and plans to invest in its stores and operations, the company hopes to overcome the challenges it faces. The sale of the German operation and expected cash flows this year could also free up to £100 million for shareholder returns, which could help restore investor confidence in the company.