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Domino’s Pizza has reacted positively to a strong Q4 trading update, with the shares up around 4 per cent in early trading.
Steve Clayton, manager of the HL Select UK fund range, which have positions in the stock commented:
“Domino’s is trading well, right across its estate, with positive like for likes everywhere from Iceland to Switzerland and especially back home in the UK. Profit for 2017 is now expected to be a little ahead of the market’s range, suggesting something of the order of £92m is likely.
“The company is doing what is has always done; focusing on the consumer and serving them with a great product, straight to the door with the minimum of fuss.
“Domino’s dominates the UK pizza sector and can throw more marketing resources behind the brand than any rival can hope to. The group set a new record for store openings last year and looks set to continue opening at pace in the UK and overseas.
“Normally, Domino’s leads the pack in terms of technology, and much of its success can be put down to being the early mover in takeaway e-commerce. But introducing GPS technology to maximise delivery efficiencies and customer service has been an area where it lagged. So it is good to see Domino’s catching up here, with almost a quarter of the estate adopting GPS in 2017.
“Sales growth of 18 per cent, almost half of it organic, was strong, including like for like gains of almost 5 per cent in the UK and 11 per cent in Eire. Online sales continue to grow faster, up almost 15 per cent and now over three quarters of the total in the UK. 95 openings took the UK estate up to 1045 outlets, Eire added one to reach 49 stores, whilst the Norwegian business more than doubled in scale following the acquisition of rival Dolly Dimple’s. Improved pricing in Switzerland saw like for likes there surge almost 22 per cent.
“It’s a strong end to the year, and the group now needs to show a similarly strong Q1, where it is up against easy comparatives, for last year, Domino’s mis-read the market and got its seasonal promotion for Q1 all wrong. All the signs are encouraging and there is clearly momentum in the business.
With Europe starting to deliver scale benefits as store chains grow and the UK firing on all cylinders, the outlook seems very positive. We hold Domino’s Pizza on both of the HL Select funds because its capital-lite business model, where Franchisees put up most of the investment needed by the chain, leads to strong cash flows and excellent dividend paying potential.”