Domino’s Pizza slammed for sales miss

Having gorged on strong dividend and share price growth, Domino's Pizza shareholders were enduring a severe bout of indigestion today.

The FTSE 250 stock, which has risen 70% since the start of 2015, slumped by 15% despite more strong results from the pizza delivery business, which sold 94 million pizzas in 2016, averaging over 257,000 every day.

Domino's said pre-tax profit rose a larger-than-expected 17% to £85.7 million after a year in which system sales reached a record £1 billion. The company recommended a final dividend for 2016 of 4.5p, an increase of 15% on the prior year and 1.7 times covered by underlying profits after tax.

So, having digested such strong figures, including total UK sales growth of 14%, why did the market punish the company with such a sharp share price sell off?

UBS analysts pointed to a downward trend in current trading, with UK like-for-like sales up 1.5% in the first nine weeks of this year. They said this was a continuation of the slowing rate reported in the third quarter of 3.9%.

It remains to be seen whether the fall in the share price to the lowest point since November is a temporary jolt. However, with a 12-month price target of 350p, UBS indicates that the stock was overcooked, and now sits at about the right price.

Domino's says it remains confident in the resilience and long-term potential of its franchisee-based business model, particularly as it prepares to open at least 80 new stores in the UK this year.

It said its strong performance in 2016 reflected a "relentless focus" on driving its digital offering through investment and innovation, as well as ambitious targets for new store openings and a continued focus on franchisee profitability.

Online now represents 72% of system sales, which is a 21% jump on a year earlier. Mobile accounts for 73% of digital sales, up by 31%.

The company also has operations in Switzerland, Germany, Ireland and the Nordics.

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