Domino’s Pizza cheers VAT boost but shares slide on falling orders

The Government’s VAT cut has helped takeaway chain Domino’s Pizza serve up a surge in sales as Britons staycationed over the summer.

Domino’s posted an 18.3% hike in UK like-for-like sales for the 13 weeks to September 27 as franchisees boosted sales by passing on the Government’s VAT cut on hot takeaway food from 20% to 5% in July.

Sales rose 17.3% excluding stores opened near another outlet in so-called split territories, while total UK and Ireland comparable sales rose 17.5%.

The group said demand for takeaway pizzas jumped as the pandemic forced people to holiday in the UK this year, helped also by the return of live sports on TV.

But it said there was pressure on sales in September as more rivals reopened after lockdown and as many students delayed going to university this autumn.

Shares also dropped as much as 12% as it revealed the VAT sales boost had “limited direct benefit to our profitability”, while overall orders were hit as takeaway collections remain under pressure.

Dominic Paul, chief executive of Domino’s, said: “We welcome the UK Government’s reduction to VAT in mid-July which helped franchisees mitigate costs and gave them the opportunity to pass savings on to customers.”

He said the group expects to see annual underlying profits meet expectations at between £93 million and £98 million, but analysts questioned the ongoing earnings growth potential as orders continue to flag.

Domino’s revealed order numbers fell 7.8%, including split territories, as collections were still 42.9% lower in the third quarter, having only reopened for this service from early July.

Wayne Brown, an analyst at Liberum, said: “What remains concerning is another 7.8% decline in order count in a period when Just Eat reported third-quarter orders up 43%.

“This is clearly unsustainable.”

Domino’s also remains locked in talks with franchisees to resolve a long-running dispute after they protested against a falling share of the profits they make for Domino’s.

Mr Paul added: “At the heart of our future plans is realignment with our franchisee partners and we are having detailed discussions to agree a sustainable way forward, although we continue to expect that these discussions will take some time.”