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- Dominos Pizza (DMP) faced a mixed bag of challenges in FY23
- DMP records a 23.3 per cent decline in EBIT, despite food sales growing by 2.2 per cent due to higher meal prices, but fewer meals sold
- The company intends to rebuild its franchise and group profitability after inflation causes menu prices to climb
- DMP CEO promises prices will not be hiked in FY24 after it put in place cost-saving measures back in June
- DMP shares are up 6.70 per cent, trading at $51.25 at 1:07 pm AEST
Dominos Pizza (DMP) has faced a mixed bag of challenges in FY23, resulting in a decrease in EBIT for the fiscal year.
Domino’s reported that its net profit was down 74.4 per cent to $40.6 million for the financial year.
The company recorded a 23.3 per cent decline in earnings before interest and taxes (EBIT), despite total food sales increasing by 2.2 per cent. DMP attributed the sales growth to higher meal prices but noted a decrease in the number of meals sold.
At the start of FY23, Domino’s stores, like many others, experienced historically high levels of inflation.
Group revenue increased by 3.4 per cent for FY23; however, it was accompanied by a decline in food orders, which significantly impacted franchise margins, leading the enterprise to absorb some of the costs.
The company announced its intention to rebuild franchise and group profitability after inflation and reduced earnings compelled the enterprise to raise menu prices to support and protect its more than 1000 franchise partners.
“Because of the speed at which we needed to respond to inflation, we didn’t always get the ‘value equation’ right,” DMP CEO and Managing Director Don Meij said.
“For example, some of the changes we made including the introduction of a Delivery Service Fee did not resonate with some customers and over time they ordered less frequently.
“We have heard this feedback loud and clear and have now removed the majority of these fees…that said, some pricing decisions were accepted by customers, such as slightly increasing the price of our value range, while still providing amazing value.”
In June, the pizza chain implemented cost-saving measures and explored new products and markets to compensate for the lost revenue, including exiting the Danish market and optimising the corporate store network.
DMP initiated a targeted program to close underperforming stores, expediting the re-franchising of others.
Domino’s anticipates that these initiatives will yield network savings of $50-60 million in FY24, rising to $80-94 million in FY25, with plans to invest one-third of these savings into its franchisee network.
Mr Meij assured that prices would not be raised this financial year due to the growing number of customers facing cost-of-living pressures, emphasising that improvement hinges on rebuilding customer frequency and order volumes.
DMP shares were up 6.70 per cent, trading at $51.25 at 1:07 pm AEST.
