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The board of Domino's Pizza Enterprises (ASX: DMP) waited until after the market closed yesterday to announce store closures in two of its largest markets, Japan and France, which will almost entirely offset the net effect of planned store growth globally over the course of FY25.
More than a year after the announced exit from its loss-making Danish business alongside a restructuring to downsize its corporate store network through the closure or franchising of 70 sites, yesterday the Brisbane-based group revealed up to 110 stores in Japan and France could be shut down.
The bulk of the changes are planned for the Japanese market where from pre-COVID to the end of FY23 the brand opened 403 stores; a rapid expansion that led to a larger weighting of immature stores in underpenetrated markets.
A deceleration of sales amid changing post-COVID consumer behaviour meant the Japanese business had lower advertising funds to raise awareness of the Domino's brand and its initiatives, prompting a comprehensive review and testing of marketing spend to gauge the viability of some stores.
With the comprehensive review in Japan now complete, a new chief marketing officer has been appointed to start in the current half-year, and the group plans to close up to 80 low-volume stores - around 13 per cent of the 612 Japanese franchised stores listed in the group's FY23 annual report.
"These closures will be partially offset by the opening of 20-plus new stores in higher potential locations," Domino's clarified.
"It should also be noted that the majority of delivery customers previously serviced by the closed stores will be serviced by neighbouring stores, improving their unit economics, and also minimising the total sales impact for the market.
"The aggregate contribution of these low volume stores is loss-making and the closures will have a positive impact on earnings, which will be reinvested into additional marketing and advertising to reach more customers and lift order counts in this low-frequency market."
Management expects this will help the company reach positive same-store sales in Japan this financial year - a feat that was achieved for the group overall in the December half, although the DMP share price has been hammered this year amidst declining profits.
At the time of writing shares are down 6.73 per cent today at $33.66 - a level that is down 41 per cent since the start of 2024.
The other major shake-up will be in France where the group plans to close 20-30 stores, although this will be offset by 10 store openings.
"Domino’s France outlined in May plans to apply proven global strategies, with local nuance, in this important market," the group said.
"A focus of these efforts included aligning stores on best practice systems, to improve operations and customer satisfaction.
"As in Japan, it is expected the majority of delivery orders from these stores will be serviced by neighbouring stores, with the earnings improvements to benefit Domino’s France FY25 EBIT."
In the company's May presentation, Domino's signalled long-term intentions to have a similar store count in France to Australia, with 1,000 stores planned for each.
This compares to 750 currently in Australia and 482 in France, a market where there is a much larger population nearby each store and the group does not aim to achieve the same levels of frequency or store penetration as in Australia.
Meanwhile, Domino's notes ongoing positive performance from Australia, New Zealand, Germany and Singapore, and an improvement in recent performance in Belgium, the Netherlands and Luxembourg.
The group anticipates new store openings will equate to roughly 3 per cent of the network, but after the closures in France and Japan the net effect will be flat to slightly positive this financial year, stepping up to 3-4 per cent net growth in FY26.
"Management continues to believe the long-term outlooks for its markets (7100 stores, ~1.9X current network) remains appropriate, particularly given the additional upside possible in large markets such as Germany," Domino's concluded.
"These long-term outlooks are conservative, modelled on significantly lower store penetration than established markets, even where countries have larger existing pizza markets.
"However, Domino’s previously advised the timing of achieving the long-term outlook was under review. Given the lower levels of store openings in FY24-FY26, the previous timeline of 2033 will not be achieved."
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