Aug 6 2024: Domino’s Pizza Group in the UK has revised its full-year profit forecast downwards, citing its decision to pass anticipated lower food costs to franchisees and offer more value deals to customers.
The UK franchise of the U.S.-based Domino’s Pizza now expects its adjusted annual core profit to fall at the lower end of market expectations. Previously, the company had anticipated its profit would align with the forecasted range.
Shares of the company initially rose nearly 5% in early trading but later fell by over 3% as of 0812 GMT.
Current analyst estimates project the annual profit to range between £144 million ($183 million) and £149 million, according to a company-compiled consensus.
CEO Andrew Rennie attributed the profit outlook downgrade to a challenging first half of the year and the strategic decision to pass cost savings to franchise operators and customers to stimulate growth.
“We’ve opted to pass more of our food cost savings to our franchisees in the second half of the year, which they have been relaying to their customers. This move is aimed at boosting customer growth,” Rennie told Reuters.
Domino’s Pizza Group has a profit-sharing arrangement with its franchise partners in the UK and Ireland.
Investec analysts viewed the decision as strategically sound, even if the outlook downgrade might be disappointing.
“Although the revised guidance could impact short-term figures, the choice to transfer cost deflation to franchisees aligns with the business strategy and supports the long-term sustainability of the model,” they noted.
Domino’s reported a return to order growth in the second quarter, driven by strong pizza demand during the European soccer championship.
For the half-year period ending June 30, the company recorded a slight 0.4% increase in underlying core profit to £69 million and announced a £20 million share buyback.
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