Morning Note: Market news and a results from Domino's Pizza Group.
Market News
US equity markets traded lower last night – S&P 500 (-0.1%), Nasdaq (-0.4%) – as chip stocks extended recent declines. However, Oracle soared 14% post-market after a spike in bookings tied to cloud computing. US inflation data is due out later today, with CPI (all items) expected to hit 3.1% and CPI (ex-food and energy) at 3.7%. The 10-year Treasury currently yields 4.09%, while gold remains well supported at $2,177 an ounce.
As part of President Biden’s second-term tax agenda, he has proposed a $7.3tln budget for the next fiscal year, raising taxes on wealthy people and corporations.
This morning in Asia, the yen slipped after Kazuo Ueda’s seemingly dovish comments about weakness in consumption. The BOJ’s decision on whether to raise rates this month is too close to call, with the initial tally from spring wage talks due Friday a key data point in consideration, people familiar said. Equity markets were mixed: Nikkei 225 (-0.1%); Hang Seng (+3.2% and has now rallied 20% from its recent low); Shanghai Composite (-0.4%).
UK unemployment rate ticked up to 3.9%, while UK wage growth (ex-bonuses) in the three months to January rose by 6.1%, a touch below forecast. The Bank of England’s Catherine Mann Says inflation is still too strong. Sterling trades at $1.2791 and €1.1699. The FTSE 100 is currently trading 0.8% higher at 7,727.
Source: Bloomberg
Company News
Domino’s Pizza Group has this morning released its full-year results. The statement highlights weak trading in January and guidance for 2024 remains very broad given the uncertain consumer environment. In response, the shares have been marked down 10% in early trading.
Domino’s is the UK’s leading pizza brand and a major player in the Republic and Ireland. The company holds the master franchise agreement to own, operate and franchise Domino’s stores in both markets. There are now more than 70 franchisees with over 1,319 stores in the network.
The company has announced plans to accelerate organic growth. It expects more than 70 new stores to open in 2024, targeting in excess of 1,600 stores and £2.0bn system sales in 2028 and 2,000 stores, £2.5bn system sales by 2033.
The company is also undergoing a digital transformation. In particular, the Domino’s app is the key driver of the group’s digital growth strategy because app customers yield higher sales and have a higher average order frequency than those who only use the website. The app orders 73.8% of all online orders.
Franchisees are performing well in an uncertain consumer environment, with UK takeaway market share nudging up to 7.2%. System sales represent the sum of all sales made by both franchised and corporate stores to consumers in UK and Ireland. In 2023, system sales grew by 5.8% to £1572m. On a like-for-like (LFL) basis, growth was 5.7%. Growth was 0.4% in the final quarter against a tough year-on-year comparator.
Group revenue grew by 11.1% to £680m, driven by an increase in system sales volume, acceleration of store openings, and the pass-through of increased food cost. Total orders grew by 1% to 70.5m, with collections up 13.3% to 25.3m and delivery orders down 4.8%.
The group proactively took action to reduce its cost base and this will partially offset the overall impact of inflation on the cost base in 2024. Underlying EBITDA (i.e., cash profit) grew by 3.6% to £138.1m, versus guidance of £132m-£138m. This includes £8.9m of previously guided technology platform costs and no contribution from Germany.
The company is a highly cash-generative, asset light business. During the year, free cash flow grew by 23% to £97m. The company has a strong balance sheet, with year-end net debt to EBITDA of 1.77x, below its target range of 1.5x-2.5x. The store opening programme continued, with 61 stores opened in the year, a touch above the target of 60. The group is committed to a progressive dividend policy and has today raised its payout by 5% to 10.5p. The company is also committed to distributing surplus capital to shareholders and bought back £90m of shares during the year.
The company has announced it is acquiring the outstanding shares in Shorecal Limited which it does not own for £62m. The deal will meaningfully accelerate growth in Ireland.
Trading in February has seen an improved sales and order trajectory following a slow January, in part because the group tactically held back on marketing spend to support more strategic launches later in 2024. The group expects to see some food cost deflation in 2024 which, in line with its model, will be passed through to franchise partners. As a result, the group expects to deliver underlying EBITDA in line with current market expectations (£147.9m with a range of £139.6m-£153.2m). This will deliver another year of further profit growth, despite the continued uncertain consumer environment.
Source: Bloomberg