This morning pizza delivery business Domino's Pizza Enterprises Ltd. (ASX: DMP) posted a net profit of $64 million on revenues of $702.4 million for the full year ending June 30, 2015. The profit and revenue are up 40% and 19% respectively over the prior financial year.
The total dividend for the year was 51.8 cents per share, up 41.1% over the prior year.
The result is above previous guidance the company provided in February 2015, as the pizza maker continues to tick all the boxes except perhaps share price value.
Making the dough
Domino's has been one of the most spectacular growth stories on the local bourse recently with the stock quadrupling in value in just three years as organic and geographic growth took off across the business.
In its core Australia and New Zealand market the group posted same-store sales growth of 11.3%, with 59 new stores added to the network. Double-digit same-store sales growth for a pizza business is impressive and the group is perhaps Australia's best digital retailer.
The business likes to promote its innovative nature with tricks like GPS tracking of delivery drivers and social media interaction. Much of this is designed to grow digital sales by attracting new customers and encouraging repeat customers. Encouraging customers to order online also benefits margins as staff don't waste time on the phone – when they could be making pizzas.
The group has also been a market leader in product and marketing innovation, with big price swings between value pizzas, deluxe pizzas and lunchtime deals.
Many might say the pizza sucks, but the offer's brilliant – and Domino's is a textbook lesson on the power of competitive pricing, marketing and digital retailing.
Overseas growth
The group is now expanding its franchise model into Japan and Europe. Despite much of the attention being focused on Japan, it seems Europe was the standout performer nearly doubling earnings to $19.3 million on the back of prior investments.
Earnings in Japan were up 38% to $37.9 million on the back of record store openings and scale benefits, although same store sales growth was soft at 1.8%. The group aims to open 850 stores in what is a giant Japanese market with big potential and aims to have 3,100 stores worldwide by 2025.
Outlook
The group said the first five weeks of the current financial year have been strong and it is predicting earnings and profit growth in the region of 20% for financial year 2016.
Despite the impressive result the stock has fallen in early trade and selling for $40 still trades on 54x trailing earnings per share of 74.2 cents. This looks expensive, with same-store sales growth in Japan soft and total earnings growth of 20% forecast this financial year.
The compound growth becomes harder to achieve as the group gains scale and investors would be well served to remain patient in looking for an entry point into this business.
