High-flying Domino's Pizza Enterprises insists a recent fall in its share price is not connected to the introduction of a 10 per cent surcharge on orders placed on Sunday.
Domino's is one of the ASX's most expensive stocks but it has dipped on concerns the surcharge, introduced on January 8, will slow demand among its price-sensitive customers.
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These workers had missed out on penalty rates thanks to an old deal with the Shop, Distributive and Allied Employees Association (SDA). The deal, struck in 2009 and but expiring in 2013, left staff with overall pay rates well below the current legal minimum.
Domino's is now negotiating a new deal with the SDA, and is still waiting on a separate ruling from the industrial watchdog on weekend penalty rates.
Domino's increased pay for workers in August, meaning adult drivers were paid $21.18 an hour plus $2.27 per delivery (with average deliveries of between three and five an hour), and an adult instore is paid $24.53 an hour.
Domino's did not answer whether it would increase pay again this month, as flagged by its chief executive in September.
Mr Meij said then if the Fair Work Commission were to delay its ruling on penalty rates beyond 2016 (as has happened), Domino's would "voluntarily most likely take another pay increase in the first quarter of 2017. But we would just do that because the business is doing so well and is just seems fair."
![Domino's Meatsa Trio](/web/20170127040210im_/http://www.theage.com.au/content/dam/images/g/t/z/p/f/k/image.related.articleLeadNarrow.300x0.gtzq6r.png/1485485537524.jpg)
Domino's did not answer whether Sunday was its busiest day, saying only that weekends were popular.
Penalty rate scrutiny
The sharemarket darling attracted scrutiny in July when investment bank Deutsche Bank suggested Domino's workers were missing out on penalty rates worth at least $32 million.Â
"We believe penalty rates will need to be paid at some point, which could have a significant impact on [Domino's] profitability," retail analyst Michael Simotas said, tipping pay rises would slash the Domino's profit by nearly 25 per cent.
"It pays a lower base than competitors and doesn't pay the weekend penalty rates stipulated in the award."
It pays a lower base than competitors and doesn't pay the weekend penalty rates stipulated in the award.
Deutsche Bank's Michael Simotas
But in September Mr Meij said the labour concerns were "old news" and overstated how much it would cost Domino's to lift pay.
"I'm not going to speculate, because we don't even have the numbers," he said.
Domino's does not break out its labour costs – some of its stores are company-owned but most are franchised – but as at September 2016 has about 16,600 employees in Australia. Labour is its highest cost.
Domino's shares peaked at more than $80 in August last year, meaning it was trading at 57 times this year's earnings, and 45 times next year's.
It's now trading at 43 times this year's earnings and 33 times next year's, leaving it among the most expensive stocks.
'No evidence'
Domino's told the market on Friday that it had seen "no evidence to support comments from unnamed analysts in the press in relation to a link between share price and the recent introduction of a Sunday surcharge."
It also told Fairfax Media that the Sunday surcharge was "among a number of pricing models successfully tested with our customers."
But one fund manager described the announcement as "over-sensitive" and said the market was alert to any misstep given Domino's was trading at huge multiples.
Mr Meij, who has a 26 per cent stake in the company, was a strong leader who might see any criticism as a slight on him, he said.
"When a stock is trading at 50 to 60 times, it doesn't have a  a great deal of room to go up unless it is executing perfectly," the fund manager said. ​"And if there aren't many people who are willing to pay it starts to revert to what people are willing to pay."
Domino's will update the market on its half-year results on February 15.
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