July 25, 2017 / 3:58 PM / 2 months ago

Domino's Pizza's slowing UK sales growth sends shares tumbling

FILE PHOTO: The sign of a Domino's Pizza restaurant is seen in Paris, France, October 27, 2016. REUTERS/Charles Platiau/File Photo

(Reuters) - Britain’s biggest pizza delivery firm, Domino’s Pizza Group Plc, (DOM.L) reported much lower like-for-like sales growth in the first half of the year, sending its shares tumbling on Tuesday.

The company, a franchise of U.S. company Domino’s Pizza Inc (DPZ.N), is opening 90 new stores in Britain this year, part of a strategy to increase the number of outlets in locations that are doing well in a bid to boost profitability.

The first-half results led analysts to question whether the strategy is working as sales via over-the-counter orders at British stores open more than a year rose just 2.4 percent. That was down from 13 percent growth at existing stores a year ago.

“With all the growth in H1 coming from new and immature stores the acceleration in openings raises a concern on what the impact could be on mature stores which appear to be increasingly under negative pressure,” analysts at Liberum said in a note.

Domino‘s, which opened 40 outlets in Britain in the first half, did not disclose sales volumes, but Liberum analysts estimated volumes at mature stores fell 3 percent in the first half.

Its shares closed down 5.6 percent at 263.7 pence, after falling more than 8 percent at one point to their lowest level since July 2015.

Domino’s has also been pushing online sales and that drive appeared to be paying off as online orders in Britain increased 11.5 percent in January-June to account for 75 percent of all deliveries in the period, it said. That helped Domino’s total sales rise 10.5 percent to 546.5 million pounds in the first half of the year.

The drive to increase online sales has included introducing apps for smartphones and smartwatches to help customers place and pay for orders quickly and counter competition from the likes of rivals Pizza Hut or Papa Johns (PZZA.O), which opened 11 outlets in Britain in the first half versus 20 last year.

On Tuesday Domino’s launched voice ordering through Amazon’s Alexa to make ordering easier.

It said it plans to invest 4 million pounds ($5.2 million) of gross profit to support promotions in the second half of the year, a tenth of its entire operating profit over the period.

It reported underlying pretax profit of 44.6 million pounds for the 26 weeks to June 25, up from 40.9 million pounds a year earlier.

Most of the group’s 1,130 stores are in Britain but it also operates in Switzerland, Ireland and Germany and took controlling positions in its Nordic operations this year. Sales outside Britain totaled 23.8 million pounds in the first half.

Domino’s said in November it would increase the number of stores in Britain to 1,600 after seeing a strong performance from new outlets.

Reporting by Justin George Varghese and Rahul B Editing by Louise Heavens and Susan Fenton

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