Domino’s Pizza Enterprises Ltd (ASX: DMP) is an Australian-owned master franchise holder for Domino’s in Australia, New Zealand, Belgium, France, the Netherlands, Japan, Germany, Luxembourg and Denmark. Domino’s has a market capitalisation of A$6.6 billion.
What are the key features of the FY20 result for Dominos?
Dominos reported a positive FY20 result. Earnings before interest and tax for FY20 is $228.7 million, up 3.6% from FY19. Network sales for FY20 is $3.27 billion, up 12.8% from FY19. Online sales for FY20 is $2.36 billion, up 21% from FY19. Free cash flow for FY20 is $161.9 million, up 90% from FY19.
Regarding Dominos regional operation performance, Japan’s sales is up 25.9%, with 75 new stores opening in FY20. Dominos is planning to open 1500 stores in Japan in the company’s current strategy. COVID-19 caused demand for home delivery to increase over the half year.
European sales were up 5.1% with 78 new stores opening in FY20. Higher levels of COVID-19 cases in Europe during the half year impacted dominos European results. On the positive side, European sales were still up over the year. Dominos stores across Europe observed different impacts due to COVID-19. Stores in France were temporarily closed, Benelux observed lower carry-out sales that was offset by delivery growth and Germany experienced strong overall sales growth.
Australia and New Zealand sales is up 4.1% with 10 new stores opening in FY20. Australia and New Zealand operations were affected by a short-term forced market closure in New Zealand, and changes to customer behaviour that had uneven effects across stores. These government restrictions in both regions pushed Dominos to implement new methods of operating from zero contact delivery right through to car park delivery. These strategies allowed Dominos to operate during COVID-19.
What is the outlook for Dominos?
The outlook for dominos is positive. Dominos provided FY21 guidance, which is network sales growth to be around 18.5% with 24 new store openings. However, it is noted in the announcement that it is possible governments in Dominos’ operating markets could quickly shutdown the economy again if COVID-19 concerns arise again. An example of this occurring is in Victoria, where the Victorian state government has introduced level 4 lockdown rules for several week to control the second wave of COVID-19.
Dominos confirmed today that the long-term growth strategy to open 5,500 stores by 2033 is remains the current expectation. Over the medium-term, Dominos management has reaffirmed the goal of achieving 3 to 5 years for sales growth of 3-6% per annum and network growth of 7-9% per annum.
What is the market reaction to the FY20 result?
The market reaction to Dominos FY20 result is positive. Dominos is up around 6.5% and is currently trading at A$81.80 (19 August 2020). Dominos has a forward P/E ratio in the mid-forties and has an annual dividend yield of around 1.6%.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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