Domino’s Pizza’s full-year profit has fallen nearly five per cent after the company shut down some franchisees who were deliberately underpaying employees.
Revenue for the 12 months to June 30 grew 24.4 per cent to $1.44 billion, but full-year profit fell by 4.6 per cent to $115.9 million as what Domino’s called “short-term franchisee support” drained Australia and NZ earnings.
Same-store sales growth slowed to 3.6 per cent from 4.3 per cent a year ago, toward the bottom of the company’s 3.0 to 6.0 per cent guidance range.
This was weighed down by softer than expected local figures, with the addition of an XL pizza range in Australia and NZ not enough to stop same-store sales growth slowing to 2.2 per cent from 4.5 per cent a year ago.
Domino’s said it was operating a higher mix of Australian and NZ corporate stores after 22 underperforming franchisees were removed, in some cases because the company is ending underpayment of staff amid allegations of systemic abuses.
“We have identified some of those franchisees who have demonstrated they no longer had the passion or capability to execute successfully as we grow,” Domino’s Australia and NZ chief executive Nick Knight said.
Domino’s faces a class action lawsuit in Australia that claims, among other things, that the company and its franchisees systemically underpaid workers for five years.
Domino’s rejects the allegation.
“We believe that the entitlements of franchisee workers were governed by our enterprise agreements and that we have at all times acted in accordance with those enterprise agreements,” the company reiterated on Wednesday.
Shares in the company slipped by as much as 5.52 per cent to $41.96 in the first 15 minutes of trade on Wednesday – down nearly 25 per cent from $55.50 a year ago.
Nonetheless, Domino’s Japan stores led a strengthened performance from its international operations, with the segment now accounting for 54.7 per cent of group underlying earnings.
Same store sales growth in Japan was 8.4 per cent, up from 0.9 per cent a year ago, with total revenue rising by 13.6 per cent to 47.3 billion yen ($A656.85 million) on the addition of 81 new stores.
Same store sales growth in Europe slowed to 3.1 per cent from 5.7 per cent a year ago, with revenue increasing 11 per cent to 712.9 million euros ($A1.17 billion) as the conversion of Hallo Pizza stores was completed.
The company will pay a final dividend of 52.8 cents per share, fully franked, up from a partially franked 49.7 cents a year ago.
Domino’s no longer provides year-on-year guidance but said it expected same-store sales to grow 3.0 per cent to 6.0 per cent in the next three to five years, and store count to grow by 7.0 to 9.0 per cent.
Global same store sales growth lifted to 4.7 per cent in the first seven weeks FY20, with nine new stores opened.