In sad news for Domino’s (ASX: DMP) lovers in Denmark, the global pizza chain has announced its decision to shut down 27 stores in the country as part of its ongoing efforts to optimise its corporate store network. In addition to the closures in Denmark, approximately 65-70 underperforming corporate-owned stores worldwide will also be closed, representing around 2% of Domino’s global footprint, which currently stands at 3,827 stores.
The closures are expected to result in combined savings of approximately $25-30 million in EBIT for FY24. These savings are projected to increase over the next two years as the initiatives are completed. However, the Company anticipates non-recurring costs amounting to $80-93 million in EBIT for FY23.
CEO and Managing Director, Don Meij, said, “Any inefficiency is a burden on the system as a whole; streamlining our business allows our franchisees to focus on delivering the best possible customer experience, growing sales and profitability, and expanding their business.
“The decisions of today will immediately deliver a stronger business and improve efficiencies for the long-term. As these initiatives are completed and deliver savings, we intend to reinvest approximately one third of these savings to stores, as we reinvest in the franchise network base.”
Domino’s revealed an improvement in Same Store Sales during the current quarter, excluding Taiwan, which experienced a 3% growth. However, there has been a slower-than-expected recovery in weekly order counts, primarily in the delivery segment. Consequently, the underlying growth in H2’s EBIT has not shown improvement compared to H1.
The Company had acquired the Danish market for $3.99 million through a receivership process in 2019. Unfortunately, performance in this small market has not demonstrated significant improvement since the acquisition. The closure of the Danish market is projected to yield an immediate EBIT improvement of $12 million.
Domino’s intends to partner with experienced franchisees to franchise around 70-75 corporate stores in need of a turnaround. This move will reduce Domino’s Pizza Enterprises Ltd’s (DPE) operating costs while improving the performance of these stores, with a potential initial investment cost required by DPE.
Europe CEO, Andre ten Wolde, commented, “While our team’s efforts won back some customers, and created loyal fans, the legacy of damage from the previous ownership was ultimately too great for us to overcome in the foreseeable future.”
The Company anticipates immediate annualised savings of $16-20 million through this optimisation process, with completion expected in the first half of 2024. Domino’s is also progressing with its planned commissary closures in South-East Asia, as well as disposing of legacy IT assets.
Meij added, “Domino’s Pizza Enterprises Ltd has a long-term plan, including building out the sizeable opportunity we have in Europe and the Asia-Pacific to more than double our business. This is the right time for us to redesign for future growth.”
As the streamlining efforts continue, ongoing savings are expected to increase to approximately $20 million in EBIT savings from fiscal year 2025 onwards. While store openings in FY24 will be below the previously forecasted range of 8-10%, there are no changes planned for the long-term growth outlook of Domino’s network, which aims to reach 7,100 stores by 2033.
Alinda is a Business Reporter for The Sentiment
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