Domino’s Pizza: Topping expectations

Domino’s Pizza: Topping expectations

Henry Croft, Research Analyst at Accendo Markets, commented this morning:

Shares in Domino’s Pizza have rallied by as much as 5% this morning after management lifted FY guidance following a strong Q4. In a quarter more famous for consuming roast potatoes and turkey rather than cheese and pepperoni, UK group sales rising by close to 10% YoY (LfL +6.1%, ahead of consensus), bolstered by reality television finals shortly before Christmas, took management by surprise. Group expansion continued at pace, with Q4 contributing over a third of FY17 new store openings, while the phasing in of its new Warrington-based supply centre will help to slash capital expenditure by up to 25% (£45m-£50m from £50-£60m) for the year, boosting free-cash flow and possibly providing the ammo for December’s pre-announced discretionary £20m share buyback. Online continued to set the pace for the wider business as sales improved by 15% to capture 77% of total sales over the quarter.  25% sales growth over the average Saturday this year suggests that while the UK consumer is becoming increasingly conscious about paying top dollar to eat out, the ability to enjoy food in front of the box on a Saturday night via an easy-to-use online system is becoming ever more popular. Full year results on 8 March will help investors digest further whether fast-paced store expansion has limits, or if the front room restaurant will soon become the UK’s best-loved eatery. Today’s share price reaction has lifted the shares to fresh 9-month highs, and within 12% of July 2016 all-time highs.

Domino’s Pizza +2.8%; Accendo Markets does not have a rating or target price on Domino’s Pizza.

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