Domino’s Plunges as Third-Quarter Sales Growth Misses Estimates

Domino’s Pizza U.K. & Ireland Plc, the U.K.’s biggest pizza-delivery company, fell the most in more than three years in London trading after third-quarter sales grew at a slower pace than forecast by some analysts.

The shares fell as much as 13 percent, the most since June 2008, after the company said in a statement today that sales at outlets open more than a year advanced 3.9 percent in the 13 weeks to Sept. 25. Panmure Gordon had estimated sales growth of 5.5 percent. First-half same-store sales increased 2.4 percent, Domino’s said in July.

Domino’s has sought to benefit from cash-strapped consumers ordering takeaway food rather than eating out by introducing new ranges such as a stuffed-crust pizza and a Gourmet line, which it promoted by sponsoring ITV’s “Red or Black?” television game show. The company has also boosted its Internet offering, with an application for Apple Inc.’s iPhone, and increased its marketing spend.

“Bearing in mind this quarter had the full benefit of stuffed crust, Gourmet pizza and upweighted advertising spend, including the sponsorship of ‘Red or Black?,’ we think the market will be disappointed with the update,” Simon French, a London-based analyst at Panmure Gordon, wrote in an e-mailed note to clients today. “For a stock we forecast to grow earnings 13 percent this year, we view it as too expensive.”

Domino’s dropped as much as 66.6 pence to 441.90 pence and traded at 444.6 pence as of 2:34 p.m. Before today, the stock had gained 31 percent in the past three months.

‘Fair Value’

“The stock has done well over the last quarter,” Geetanjali Sharma, a London-based analyst at Espirito Santo Investment Bank, said in a phone interview. “Management is not indicating near-term expectations will be beat. Given no immediate upgrades coming in, this is profit-booking”

Peel Hunt analyst Paul Hickman reduced his rating on the stock to “hold” from “buy,” citing the recent share price increase. “With 2011 earnings growth of 12 percent, combined with its longer term strengths, we believe the shares are currently close to fair value.”

Domino’s added 15 outlets in the quarter, giving a total of 698 stores in the U.K. and Ireland and four in Germany. The company said it’s on target to open 64 stores this year.

The Milton Keynes, England-based company opened a store each in Berlin and Bonn as part of its plan to open at least 400 outlets in Germany in the next 10 years. Domino’s acquired a 75 percent interest in the main German franchisee in April. Research suggests Germany can support as many as 1,700 outlets, Chief Financial Officer Lee Ginsberg said in July.

Internet Sales

System sales gained 9.8 percent to 127 million pounds ($198.7 million) during the quarter, and 9.2 percent in the year to date. Internet sales rose 36 percent to 45 million pounds in the quarter, with e-commerce accounting for 46.6 percent of U.K.-delivered sales. Orders taken on mobile platforms account for 13 percent of all e-commerce sales.

“Although the economy as a whole is still very tough, we have got exciting plans for the rest of the year,” Chief Executive Officer Chris Moore said in the statement. Moore will step down as CEO on Dec. 25, to be succeeded by Deputy Chief Executive Lance Batchelor, according to the statement.

To contact the reporter on this story: Namitha Jagadeesh in London at njagadeesh@bloomberg.net

To contact the editor responsible for this story: Colin Keatinge in London at Ckeatinge@bloomberg.net

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