Move Into Europe Delivers Flat Result At Domino’s Pizza

THE failure of the "high crust plus" to whet consumers appetites and poor sales at new stores in Victoria have contributed to a 46 per cent profit slump at Dominos Pizza.

The disappointing result by Australias only listed pizza company has also been blamed on management taking their eye off local operations while focusing on the crucial early stages of their ambitious European expansion plans.

The company yesterday posted a net profit of $3.5 million for the half-year, down from $6.5 million in the previous corresponding period but kept the dividend steady at 4.1¢, fully franked.

The European division, which owns 188 stores, operated at a loss of $1.4 million in the first half, but this was anticipated.

The company is the biggest player in the local pizza industry, outselling rivals including Pizza Hut, Eagle Boys and Pizza Haven.

It plans to improve sales by hiring a new development chief in its research and development area.

Sales at Victorian stores have been lagging behind other states because it is the companys newest market, and has the most "immature stores".

The company, which floated on the stock exchange in May 2005, said the drought was affecting the price of cheese, despite a long-term deal struck with New Zealand-based dairy company Fonterra.

Despite the declining profit, chief executive Don Meij said the company would continue to grow locally, increasing the total number of stores to 473.

Store expansion across five countries is expected to reach 668 stores by the end of the fiscal year.

Total EBITDA was also down, by 21 per cent to $9.6 million, from $12.2 million a year ago.

In a note to clients, Goldman Sachs JBWere said comparable store sales looked "anaemic" for a stock trading on a multiple of more than 20 times.

The company predicts that in the full-year same-store sales in Australia and New Zealand will be steady or decrease by 1 per cent and European same-store sales will be consistent at 12 per cent, and net profit after tax in the second half will be approximately 40 per cent up on the first half.

The analysts also commented that the European acquisition may have been a distraction to management, with executives spread too thin.

"Its hard not to notice the Aussie business started having problems when the European business was acquired," one said.

One-third of stores in Australia and New Zealand are owned by the pizza company, the remainder are owned by franchisees. Dominos plans to sell some of the company-owned stores to its franchisees.

The shares yesterday closed 40¢ lower at $3.25.

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