Domino's Pizza Group plc (DPZ) Q3 FY2025 Earnings Call Transcript & Summary

Hello, everyone, and thank you for joining the Domino's Third Quarter 2025 Financial Results Call. My name is Gaby, and I will be coordinating your call today. [Operator Instructions] I will now hand over to your host, Andrew Rennie, CEO of Domino's. Please go ahead.

Thanks, Gaby. Good morning, everyone. Thanks for joining us today. Look, I'm really delighted to deliver some -- what I think is positive news in a pretty tough environment. As you'll see from the Q3 results is that we've delivered a solid Q3 performance, positive sales and operational momentum in a tough consumer backdrop. In particular, I'm really pleased with the initial results from the introduction of our Chick 'N' Dip brand, which we'll give a lot more detail at our Investor Day coming up in a few weeks' time. Our franchisees, which I'm really proud of, continue to lead the industry not only with amazing delivery times, but we continue to work with them to mitigate increasing costs and potential impact from the budget that may come towards us. We're in a really good place to deal with anything that's thrown at us. So, I feel like we're set up for success, not only towards the back end of this year, but also leading into next year. We're on track to achieve our full year profit expectations, as I said before, and we really look forward to setting out our future plans in the Investor Day in December. Just a couple of numbers for you to walk away with. Total sales were up 2.1%. Our like-for-like sales were up 1%, excluding split, of course. Total orders were down slightly 1.5%, collection was up 1.7%, just showing how much value means to consumers at the moment and delivery is down a bit, which to us was expected due to cost impacts, et cetera, on the business. We've had really good positive feedback from customers from our Chick 'N' Dip launch, and we're very happy with where that's gone. And our ultimate Indian fees have gone really well as well. And the thing that impressed me most is that we've just gone through Halloween, which is one of our busiest days of the year, and the delivery times were once again outstanding to our franchise partners once again have really nailed the operational side of our business, which again ensures the long-term success of this brand. Once again, I'll just reiterate that we're maintaining our guidance in the range of $130 million to $140 million EBITDA. New store openings was unchanged in the mid-20s. And we just launched yesterday our new pod format, which helps us get into the smaller towns, quite exciting. And again, at our Investor Day in 5 weeks' time, we'll be updating you on more of those detailed things, which are very exciting and the innovation that our team is bringing to this fantastic brand. With that, I'll open the floor for questions.

[Operator Instructions] We have a question from Douglas Jack from Peel Hunt.

I've got 4 questions actually, if it's possible, but I feel like you can do one at a time. In terms of the loyalty program, how many app users are now got availability towards that? I knew you were about 3 million a few months ago. I was wondering if you're still at that level at the moment. If you want to do that one first?

Yes. Thanks, Douglas. Yes, we're around that 3 million mark. Look, it varies at the moment each week. So, I don't want to try and give you an inaccurate number, but it's around that 3 million number. So, it's still doing everything that we thought it would do. We still feel very good about that. And we still do plan to launch that in the back half of next year. Again, at the Investor Day, we'll give much more detail about what we've learned. And we've got a pretty good presentation coming. So yes, it's around that number, Douglas.

And in terms of the Indian ultimate fees, I mean, that 7.6% of sales only launched towards the end of Q3. What kind of impact could have had on like-for-like sales if it was launched, say, at the start of Q3? You obviously wouldn't expect that level to fully flow through. I'm guessing there'd be some rotation going on between products.

Yes, that's spot on. I mean, typically, you're replacing some of the other LTOs at that time, Douglas, people will switch out of their -- maybe their favorite pizza instead of just getting a pepperoni passion and say, a media or maybe they get a pepperoni passion and an Indian fee. So, there is a bit of swapping out. It does help like-for-like a little bit. But as you said, at the back end of Q3, it hasn't had a very big impact at all.

And in Q3, I think the cheese price has been falling as opposed to being up quite a lot in the first half. Is that helpful towards your margins in Q3? Or is there other things at play? I know you don't really want to get into too much detail on margins so being only a trading update.

Yes. We're not going to talk about margins but just remember that we have a mechanism in place that tops and tails cheese pricing. So, when it goes up too much, we don't feel the impact for some time it gets leveled out and likewise, when it goes down. So those things bode well for 2026 because that gives us a great runway for pricing into next year. So, it's a good thing, but it doesn't have an impact in the immediate short term.

And just last question. The pipeline, the new store pipeline for 2026. Obviously, the expansion rate slowed a bit in 2025. Does that point to sort of higher quality openings and a good pipeline of available sites for next year as things stand at the moment?

Yes. Again, I'd like to give more detail on that on the Capital Markets Day also at the Investor Day, simply because we've got 4 or 5 different points that we want to sort of showcase, particularly around these new pods. All our openings are quality openings. We don't open a store unless we believe it's going to be quality openings. So even the mid-20s that we'll get this year are high quality. So we want to lay out sort of a longer-term plan, not just focus on next year, we want to focus on the longer-term as well when we update everyone in 5 weeks' time.

Our next question is from Katie Cousins from Shore Capital.

Just a couple from me, if I may. First, on the loyalty program, too. You previously talked about seeing 10% incremental sales coming from loyalty program. Is that still kind of the thinking at the minute?

Look, I don't want to give away too much yet because we're still finalizing the data. And remember, in the early days, we're talking to customers that only buy pretty irregularly. So, I'd rather say that to the Investor Day. What I can say is it hasn't changed from what we've seen at the start. We still continue to see good incrementality. And you've got to discern between incrementality of a consumer buying a bit more versus sales. I mean there are 2 different things, right? So again, more detail I can give you will be in the Investor Day because I think you need to see the whole picture. But having said that, we're very happy with how it's going. Cool.

And just thinking about Q3 like-for-like trends. Obviously, we had a weak run rate to start with and picking up in July. But how did that look in August and September?

Yes. Look, it wasn't too bad. We don't break it out specifically. But yes, we've -- it did as we expected it to do. And we feel as though that Q4, all going well, will do what we expect to do as well. The consumer is in a tough place out there at the moment, right? We all recognize that. We've taken the tough decisions on pricing and all the rest of it we need to do to make sure that our franchisees and our business is in a really good place profitability-wis and that's working. So, we're setting ourselves up for a very good 2026 regardless of what happens in the budget. That's what I feel very comfortable about.

And then finally, just on share buybacks, obviously, you -- the GBP 20 million. But how should we think about that capital allocation over the '26 and '27?

Again, at the Investor Day, we'll give an update on the capital allocation, et cetera, because I think it's a topic that would be disingenuous if I try to explain it here right now. I think the Board needs to be fully signed off on the plan. But yes, we've been analyzing that, and I think we'll have some definite updates on the endeavor.

We said that barring any move on a second brand that we would look at the position as we do every year again at the end of the year. But if you put the GBP 20 million in your models and see the level of gearing we have, as we exit this year, we're at the upper end of our 1.5 to 2.5x range. But in terms of our capital allocation model, we've applied it consistently. We've returned the best part in dividends and buybacks of GBP 0.5 billion over the last 5 years. So no change, no update there and the buyback went down well with our investors.

Our next question is from Hai Huynh from UBS.

So, my first one is, how are you seeing the competitive landscape over Q3? Volumes were down, pricing up, but did you gain volume share? Or in Q3, you were in line with the market in terms of the volume development? And what about the pricing in the industry? Have you seen competitors also increasing prices? And just a follow-up on that, what are the pricing plans for the rest of the year and into FY '26? That's my first question, please.

Just to comment, we obviously -- we only see and talk about revenue data for the system. People don't disclose volumes and shipment orders by industry, by pizza. So Andrew, you just want to talk about the pricing environment in the market. I think we've gained a little bit of share again.

Yes. Look, all I would say is that our market share has grown again, which is the best sign that we're winning in the pizza space. When we see around the marketplace what others are pricing, they're pricing very similar to us. So, we don't have -- we're not at a disadvantage, which again shows why we're growing market share. So yes, we won't talk too much about pricing because it would be stupid for me to lead for our competitors on what we intend to do with pricing. All I can say is that our cost structures are very stable for next year. Obviously, we're all waiting for the autumn budget, but we've factored a lot of thinking in around that already. But we feel pretty comfortable with where our pricing is today, and we feel very comfortable with where we roll into 2026.

Yes. We have said in the statement -- sorry, it's Richard Snow, the interim CFO here. I realize that the call moderated and introduced me. We have said we expect order count position to be weak into next year because of the pricing environment and because of what we've heard from Rachel today.

Understood. Got it. Regarding the CapEx, so I believe the last time in half 1, it was guided EUR 22 million, now it's EUR 25 million. So what's the main driver of the increase? Is that the warehouse automation that you've talked about that already? Or is it the Chick 'N' Dip or the new internal menu.

That's exactly right. It's accelerating the investment in automation. And of course, next year, you'll see higher CapEx. We haven't given a number yet, but obviously higher CapEx because of the supply chain investment. Andrew, do you just want to talk about the benefits of that?

Yes. So first of all, there's no CapEx involved in Chick 'N' Dip. All the CapEx is going towards becoming a more efficient system through automation and building more capacity, as we've spoken about before, for the SEC 5. That's all on track. We feel very good about that. That automation is now starting to roll out and see the benefits of that. We'll see the real benefits of that as we roll into next year. So yes, the CapEx has a fantastic ROI on that CapEx. So we feel very good about it.

And my last question, please. So you opened 18 gross new stores year-to-date. Where have you been opening mainly? Is that smaller address count area? Is that Ireland, Northern Ireland or within England?

It's a good mixture of everywhere. There's no particular area that we're focused on. It's just availability of locations, planning acceptance. Yes, so they're pretty well spread. Some are small towns, some are fortressing of splitting current stores, some are in Ireland, some are in Scotland. So yes, there's no specific area that we've targeted.

And on the smaller address count areas, is that in line with what you've said before in terms of higher average weekly sales from those new smaller address count areas than expected?

Yes. All of them penetrate at a higher return per address compared to the rest of the market. So yes, that hasn't changed.

Our next question is from Anubhav Malhotra from Panmure Liberum.

Just a couple from me, please. Maybe on the 5% pricing in the quarter, if you could help split that into how much of it was due to lower promotions? How much of it was due to higher menu prices? And was there any changes to the delivery charges that are charged to consumer? And then maybe on the Chick 'N' Dip side, can you give us some clue on how the consumer has been ordering the Chick 'N' Dip? Has it been mostly a case of an add-on to an existing pizza order? And or in some cases, had it been a case of a separate order, just a Chick 'N' Dip order on its own?

Yes. And there's no simple answer to what you've asked, unfortunately, because some franchisees have put delivery pricing up, some franchisees have put delivery fees down. Some franchisees are a little bit more aggressive, some franchisees are being less aggressive. So, I would say that our pricing has not changed in terms of strategy and what it has in the last 12 months or so. So, price hasn't really been a major factor in what we've been achieving. If you look at it, we've got a strategy that we've deployed that, yes, has taken into account cost increases, particularly with national insurance, et cetera, but that's across the board. So yes, it's too intricate to try and disseminate across nearly 1,400 stores, all the ups and the downs, right? Because every franchisee has its own strategy in terms of their own area. And we're seeing some great success. We've got some franchisees that are growing very, very nicely actually. Most importantly, franchisee profitability is in a good place, right? We've been able to regain a lot of the profits that were taken from the higher costs, et cetera, from wages and from national insurance. So, we're going in a really good direction on franchisee profitability, which is our main focus. Your question about Chick 'N' Dip. Look, I don't want to give too much away again because our Investor Day is going to go into more detail, and it would be wrong for me to give you bits and pieces. All I will say is it's a combination of new customers and customers ordering with Pizza and without pizza. So, it's all those. It ticks all those boxes. And it's performed sort of ahead of what we expect it to be fair. So yes, we're very, very happy with what we've seen so far. But again, on the Investor Day, you'll get much more detail.

[Operator Instructions]

Well, Gaby, I think if there's no more questions, I'll let you -- I'll finish up by just saying, first of all, thank you very much for everyone for their time for joining. I really appreciate it. I feel really good about the company. I feel really good about our core business and where it is in this environment. I think we always have to put it in context of -- versus others. I think when you see that we continue to grow our market share in a tough environment, we continue to give outstanding delivery times, which is best-in-class. Our franchisees' profits continue to be some of the strongest in the world. Our customers keep telling us that they love what we do in terms of product quality and innovation. And I'm very excited about Chick 'N' Dip and what the team have done. It's been quite incredible. And loyalty, again, is on track and doing as we expected. So, a lot of great levers there, plus the automation. But I'm really excited. I've got all my team coming along to present at the Investor Day, 5 weeks away. And I think, again, a lot more detail about the core of this business and how strong it is and where we're going. We feel very positive. And hence, why we're excited to come to the Investor Day and showcase everything that we can do. The environment is tough. We know that, right. But even with a tough environment, we feel like we've set the business up to deal with whatever comes at us with the budget. So really look forward to presenting to everyone in more detail at the Investor Day. Thank you very much, Gabby, and thank you, everyone, for attending.

Thank you. This concludes today's Domino's Third Quarter 2025 Financial Results Call. Thank you for joining. You may now disconnect your lines.