Domino’s Pizza Enterprises Ltd (ASX: DMP) has announced a major operational and financial review, aimed at improving profitability, strengthening franchise partnerships, and setting up the business for sustainable long-term growth. The company will close 205 loss-making stores, with 172 closures in Japan, as part of a strategy to sharpen market focus and improve financial performance.
Key Takeaways from the Trading Update
- H1 FY25 underlying NPBT expected to be between $84m and $86m, in line with guidance.
- Comprehensive strategy review underway, focusing on cost efficiency and strategic growth.
- 205 loss-making store closures, including 172 in Japan, leading to $15.5m in annualised savings but incurring a one-off cost of $97m.
- H1 Same-Store Sales (SSS) declined -0.6%, but early H2 SSS shows a rebound of +4.3% in the first five weeks.
- Dividend of 55.5 cents per share (unfranked) proposed, subject to a fully underwritten Dividend Reinvestment Plan (DRP).
CEO Mark van Dyck on Domino’s Transformation Plan
“When I started in this role three months ago, I said we would move decisively to reshape our business for long-term success. Where change is required, we are acting quickly and transparently. Our priority remains clear—creating value for customers, franchise partners, and shareholders,” said Group CEO & Managing Director Mark van Dyck.
The company is restructuring its global operations to enhance efficiency and drive sustainable long-term growth. This includes:
1. Cost Efficiency
- Store closures and network streamlining to remove unprofitable locations.
- $18.6m in annualised savings identified in food, packaging, and technology costs.
2. Strategic Growth
- Market review to refine strategy in key locations, particularly Japan and France.
- Japan store closures to focus on high-potential areas and improve profitability.
Major Restructure in Japan
Japan has been a challenging market for Domino’s, with lower post-COVID demand and rising costs. The company will close 172 underperforming stores—many of which were opened during the pandemic expansion boom but have struggled to reach sustainable sales levels.
- Expected to deliver $10-12m in annual EBIT uplift.
- Restructuring costs estimated at $61.8m.
- Domino’s will now prioritize high-density prefectures where it has scale advantages.
“Japan remains an attractive market for QSR and pizza, with significant long-term upside. However, we need to be disciplined in expansion and focus on locations where we can drive sustainable growth,” van Dyck added.
Financial Performance and Outlook
| Region | H1 25 SSS | Network Sales | Growth on H1 24 | Growth on H2 24 |
|---|---|---|---|---|
| Asia | -4.2% | -$45.4m | -8.4% | +0.7% |
| ANZ | +0.6% | +$3.5m | +0.5% | +4.6% |
| Europe | +0.6% | -$20.0m | -2.3% | -0.9% |
| Group | -0.6% | -$61.9m | -2.9% | +1.4% |
Key Observations
- Europe showed mixed performance, with strong recovery in Germany but weakness in France.
- ANZ delivered solid growth, with new product launches (e.g., Giant Doughnuts) driving sales.
- Asia struggled, particularly Japan, but Singapore, Taiwan, and Malaysia showed strong growth.
- H2 FY25 off to a strong start, with +4.3% SSS growth in the first five weeks.
Capital Management and Dividend
- Net debt increased by $15m to $705.1m, primarily due to FX translation impacts.
- Net Leverage Ratio (NLR) below 2.5x, well within banking covenant limits (<3.0x).
- Proposed H1 FY25 dividend of 55.5 cents per share (unfranked), with full underwriting under the DRP.
What’s Next for Domino’s?
- Further updates on the Japan strategy will be provided at the Investor Day in H2 FY25.
- Cost-saving initiatives continue, with potential reinvestment in the franchise network.
- H2 trading has started strongly, with SSS growth of +4.3% in early weeks.
Bottom Line
Domino’s is undergoing a major transformation—cutting unprofitable stores, refining its market focus, and streamlining costs. With a renewed strategy for Japan, a strong franchise focus, and early signs of recovery in H2, the company is aiming for a more profitable and sustainable future. Investors will be watching closely for further updates as Domino’s executes its turnaround plan.
