Domino’s trading update didn’t quite contain the news that the market wanted. Investors had been bidding up the shares in April and May in the belief that households stuck in lockdown would turn to well-known brands such as Domino’s for takeaways, partially as a bit of treat to relieve the boredom of being stuck at home and not enjoying restaurants or pubs.
“While its sales have gone up during the lockdown period, the types of products being bought aren’t necessarily the most profitable ones for Domino’s. It says a lot more people have been buying sides and desserts which are lower margin, thus earnings are likely to be lower than analysts had been forecasting.
“Pizza has long been a favourite of restaurant and food operators because the profit margins on a bit of cooked dough with sprinklings of cheese and a dash of tomato sauce on the top are significantly higher than many other popular meals.
“Selling desserts and sides such as chicken wings provide a nice boost to earnings but at the end of the day Domino’s would rather customers spend more money on pizzas because it leaves more money in its pocket after costs.
“Also adding to Domino’s disappointment is a poor showing from its Irish business where it believes consumer spending weakness has been more pronounced. One of the biggest threats to its future sales is a sharp rise in unemployment in both the UK and Ireland as a result of Covid-19.
“Pizzas can be bought for a fraction of the price in supermarkets and so any pressure on people’s wallets could seem them turn their back on Domino’s if times become hard financially.”