Domino's Pizza U.K. Net Advances 16% on Advertising (Update4)
By Sarah Shannon
July 21 (Bloomberg) -- Domino's Pizza U.K. & Ireland Plc, Britain's largest pizza-delivery chain, said first-half profit rose 16 percent after increased advertising fueled orders and slowing economies prompted consumers to economize on food.
Net income climbed to 6.91 million pounds ($13.8 million) in the six months ended June 29 from 5.95 million pounds a year earlier, the Milton Keynes, England-based company said today in a statement. Revenue gained 20 percent to 66.2 million pounds.
Stronger sales help Domino's to step up marketing by swelling an advertising fund that collects a percentage of each franchised store's revenue. Consumers increasingly are opting to stay at home and going out to eat less often, the pizza maker said in the statement, contributing to ``very strong'' sales at new stores.
``New customers are spending more,'' Chief Executive Officer Chris Moore said in a telephone interview ``They tend to come from better-off households.''
A typical order from a new customer is around 17.70 pounds, the CEO said, compared with between 10 pounds and 12 pounds for those with lower incomes.
So-called system sales, which include franchised outlets, rose 20 percent to 170.2 million pounds. Revenue increased 11 percent at stores open at least 12 months. The pizza maker stuck to its goal of adding 50 new outlets for the year.
Shares Rise
Domino's rose 2.5 pence, or 1.3 percent, to 199.25 pence in London trading. The shares have added 13 percent this year, one of only three advances in the 26-member FTSE 350 Travel & Leisure Index, which has dropped 22 percent.
Internet revenue jumped 85 percent to 25.3 million pounds and accounted for 22 percent of delivered pizza sales, the company said. The Web will generate ``significantly more'' than 35 percent of revenue, Moore predicted.
``In June, 25 percent of delivered sales in the U.K. were going online,'' the CEO said. ``It amazes even us.''
The advertising fund will increase by a fifth to 18 million pounds for 2008, said Domino's, which sponsors cartoon series ``The Simpsons'' and other television broadcasts to fuel demand.
``Modest'' price increases probably will be needed early next year to compensate for higher ingredient and energy costs, Chairman Stephen Hemsley said in the statement. That will equate to around 10 pence to 20 pence for a 10-pound pizza, according to the CEO. Surging prices for edible commodities such as wheat have increased expenses across the food industry.
Expansion Plan
Investec Securities analysts, who advise buying the pizza maker's stock, plan to raise estimates by 5 percent to 10 percent, they said in a note today. They cited the company's forecast that it is ``well placed to exceed market expectations for the year.''
Domino's had 526 stores at the end of the first half and aims eventually to have 1,000 outlets. It's spending 25 million pounds on a new commissary in Milton Keynes and expanding another in Penrith, northern England.
Per-share profit increased to 4.40 pence from 3.71 pence a year earlier, Domino's said.
The company, which holds the master franchise for the U.K. and Ireland from Ann Arbor, Michigan-based Domino's Pizza Inc., raised its first-half dividend by 42 percent to 2.7 pence a share.
To contact the reporter on this story: Sarah Shannon in London at
sshannon4@bloomberg.net.
Last Updated: July 21, 2008 12:51 EDT