Australia's Domino's Pizza misses expectations, shares slide

Last Updated: Wed, Feb 15, 2017 09:24 hrs
A worker carries a pizza for delivery as he exits a Domino's pizza store in Sydney, Australia

By Tom Westbrook

SYDNEY (Reuters) - Australian fast food chain Domino's Pizza Enterprises Ltd on Wednesday posted record half-year profit but missed expectations, sending its shares sharply lower.

The company posted net profit for the six months to January 1 of A$59.7 million ($45.75 million), 31 percent higher than a year ago. But it tracked behind market expectations for a full-year net profit of A$124.8 million, according to nine analysts polled by Thomson Reuters I/E/B/S.

European and Japanese sales grew slightly below analysts' hopes and net cash flows fell by 11 percent, adding to investor concerns about a wages scandal at the company's Australian operations.

"I think the market's become accustomed to strong results ... They've come in a little bit shy," Steven Daghlian, market analyst at stockbroker Commonwealth Securities, said.

Domino's shares dropped eight percent to A$57.50, their biggest intraday fall in almost four years, while the broader S&P/ASX 200 index rose 0.9 percent.

The biggest Domino's operation outside the United States has become a market favourite because of its rapid growth and adoption of internet-based booking systems.

Domino's shares, which have risen 500 percent since 2013 and more than doubled since 2015, trade at a forward price-to-earnings ratio of 40.5, compared with an average of 16.8 across the broader S&P/ASX 200 index.

But as the company faces a scandal over staff underpayment at some stores, including questions over the profitability for franchisees, shares have fallen 22 percent so far this year.

On Monday, Domino's said it had cut loose four franchisees for underpaying staff and that there was no evidence of a link between franchisee profitability and underpayment.

"The clear majority are doing the right things in the business," Chief Executive Don Meij told journalists on Wednesday. "We are embarrassed by those individuals and their actions."

The company said it was growing faster than ever in Australia and upgraded its overall full-year profit forecast by 2.5 percent.

It hiked its interim dividend to 48.4 Australian cents from 34.7 cents a year ago. Sales in Europe rose 64.7 percent, although the company booked A$19.6 million in one-off charges for converting Joey's Pizza stores in Germany to the Domino's brand.

($1 = 1.3050 Australian dollars)

(Reporting by Tom Westbrook Additional reporting by Jonathan Barrett; Editing by Stephen Coates)

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