The company has a 52% share in Chain Pizza and a market share of 24% of every pizza sold. In the overall fast food market, it has a 8% share and ranks number 5.
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Competitior opening & closures (Source: Company Reports)
The store count is 562 stores in Australia and 89 stores in New Zealand. The strategy involving foster growth involves progress towards a fast casual dining experience and beefing up its own delivery systems with the launch of a GPS driver tracker. The company believes that the path towards a bigger slice of the pie is to widen the customer base, introduce new products appropriate for more occasions and an internal head chef operating with a development kitchen.
In Australia, the social media is a big driving factor and there are 990,000 fans on Facebook, 36,200 followers on Twitter, 20,700 followers on Google +, 47,800 loops on Vine and 4700 friends on Instagram. In addition the company utilises live Q&A sessions on social media platforms, gathers feedback ratings from customers, collects live store ratings on its website and Pizza Mogul.
On the digital side of things, the global digital systems utilise shared best practice and joint development in all its markets. The objective is to achieve more innovation through faster and smarter research and development and development is in progress for a new website as well as new online ordering systems. Work is progressing on wearables such as Apple Watch and Android Wear And the GPS Driver Tracker will provide a better connection between the company and its customers thus enhancing the user experience. There will also be strong emphasis on online advertising.
Operationally, the launch of the GPS Driver Tracker will lead to increased productivity among drivers, reductions in incidents involving drivers, heighten driver experience and provide higher exposure for the brand. The GPS tracker will provide metrics for drivers such as speeding, bad driving and maintenance of the vehicles. Additionally there are plans to increase the electric bike fleet, introduce individual employee rankings and make arrangements for store tours.
Results for HY 2015
The company has attributed its highest ever profit for the half year period to digital and product innovations. A strong focus in all operations in the region resulted in a group EBITDA of $ 60 million which is an increase of 41.2% over the last year. Australia and New Zealand, Europe and Japan all set records for new store opening with a total of 92 being added to the group network. Same-store sales growth was 8.6% which included the highest growth in ANZ in the first half of 10.6% and this was largely driven by the success of the $ 4.95 Cheaper Every Day promotion and the launch of Pizza Mogul in Australia combined with continued momentum in New Zealand.
Europe is on track for recording its first-ever double-digit EBITDA margin and EBITDA grew by 138% on a constant currency basis. The growth was delivered through the momentum of a restructured management team in Europe. The robust profit growth in Japan was attributed to the growth in store count along with superior control over food and labour in corporate stores has seen the Japanese company report EBITDA growth of 27.2% on a constant currency basis. CEO and Managing Director Don Meij said that the half-year performance was unprecedented and position the company to deliver strong FY 2015 results. He confirmed that Domino's Pizza Japan is on track with expectations with reported sales growth for the first half at 15.8%. Record sales of ¥ 4.4 billion were reported for December 2014 and the same month saw monthly sales records across 147 stores and a record 34 new stores were opened in Japan.
With a much better understanding of how to engage with its core customers, the group launched a number of important digital initiatives to allow them to interact with the brand. Included in these crowd sourcing initiatives is Pizza Mogul and Australian platform launched in July 2014 at the vanguard of the "me-tailing" revolution. More than 55,000 Pizza Moguls have been registered to date and 160,000 pizzas added to the menu.
Result Highlights (Source: Company Reports)
There was a new record for first half store openings of 92 across the group and the group is on track to exceed this total in the second half of 2015. The first half record also includes 34 new stores opened in Australia and New Zealand, 24 new stores to the European network (there were three closures in France) and 34 new stores in Japan. Franchise stores now account for 24% of the store count in Japan compared to 17% in the previous year.
As regards the profit and loss account, revenues were up by $78.2 million or 29.5% to $ 343.6 million and a strong operating performance has delivered a growth of 42.1% in EBITDA to $ 60 million. NPAT was up 44.2% to $ 29.1 million and EPS grew by 37% to 33.8 cents per share while statutory EPS was up 39%. The fully franked interim dividend was 24.6 cents per share a growth of 39% over the previous period.
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DMP P&L (Source: Company Reports)
A robust operating cash flow of $ 56.5 million was generated by all regions and there were timing benefits from working capital and tax. Net capital expenditure rose to $ 40.9 million in the group's attempt to leverage the existing momentum and accelerate new store growth across all its markets. Despite the increased level of investment, the free cash flow of $ 15.6 million compares favourably with the same period in the previous year.
Cash Flow (Source: Company Reports)
The guidance update is 6% to 8% same-store growth for FY 2015 compared to 4% to 8 % as at 30 November 2014, new store openings at 180 to 200 compared to 175 to 185, EBITDA growth in the region of 30% compared to 25%, NPAT growth in the region of 25% and 32.5% and net capital expenditure at $ 70-$ 80 million and $ 60-$ 70 million respectively. The trading update through the first six weeks of 2015 shows same-store growth of 12.2 % in Australia/New Zealand, 11.5% in Europe and 9.2% in Japan and new store openings of 2 in ANZ, 5 in Europe and 6 in Japan.
We concede that the growth and performance has been solid and appreciate the various initiatives digital and operational initiated by the group. However, despite its leadership in the pizza market and the fast food market overall, the group does not have the protection of a major economic moat and switching costs for consumers are low while competition is intense. We therefore believe that the stock is expensive and overvalued at its current price levels.
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