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In February, the company revealed its sales had slipped by 4 per cent for the six months to December and said its plans to fight inflation “had not been optimal” in the first half, with increased product prices and delivery and surcharge fees impacting how often customers ordered.
Despite labour costs increasing, and the possibility of recession, Meij said the company’s margins were improving and its outlook was more positive, with a softening in commodity and ingredient prices.
“This isn’t the first recession that we could face,” Meij said. “For us, it’s about making sure that we’re placing Domino’s as the best value option against any alternatives and that’s what we’re doing with our menu designs and price points. Our margins are improving because we’re selling more pizzas and because food costs, which really skyrocketed last year, are coming back down, with cheese, wheat and some of our proteins moving into a better space.”
Opal Capital Management chief investment officer Omkar Joshi said the company’s update was relatively weak and showed it still had work to do.
“It was a disappointing update, and they’re clearly still seeing revenue pressures coming through,” Joshi said. “They’re working on the cost side of things, which is fairly necessarily.”
Joshi said Domino’s had faced a weaker revenue environment but that pricing missteps had also hurt the business over the past year.
“Domino’s has been less resilient than many would have expected,” Joshi said. “They’re in a tough position and are entering a more challenging environment than last year.”
While softer input cost inflation is likely to benefit the business, Joshi said, labour costs would be a headwind, especially after the government’s minimum wage increase.
“Wages are a fairly important cost for them like all consumer-facing businesses, and wage increases definitely will put pressure on them. It means they’ll have to cut costs somewhere else in the business, but that’s more easily said than done.”
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