Dominos Pizza Exits Danish Market and Streamlines Operations for Growth

Highlights:

• Domino's Pizza has announced its plans to exit the Danish market, optimize its corporate store network, and streamline core operations.
• As part of these initiatives, Domino's will be closing down its 27 stores in Denmark and optimizing its corporate store network.
• Additionally, Domino's will carry out planned closures of commissaries in South-East Asia and legacy IT assets.

Domino's Pizza Enterprises Ltd (ASX: DMP) has announced its plans to exit the Danish market, optimize its corporate store network, and streamline core operations to capitalize on global reach and scalability. These strategic moves are aimed at achieving significant cost savings in the near term and establishing a stronger foundation for future growth.

As part of these initiatives, Domino's will be closing down its 27 stores in Denmark and optimizing its corporate store network by re-franchising and closing approximately 65-70 underperforming corporate-owned stores. These closures represent about 2% of Domino's global footprint of 3,827 stores. The combined savings from these measures are expected to improve the company's EBIT (earnings before interest and taxes) by around $25-30 million in the fiscal year 2024, with additional savings anticipated over the next two years.

Although Domino's has reported improved Same Store Sales this quarter (excluding Taiwan), the rebuilding of weekly order counts, particularly in delivery orders, has been slower than anticipated. Therefore, the company aims to achieve higher profitability in fiscal year 2024 and the medium term by focusing on improving the core business through increased sales and various initiatives.

One such initiative involves exiting the loss-making Danish market by the end of fiscal year 2023, which is expected to deliver an immediate EBIT improvement of $12 million. Domino's will also optimize its corporate store network by reducing its size by approximately 15-20%, closing underperforming stores, and accelerating the re-franchising of corporate stores in need of a turnaround. The company plans to franchise around 70-75 corporate stores, reducing operating costs and potentially requiring an initial investment from Domino's.

Additionally, Domino's will carry out planned closures of commissaries in South-East Asia and legacy IT assets, which will enhance product quality, supply chain resilience, and cost efficiency. The closure of commissaries and accelerated amortization of legacy assets are estimated to deliver annualized EBIT savings of $5-7 million.

Furthermore, Domino's is conducting a review of its business units to identify efficiencies and streamline operations. Immediate changes include the closure of the Construction and Supply subsidiary in Australia. Ongoing savings from these streamlining efforts are expected to reach approximately $20 million in EBIT savings from fiscal year 2025.

Domino's Pizza Enterprises Ltd aims to strengthen its financial performance, improve operational efficiency, and position itself for sustainable growth through these strategic measures. Further updates on the review of business units will be provided in August during the Full Year Announcement.

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