The Domino's Pizza Enterprises Ltd (ASX: DMP) share price surged 7% last Wednesday following stronger than expected half-year results for FY21 (1H FY21). Its shares pushed higher the next day to set an all-time record high of $115.97 before finishing the week at $107.68.
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Key results highlights
Group same store sales (SSS) increased 8.5%, significantly higher than the company's 3–6% medium-term target range. The pace of new store openings was also significant, with 127 net openings across the group.
Domino's reported its earnings before interest, tax, depreciation and amortisation (EBITDA) in Japan lifted 54.9% against the prior corresponding period, with SSS up 36.4%. The company attributed the result to the fruits of its strategic initiatives over the past two years, driving material growth in new customers and purchase frequency. Store roll out continued at a high pace with 68 new store openings, taking Japan's store tally to 742.
The company's Europe segment was strong as a whole with 1H FY21 EBITDA up 20.1% and SSS up 6.4% . Germany continued to outperform, driven by TV marketing under a single brand, ramp-up of organic store openings (15 stores) and a higher mix of delivery orders. In France, store openings gathered momentum (adding 19 stores) which is expected to continue, providing further evidence of a re-energised franchisee network.
ANZ performance was solid, but arguably overshadowed by Japan and Europe. Experienced franchisees grew sales 5.7% to $648 million with 13 new stores opening.
The group's EBITDA increased 23.8% to $218.7 million while underlying NPAT increased 32.8% to $96.2 million.
The company hinted that given its strong balance sheet and franchisee profitability, it intends to accelerate expansion and remains "active in seeking additional Domino's territories where they deliver value." By 2025–2028, the company is targeting 1,200 stores in ANZ, ~1,000 stores in Japan and ~2,700 across its European operations.
Bell Potter upgrades Domino's share price target with a buy rating
Following the strong result, Bell Potter strengthened its growth and margin assumptions across the group, particularly in the Japan segment. The broker's 12-month price target increased to $122.00, from a previous $99.30. This represents an upside of 13.30% to its closing price on Friday.
The broker believes that Domino's has significant long-term growth prospectus, with Europe, Japan and acquisitions being the major drivers.
Domino's forward-looking guidance
While the company was unable to provide any concrete earnings guidance, it did provide a positive outlook which cited an accelerated investment in new store openings and strategic acquisitions in the second half of FY21. The company stated that it expects "full year performance to be even higher than our already positive, medium term outlook".
Domino's went on to reaffirm its 3–5 year forecast horizon, which includes:
- Annual same store sales growth: +3 – 6%;
- Annual store growth: +7-9%
- Annual net capex: $60–100 million
The Domino's share price is up 75% on this time last year, and on current prices the company has a market capitalisation of $9.32 billion.
