Domino’s Pizza said the takeaway market had “become tougher” as it blamed weaker consumer confidence in the run-up to the autumn budget and rising wage costs for lower-than-expected sales and a slump in profits.
After a drop of nearly 15% in half-year profits, the company now expected full-year underlying profits of between £130m and £140m, about £6m below analysts’ expectations.
Domino’s said it was gaining market share but its franchise partners were being more cautious about opening new outlets because of higher employment costs. Employers’ national insurance payments and the legal minimum wage were both increased in April.
The company opened 11 stores in the six months to the end of June, fewer than expected, and is now forecasting openings in the mid-20s for the full year. In April it said it hoped to open “in excess of 50 new stores”.
Andrew Rennie, the chief executive of Domino’s, said: “There’s no getting away from the fact that the market has become tougher both for us and our franchisees, and that’s meant that the positive performance across the first four months didn’t continue into May and June.
“Given weaker consumer confidence, increased employment costs and uncertainty ahead of the autumn statement, franchisees are taking a more cautious approach to store openings for the time being.”
He said the group was looking at more automation to help to keep costs down.
Shares in the UK-listed group slid more than 13% in morning trading on Tuesday as it reported flat total order numbers in the first six months. Underlying sales dipped 0.1% as it struggled to beat the strong sales last year during the men’s Euro 2024 football tournament.
Underlying pre-tax profits fell from £51.3m to £43.7m as system sales, which include total sales made at franchise outlets and new outlets opened during the year, rose 1.3% to £778m.
The poor performance at Domino’s follows similar difficulties at the bakery specialist Greggs, which reported a 14% fall in half-year profits last week amid weaker-than-hoped-for sales. It said profits had been hit as consumers shunned pastry bakes and hot food in favour of cold drinks during the hot weather.
The rival pizza franchise Papa Johns has also closed more than 70 outlets, and Pizza Hut’s 140 restaurants were rescued from insolvency in January.
Katie Cousins, an equity analyst at Shore Capital, said: “We note ongoing headwinds from low consumer confidence and slowing income tracker data, particularly for [those on low income], along with potential impacts of weight-loss injections on the sector.”
Mark Crouch, a market analyst for eToro, added: “Despite [Domino’s] revenue growing and higher like-for-like sales, profits have dropped sharply, and store openings have slowed, a troubling combination for a growth-focused franchise model.
“If fast affordable food is feeling the pinch, what does that say about the broader consumer landscape? Investors may see a resilient brand, but the numbers point to structural headwinds that go beyond pizza.”
