)
In a further push to improve profitability, fast-food giant Domino’s Pizza Enterprises (ASX: DMP) has announced plans to slice its market presence in Japan, with 172 loss-making stores set to close over the next five months.
The company announced today that a total of 205 stores were getting the chop, incurring a one-off restructuring cost of $97 million. The decision will result in a loss for H1FY25, but underlying net profit before tax will sit between $84 million to $86 million, within the group’s guidance range.
The news comes seven months after Domino’s revealed that up to 110 stores in Japan and France were on the chopping block, with closures accounting for a network sales decline of $33.8 million.
Domino’s also noted that many of the stores were opened during the COVID-19 sales surge but have since struggled with declining post-pandemic demand and higher input costs.
”Japan is an attractive market for quick service restaurants and pizza, with significant long-term upside for Domino’s,” group CEO and managing director Mark van Dyck, who has big shoes to fill since taking leadership in November following the departure of colossal figure Don Meji who left after 22 years at the helm.
“Some of our COVID-period expansion resulted in stores that simply weren’t optimal based on our current customer proposition and removing them will strengthen our network.
“We are committed to being disciplined in expansion - prioritising locations in high density prefectures where we can drive incremental, profitable growth.”
Domino’s reported that same-store sales were down 2.9 per cent year-on-year in the half. In Australia and New Zealand (ANZ), there was a small 0.5 per cent lift, bringing in an additional $3.5 million.
The company posted mixed sales in Asia, which was down by 8.4 per cent. Japan's same-store sales were lower in the half while delivering strong results over the Christmas period. Of the 172 locations set to close in Japan, 114 are corporate stores while 58 are franchised locations. However, the decision is expected to generate a $10 million to $12 million uplift in annualised EBIT.
The closures have seen investors respond positively to the decision, with shares in DMP up 19.4 per cent to $35.37 each at the time of writing. The location of the 33 other stores set to close outside of Japan was not specified by the company.
Meanwhile, sales in Singapore and Taiwan delivered more than 10 per cent growth, while Malaysia’s exit rate was positive following “external headwinds”.
In Europe, Domino’s posted a boost of 2.3 per cent, with Germany’s stores recovering from a weak start, while Benelux - comprising Belgium, the Netherlands and Luxembourg - delivered strong growth.
Looking ahead to the second half, Domino’s notes that “trading has started positively”, with same-store sales up 4.3 per cent across the group in the first five weeks of trading.
Today's update from the company comes three months after former CEO Don Meji announced he was stepping down from the role, ending a career with the company spanning almost four decades that began as a pizza delivery driver.
Van Dyck, who had been an advisor to the Domino’s board, was selected to replace Meij following a global search that the company says considered many candidates.
"When I started in this role three months ago I said we would move decisively to reshape our business for long-term success,” Mark van Dyck said.
“Where change is required, we are acting quickly and transparently. Our priority remains clear - creating value for customers, franchise partners, and shareholders.”
Meij's sister, Kerri Hayman, is currently CEO of Domino's Australia-New Zealand segment, having been promoted to the role six months ago. Prior to becoming the top boss for ANZ, she was chief operating officer (COO) for the segment.
)
