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Highlights
- Domino’s Pizza Group shares rose over 22% after the company announced that it had reached a resolution with the franchisees.
- The new resolution will run for an initial period of three years, starting from 3 January 2022.
- Domino’s Pizza Group believes the new resolution will bring excellent outcomes for all stakeholders.
FTSE 250 listed pizza takeaway giant Domino’s Pizza Group (LON: DOM) shares surged over 22% in the last session. Intraday it was up by over 26% following the company’s announcement that it has reached a resolution with the franchisees in the United Kingdom.
The new resolution between Domino's Franchisee Association and the company has received a positive response, and over 99% of franchisees operating in the UK voted in favour of the solution.
Domino’s Pizza Group believes the new resolution will bring great outcomes for all stakeholders. Franchisees stand to benefit both in the near-term and long-term with improved sales and more new stores opening.
At the same time, the company’s customers will benefit from innovative products and services. In addition, an enhanced value will be created in the long run for the shareholders. The new resolution will run for an initial period of three years, starting from 3 January 2022.
Terms of Resolution
Under the new resolution, Domino’s Pizza Group will invest £20 million over the next three years to improve its e-commerce app and stores to enhance consumer in-store and online experience leading to a potential increase in order count and top-line growth. The company will also strengthen its food rebate mechanism for stores to accelerate order growth.
Franchisees have also agreed and committed to open at least 45 new stores every year over the next three years. In addition, Franchisees have expressed their commitment to participate in national promotional deals, testing new technology and innovative products that will bring the company’s system in line with the peer companies.
Future outlook and financial guidance
Along with the resolution, the company also announced its future revenue guidance. In FY22, the company anticipate growth in system sales due to capital investment as part of the resolution. Moreover, the underlying EBITDA and EPS are expected to be in line with the market expectation. The system sales in the medium term are expected to be at the upper end of the previously announced target of £1.6bn - £1.9bn with new stores count expected to surpass 200 mark in the medium term.
The company expects to drive growth through a national advertising campaign, product innovation, improvement in digital experience, and reduction in delivery times.
Should you invest in the stock now?
The company has an asset-light business model which is cash generative due to high consumer demand. The new capital investment by the company is expected to drive organic growth for the business in the long run.
In FY21, the company returned £136 million to its shareholders through dividend and share buyback. The better collaboration with the franchisees after the new resolution is likely to drive growth for the company.
Share price performance
(Image Source: EODHD/Others)
After announcing the new resolution, the company’s stock price surged, taking it to a new 52-week high of GBX 451.80. The stocks finally closed at GBX 422.60, up by 22.14%. The company’s current market cap stands at £1,550 million as of 16 December 2021. The stock has given a 29.47% year-to-date return to its shareholders.
