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Domino's brand in Turkey, Russia reports first-half profit rise, margins dip

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By Reuters
Domino's brand in Turkey, Russia reports first-half profit rise, margins dip
FILE PHOTO: A man walks past a Domino's Pizza restaurant in Moscow, Russia, July 14, 2017. REUTERS/Sergei Karpukhin   -   Copyright  SERGEI KARPUKHIN(Reuters)

(Reuters) – DP Eurasia<DPEU.L>, which runs Domino’s Pizza brand in Turkey and Russia, reported a 15.1% rise in first-half core profit on Wednesday, but said slower like-for-like sales growth in Russia and stiffening competition in Moscow dented its margins.

The company’s adjusted margin for earnings before interest tax, depreciation and amortisation (EBITDA) slipped to 7.2% from 7.9% a year earlier, with margins in Russia, which accounts for 39% of its system sales, down to 3.4% from 4.8%.

Its system sales, comprising both sales at its corporate and franchised stores, grew 26.4% to 645.4 million lira, driven by new store openings.

Shares in the biggest pizza delivery chain in Turkey and third-largest in Russia plunged last year on concerns about economic challenges in its main markets and are down 9% so far this year. The company’s London-listed shares slipped 2% in early trading on Wednesday.

Commenting on its performance in Russia, the company said it would acquire about 15 regional stores from the franchisees and change its approach for growth in the regions. Russian franchise stores reached 86 in the first-half, representing 46% of its portfolio in the country.

In Turkey, where annual inflation runs at around 15%, the company was able to keep passing on higher costs to the customers and increased adjusted EBITDA margin to 10.4% from 10.2%, with like-for-like growth of 7.7%.

“Our main strategy in response to increased inflation in Turkey has been to continue to increase our prices to preserve margins, which has not had a material effect on order volumes.”, it said in a statement.

The chain, one of international franchise operators for Domino’s Pizza Inc <DPZ.N>, has been rapidly expanding in recent years, opening on average 70 stores a year from 2011 to 2018 and doubling its sales between 2014 and 2018.

The group said its EBITDA, excluding IFRS 16, climbed to 46.4 million Turkish liras ($8.02 million) from 40.3 million liras a year before and confirmed its full-year outlook for store openings and adjusted EBITDA.

Liberum analysts, who have a “buy” rating on the stock, said the company delivered “robust” results.

“We remain of the view that DPEU (DP Eurasia) is structurally well positioned company benefiting from market growth dynamics in its two key markets, is one of the best invested and managed Domino’s systems in the world and offers premium rates of growth”, they said in a note.

(Reporting by Anna Pruchnicka; Editing by Tomasz Janowski)