Slower growth sees Domino's shares tank but expansion plan remains on track

Shares in Domino's Pizza plunged over 13% early on Thursday (9 March), after the company revealed it was facing an uphill battle to sustain its rate of growth.

In the financial year to 25 December, the FTSE 250-listed group said its like-for-like sales grew 7.5% year-on-year, sharply slower than the 11.7% rate recorded in the previous 12 months, while total sales were 14.5% higher than in 2015. Domino's, however, added it was planning to open a further new 80 stores across Britain this year, on top of the 81 new sites it launched last year.

There was more positive news on the revenue and profit front, with the former rising 13.8% year-on-year to £360.6m ($438.8m), while on an underlying basis the latter was 17.1% higher than in 2015 at £85.7m.

As a result, the fast food chain said it will increase its final dividend by 15.6% to 8p.

"Our cash conversion remains very strong and we have reinvested through international expansion and returned cash to shareholders through dividends and share buy-backs," said group chief executive David Wild.

"We remain confident in the resilience and long-term potential of our business model and are committed to continue to invest with our franchisees for growth."

Meanwhile, Domino's has also stepped up its expansion in Northern Europe, with the acquisition of Dolly Dimple's, Norway's third-largest pizza company, which operates 42 stores across the country.

The deal will see Domino's UK business, which also runs outlets in Germany and a number of other north European countries, pay £4m in debt and cash to Norges Gruppen.

"Dolly Dimple's is a great operation with a loyal customer base, because of its great tasting pizzas," added Wild.

"The Norwegian market has plenty of opportunity for growth and with Dolly Dimple's stores and dedicated colleagues, alongside our expertise in digital and e-commerce, this acquisition will drive Domino's growth across Norway."