Shares in Domino’s Pizza (LSE: DOM) had fallen by over 8% at lunchtime today to 550p as it admitted to investors that its German operation would take longer to become profitable than it had originally guided.
The pizza delivery group, which has core operations in Britain and Ireland as well as fledgling operations in Switzerland and Germany, currently operates some 634 stores.
In today’s half-year results, Domino’s reported a pre-tax profit of £11.6m — down £9.9m on last year’s figure of £21.5m for the same period.
It also reported sales were up 13.8% to £326.5m, and that like-for-like sales across the group had been strong. The interim dividend was increased by 7.6% to 7.1p.
In his review of today’s results, CEO Lance Batchelor said:
“Recent legislation in part of Germany to impose a minimum wage, will increase the break-even of stores and will require us to support stores for longer than originally anticipated.
The uncertainty is driven by a lack of clarity about any rollout of such new minimum wage across other German regions, the exact impact on stores, and what mitigating actions may be possible.
….As a result we have decided that we will proceed more cautiously with our German expansion, opening fewer stores in 2013 and 2014 than originally predicted. This will postpone breakeven in the German market to 2016 or 2017.”
Forecasts before today’s announcement put Domino’s Pizza shares on a forward P/E close to 26, with 3 out of 8 brokers rating the shares as a ‘buy’.
However, whether the shares really do represent a ‘buy’ at this price, only you can decide.
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> Andy does not own any of the shares mentioned in this article.
