Dominos trading update: Don Meij is saying ‘Hej, Hej’ to Denmark and targeting $25-$30m in FY24 savings

The latest Dominos trading update was released this morning and the company is trying to mitigate costs. Although Dominos (ASX:DMP) may well be better off in the longer-term, it won’t be in the short-term as bottom line costs add up.

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Dominos getting out of Denmark

Dominos has unveiled moves to cut costs amidst 4-decade high inflation. One of which was exiting the Danish market altogether, representing 2% of the company’s footprint. It also told shareholders it would reduce the size of its current corporate store network ~913 stores by 15-20% through closing underperforming stores and refranchising them. It would also close its construction and supply subsidiary in Australia.

All up, it told shareholders it would improve FY24 EBIT by ~$25-$30m and deliver ongoing ~$20m EBIT savings from FY25.

Dominos trading update shows stagnant sales, but…

…what it did not reveal was just as telling as what was revealed. It did not give EBIT or NPAT guidance other than to say that ‘underlying H2 EBIT growth has not improved on H1 performance’. It is inevitable that both metrics will sink relative to the previous year when the company’s FY23 results are unveiled given the increase in input costs. And also keep in mind that the moves mentioned above would deliver one-off costs – to the tune of $80-$93m.

The company’s H2 same store sales were up 0.2%, but up 1% excluding Taiwan. For Q4 so far, sales are up 2% across the group and up 3% excluding Taiwan. But while increased sales will mitigate bottom line damage (in other words falling earnings), it will not eliminate it altogether. Nor will it eliminate share price damage.

Dominos (ASX:DMP) share price chart, log scale (Source: TradingView)

Dominos shares rocketed during the pandemic as people ordered takeaway pizzas while stuck at home. But even though demand is holding up, investors have gone cold as costs have accumulated and investors pivot from growth to value stocks.

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