Markets unsure if Domino’s can deliver

The pizza delivery business might not seem particularly high tech – but the era of cloud computing is changing that. In its last financial year, Domino’s (DOM) spent £5.2mn on two cloud-based IT systems: an ecommerce platform and a bit of enterprise resource planning software. 

The group’s investment in these assets was expensed through its income statement, which means its underlying cash profits were ultimately impacted. “The accounting treatment has no impact on cash and is simply a reclassification from capital expenditure to operating expenditure,” the company said in a statement. 

Tech spend does, however, seem to be the right call for the increasingly digitised Domino’s. Some 90 per cent of the group’s sales now take place online – with app orders as a percentage of web sales at 52.2 per cent. 

The fourth quarter of last year saw order volumes hit 18.5mn – an all-time record for the group – partly thanks to the World Cup. The major driver was collection orders, which were up 28 per cent on the comparable period last year. 

The company also credited some of its fourth-quarter success to its ‘price slice’ promotion, designed to appeal to increasingly cost-conscious consumers. 

Domino’s share of the UK takeaway market also rose to 8 per cent, up from 6.8 per cent in 2021. But markets don’t seem confident that Domino’s will be able to deliver for shareholders until inflationary pressures ease. 

Shares are down more than 17 per cent in the past month – driven in part by a profit warning at Sydney-listed Domino's Pizza Enterprises (AU:DMP), its fellow franchisee, which said higher prices were turning off consumers – and FactSet broker consensus puts the company’s forward price/earnings multiple at 14.1 times for FY 2023. We think this is perhaps a little bit costly given current sentiment. We downgrade to hold. 

Last IC View: Buy, 286p, 2 August 2022