Domino's Pizza Enterprises: Strategic Review and FY25 Outlook
DOMINO'S PIZZA ENTERPRISES LIMITED (DMP) Share Update July 2024 Wednesday 17th
Domino's Pizza Enterprises Announces Strategic Review and FY25 Outlook
Domino's Pizza Enterprises Ltd (ASX.DMP) has released a comprehensive update on its strategic review and FY25 outlook, highlighting significant changes aimed at improving efficiency and profitability across its global operations.
Instant Summary:
- Domino's to close up to 80 low-volume stores in Japan.
- 20+ new stores to open in higher potential locations in Japan.
- France to see a net reduction of 10-20 stores in FY25.
- Positive performance expected from Australia/New Zealand, Germany, and Singapore.
- Same Store Sales outlook remains at 3-6% across the group.
Japan Operations
Domino's Japan experienced a significant expansion, opening 403 stores from FY20 to FY23, representing a 67% growth. However, this rapid expansion led to a higher proportion of immature stores in underpenetrated markets. The company faced challenges with higher media costs and a decrease in advertising funds due to changing post-COVID consumer behavior.
In response, Domino's conducted a comprehensive review of its store locations and marketing strategies. The company plans to close up to 80 low-volume stores and open 20+ new stores in more promising locations. The closures are expected to improve unit economics and have a positive impact on earnings, which will be reinvested in marketing and advertising to boost order counts.
Management anticipates a return to positive Same Store Sales in Japan in FY25, with core margin improvements excluding one-off marketing investments.
France Operations
In France, Domino's aims to apply proven global strategies with local nuances to enhance operations and customer satisfaction. The company plans a net reduction of 10-20 stores in FY25, with 20-30 closures offset by 10 new openings. These changes are expected to benefit Domino's France FY25 EBIT as the majority of delivery orders from closed stores will be serviced by neighboring locations.
Group Outlook
For FY25, Domino's expects gross store openings to be around 3% of the network, with store growth being flat to slightly positive after accounting for closures. The company aims for a net growth of 3-4% in FY26. The medium-term outlook for store openings remains at 7-9% over the next 3-5 years, contingent on improvements in franchise profitability.
Long-term, Domino's maintains its goal of reaching 7,100 stores, approximately 1.9 times its current network, though the timeline has been extended beyond 2033 due to lower store openings in FY24-FY26.
The strategic review and subsequent store closures in Japan and France are expected to improve overall profitability and unit economics. The reinvestment of savings into marketing and advertising could drive higher order counts and customer engagement. However, the extended timeline for long-term growth may impact investor sentiment in the short term.
Investor Reaction:
Analysts have noted that the strategic closures and focus on high-potential locations are positive steps towards enhancing profitability. Some investors may be cautious due to the extended timeline for long-term growth, but the focus on immediate profitability improvements is seen as a prudent move.
Conclusion:
Investors should keep an eye on Domino's Full Year Results release on August 21st for further details on the company's performance and strategic initiatives. The focus on improving unit economics and franchise profitability is crucial for sustainable growth.