Pizza delivery firm Domino's Pizza saw a slow-down in year-on-year like-for-like (LFL) sales growth in the final quarter of 2012, as expected, but said it is on target to meet full-year profit expectations.

In the 13 weeks to December 25th, LFL sales rose by 3.6%, down from the preceding quarter's 3.9% growth. Panmure Gordon had predicted LFL sales growth of 3.3%. System sales for the period increased by 9.5% to £145.0m from £132.5m in the corresponding period of last year.

Over the full 52-week period to Christmas day, LFL sales were up 3.0% year-on-year, with the UK stores up 3.7% and the Republic of Ireland (RoI) stores down 4.1%. In the preceding year, LFL sales had been up 11.9%.

The proportion of orders being made online continues to grow, and e-commerce sales now frequently top the £1m mark in a single day, the company revealed.

Online sales through mobile devices have also put on a spurt, and now account for 12.6% of all online orders.

Total e-commerce sales in the final quarter in the UK and the RoI increased by 39.6% to £53.1m from £38.1m the year before.

Online sales for the year rose to £183.1m from £128.0m last year, an increase of 43.0%, though this increase pales in comparison with the previous year's growth rate of 63.0%. Online sales for the year accounted for 44.3% of UK delivered sales versus 35.8% the year before.

Lance Batchelor, who took over as Chief Executive Officer at the beginning of the year, declared himself pleased with the LFL sales growth for the year, "especially against a tough comparative and the 2.5% VAT rise at the start of 2011."

"As I take over as Chief Executive, I come into the new year with confidence and optimism and will continue the growth of the business through our strong tradition of innovation, with new products and new locations. In addition, we are making good progress in our first German stores, gaining familiarity with consumer preferences and the logistics of operating in an exciting new market," Batchelor said.

The company has just four stores in Germany at present.

"I am delighted to announce that the company will deliver full year 2011 profits in line with current City consensus forecasts," Batchelor revealed.

Current expectations are for the company to make profit before tax in 2011 of £42.13m, up from £35.20m in 2010.

Brokers sceptical

The market reacted favourably to the update, but Peel Hunt is sticking with its "hold" recommendation, describing Domino's as "a good but not an exceptional performer in today's highly competitive consumer market."

"It retains a strong medium term attraction arising from its near 50% online profile, further expansion in the UK, and the potential of its German market entry, but for the next two years we now expect low to mid-teens earnings growth, a creditable enough prospect in today's consumer market," Peel Hunt analyst Paul Hickman said.

"Recognising the major strength of a debt-free balance sheet, despite the continuing absence of share buybacks, a forward PER [price/earnings ratio] of 19.7x is, in our view, high enough," Hickman concluded.

Panmure Gordon, meanwhile, reckons the shares should be sold, with the proceeds reallocated to one of many other stocks in the restaurants sector which offer similar rates of earnings growth but which are trading on much lower multiples; as an example, the broker cites The Restaurant Group.

"Despite a 27% share price decline in 2011, the stock still trades on a 2012E P/E [price/earnings ratio based on 2012 earnings estimates] of 19.8x and an EV/EBITDA [enterprise value/earnings before interest, tax, depreciation and amortisation] of 12.8x, supported by a 3.4% yield. For a stock we forecast to grow earnings c11% in 2012E, we view this as too expensive," the broker said.

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