The Domino's Pizza Enterprises Ltd. (ASX: DMP) share price is surging today after the fast food business announced its FY22 result and revealed Asian expansion plans.
At the time of writing, Domino's shares are trading for $71.09 each, 6% higher, after reaching an intraday high of $73.94 a share this morning. That was a jump of more than 10%.
The 2022 financial year was a tricky one for Domino's because it was trying to beat FY21's numbers, which included boosted sales during COVID-19 lockdowns.
It was also tough for Domino's to maintain its momentum in Japan after that country's COVID-19 restrictions were lifted.
Domino's profit drops
While Domino's network sales increased by 4.6% to $3.92 billion, earnings before interest and tax (EBIT) dropped 10.5% to $262.9 million. Underlying net profit after tax (NPAT) also declined 12.5% to $165 million.
Australia and New Zealand EBIT grew $3.3 million, or 2.8% in percentage terms. At the same time, Asian EBIT sank 23.1%, or $25.6 million in dollar terms, due to a "rapid change in sales in Japan, following the lifting of a state of emergency".
European EBIT fell 11%, or $9.7 million in dollar terms, with the largest driver being the increased investment in rebuilding the Danish business.
The company said it has reached a challenging but important milestone, as it transitions from 'living with COVID' to facing historic inflation.
Trading update
At the start of FY23, Domino's revealed its network sales had fallen by 2.4% and same store sales had fallen 1.1%. But, it had added 13 new stores and noted that it was competing against very high sales in the prior comparable period. The Domino's share price can be affected by how trading is going.
Management said that the business had a choice to be defensive or invest for growth at the start of COVID-19. It is continuing to choose to invest for growth.
Domino's CEO and managing director Don Meij said a few things about the outlook, including the following about growth expectations for FY23:
With menu innovation in all markets and new, app-first technology to roll out this year – there is positive sales momentum, and we expect to be within our 3%-6% outlook for same store sales this year.
New store construction will rely on our ability to navigate inflation, and accordingly franchise profitability – our progress, combined with franchisee appetite, and investment in our people through our path to excellence, gives us confidence we will reach our store rollout target this year of 8%-10% new store openings.
Opening more stores, closer to customers, improves unit economics, builds customer satisfaction and loyalty, and will help us be the most efficient, sustainable delivery QSR.
We are a business focused on long-term growth, and we look forward to delivering.
According to reporting by The Australian, the UBS analyst Shaun Cousins said that the result missed earnings estimates due to weakness in Europe and that the organic store growth outlook was lowered, although long-term milestones were unchanged.
Same store sales growth was also below UBS estimates. But, the acquisitions in Asia were "positive".
Asian expansion
Domino's has entered into binding agreements to buy Domino's Pizza businesses in Malaysia (240 stores), Singapore (38 stores), and Cambodia (nine stores).
The initial purchase price is A$214 million with an earnout payment to be determined over the next two to three years. The total consideration could be equivalent to A$142 million.
The deal is priced at 10.1 times FY22's normalised earnings before interest, tax, depreciation and amortisation (EBITDA).
As a result of the acquisition, Domino's Pizza Enterprises is increasing its future store count outlook in Asia from 2,400 stores to 3,000 stores by 2033.
This deal adds around 5% to earnings per share (EPS) on a pro forma FY22 basis without synergies and excluding integration, reorganisation, and transaction costs.
Domino's share price snapshot
Over the last month, Domino's shares have risen by more than 3%.
