Domino's H1 NPBT Steady at $84-$86m Despite $97m Restructuring Costs

Strategic Reset Amid Challenging Market Conditions

Domino's Pizza Enterprises Limited (ASX: DMP) has unveiled a decisive strategy to streamline its global operations, highlighted by the planned closure of 205 loss-making stores, predominantly in Japan. This move forms part of a comprehensive review aimed at enhancing profitability and positioning the company for sustainable long-term growth.

The closures, including 172 stores in Japan, are expected to generate $10-12 million in annualised EBIT uplift, offset by one-off restructuring costs estimated at $97 million, with a cash component of approximately $37.4 million. These stores, many opened during the COVID-19 surge, have struggled with declining demand and rising input costs in the post-pandemic environment.

Financial Performance and Outlook

Despite these significant operational changes, Domino's anticipates its underlying net profit before tax (NPBT) for the first half of FY25 to be between $84 million and $86 million, comfortably within its guidance range. However, the restructuring costs will result in a statutory loss for the period.

Net debt rose by $15 million to $705.1 million, primarily due to foreign exchange translation impacts, but the company reports an underlying net debt reduction of $31.4 million. Importantly, leverage ratios remain well within banking covenant thresholds, providing financial flexibility during this transition.

Domino's also announced its intention to declare an interim dividend of 55.5 cents per share, unfranked, maintaining the prior year's payout and supported by a fully underwritten dividend reinvestment plan.

Regional Performance and Growth Initiatives

Same-store sales (SSS) performance was mixed across regions in H1 FY25. Asia experienced a 4.2% decline, largely driven by Japan's weaker results, while Australia and New Zealand (ANZ) and Europe posted modest growth of 0.6%. Notably, early trading in H2 FY25 shows a promising 4.3% uplift in SSS across the group.

In Japan, the company is refocusing on high-density prefectures where Domino's can leverage scale and operational efficiencies. This disciplined approach aims to balance growth with profitability, supported by refined pricing and value propositions. An investor day later in FY25 is expected to provide further clarity on the Japan turnaround strategy.

Meanwhile, ANZ continues to innovate with new product launches, such as Domino's Giant Doughnuts, which have contributed to customer engagement and sales growth. European markets showed resilience, with Germany recovering and Benelux delivering strong growth, although France remains a challenge.

Cost Efficiency and Franchise Partnership Focus

Domino's is targeting $18.6 million in annualised network savings through store optimisation and cost efficiencies in procurement and operations. The company plans to reinvest a portion of these savings back into the franchise partner network to improve unit economics and drive growth, although the exact allocation is still under consideration.

Group CEO Mark van Dyck emphasized the company's commitment to transparent and decisive action, stating that the priority is to create value for customers, franchise partners, and shareholders alike. The strategic review is ongoing, with further updates anticipated at the upcoming investor day.