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Domino's shares fall as sales growth slows

 

Domino's Pizza shares have fallen six per cent after the company lowered its sales growth forecast for Australia and New Zealand.

The fast food retailer expects full-year same store sales growth at its local stores to be in the range of six to eight per cent, down from a previous forecast of seven to nine per cent.

Chief executive Don Meij said same store sales growth in Australia and NZ was softer than expected in the half year to December, falling from 17.4 per cent a year ago to 3.7 per cent.

Domino's still achieved a 17 per cent increase in half year net profit to $58.7 million, as overall sales rose four per cent, on a same store sales basis.

Mr Meij said sales in Australia and New Zealand a year ago were boosted by the company's largest menu change in eight years.

"Let me make it clear that we are still a high growth company and we will be a high growth company for a number of years to come," he told reporters.

Full year sales forecasts for Domino's operations in Europe and Japan remain unchanged.

After adjusting for the costs of a share buyback, the company's first half year profit growth was seven per cent, and sales were weaker than expected in Japan due to a poorly received menu change.

But Domino's has maintained its forecast of full-year net profit growth of around 20 per cent.

Analysts at Citi said the company faces a challenging second half to meet its forecast, given it has downgraded its sales growth guidance in its biggest market.

"Domino's continues to execute well, but with so many geographies, it is challenging to deliver fast growth across all segments at the same time," the Citi analysts said in a note.

Shares in Domino's dropped $3.00, or 6.1 per cent, to $46.50.

Domino's said same store sales in Australia and New Zealand rose 5.9 per cent in the first five weeks of the second half of the financial year.

Mr Meij said franchisee's profits are expected to be higher than in the prior year despite increased labour costs due to a new enterprise bargaining agreement, which includes weekend and late night penalty rates.

The impact of the higher wages is expected to be below two per cent of franchisee sales, on average, slightly below the company's original forecast.

Mr Meij said Domino's has been operating on the new agreement in the past three weeks and the higher wages have led to a surge in applications for store and delivery jobs.

SALES GROWTH SLOWS AT DOMINO'S

* Half year net profit up 17.3pct to $58.7m

* Revenue up 5.2pct to $567.6m

* Partially franked interim dividend up 9.7 cents cents at 58.1 cents