Fast food giant Domino's Pizza has super-sized its sales in the December half, driving them past the $1 billion mark amid concerns that some of the franchisees running its highly profitable store network underpay staff to keep ahead of rising costs.
Domino's chief executive Don Meij was forced to defend the chain's $5 pizza deal as he upgraded growth expectations for the company's full-year underlying earnings and net profit to 32.5 per cent on the back of a very strong first half.
Despite the stellar result, Domino's share price dived by as much as 10 per cent in early trade.
One analyst said the market had had such high expectations of the stock that it was punished for missing expectations for its interim net profit even as the company upgraded its earnings forecast and posted a strong result.
Related Content
Earnings before interest, tax, depreciation and amortisation in the six months through December jumped 33.6 per cent to $116.2 million and net profit surged 30.8 per cent to $59.7 million - slightly below an analyst consensus estimate of $60.83 million.
Domino's network sales jumped by 26.8 per cent to $1.17 billion, underpinning a 21.1 per cent increase in the group's overall revenue to $539.4 million
Mr Meij said its cut-price pizza was profitable for franchisees and that there was no correlation between the underpayment of staff wages and store profitability.
He said the company had zero tolerance for unethical behaviour including underpayment of wages or under-reporting of sales.
"I make no apologies for expecting the highest standards from our franchisees," Mr Meij said
"Due to our investment in proactive compliance we have identified some franchisees who have wilfully breached their obligations to team members."
Meij made his comments after a Fairfax Media investigation into the company and its franchisees uncovered widespread underpayment of wages, the deliberate underpayment of penalties using a delivery scam and the illegal sale of sponsorships of migrants for as much as $150,000.
Mr Meij said the group had conducted 456 spot checks at its stores over the past three years and undertaken 102 store audits, 42 of which were still ongoing.
Domino's claims it has investigated 88 complaints, with 25 still under review.
"This process has recovered a total of $4.5 million in unpaid superannuation and wages owed to team members by franchisees," the company said.
"This amount represents 0.8 per cent of the labour costs in our franchise network for the period."
Domino's credits investment in its menu along with "market leading" technology for its impressive half-year growth and it plans to release details of its latest technology advances in early March.
Same-store sales grew by an average rate of 9.4 per cent across the company's global network, which spans Australia, New Zealand, Belgium, France, Japan, Germany and the Netherlands.
Earnings for the group's leading region Australian and New Zealand jumped by 23.9 per cent to $55.2 million, with 17.2 per cent growth in revenue to $150.1 million.
Mr Meij said the trading results followed the introduction of a Sunday surcharge in January to allow for higher wages for employees working on that day.
"The Sunday surcharge followed extensive testing of the new pricing model in multiple markets, which saw stable or increasing sales prior to a national roll-out," Mr Meij said.
Domino's opened 27 new stores in the half and it plans to launch another 35 new stores before July 2 in Australia and New Zealand.
The company declared an 48.4¢ interim dividend, 50 per cent franked, up 39.5 per cent on the previous corresponding half.
More to come...
11 comments
New User? Sign up