UPDATE 2-Domino's Pizza shares firm after sales surge tops forecasts

Wed Jan 8, 2014 4:50am EST

* Q4 UK like-for-like sales up 10.9 pct vs f'cast 1-4 pct

* To transfer own-managed German stores to franchisees

* Says will meet FY profit forecast

* Shares up 1.4 pct, extend recovery from 19-mo low (Adds Germany details, analyst quote)

By Neil Maidment

LONDON, Jan 8 (Reuters) - Domino's Pizza, Britain's biggest pizza delivery company, has posted a surge in fourth-quarter sales, steadying its shares which had been rattled by executive exits and a costly plan to expand in Germany.

Domino's shares had dropped 20 percent in six months after its German operations suffered higher than anticipated losses and the company surprised investors last month by saying its chief Lance Batchelor would quit in April to join travel and insurance group Saga.

Domino's, whose stores across Britain deliver pizzas including the Meatlicious and Pepperoni Passion via a fleet of blue, red and white mopeds, said sales at its 670 UK stores open for more than a year rose 10.9 percent in the 13 weeks to Dec. 29, ahead of analyst forecasts ranging from 1 to 4 percent.

The advance was helped by growing online demand, a marketing push and the mid-week timing of the Christmas break, before which many people were at home having taken a day or two off work.

Full-year underlying sales rose to 7 percent, the group said on Wednesday.

Shares in the group, which had slumped in December to their lowest in some 19 months, rose 1.4 percent to 510p by 0809 GMT.

Domino's, which also operates in Ireland and Switzerland but makes almost all of its sales in the UK, added it had agreed to transfer 13 of its 15 own-managed stores in Germany to better-performing franchisees to boost trade.

LABOUR COSTS

The company has high hopes for Germany but was forced to scale back its expansion plans last year, after higher than expected labour costs meant it would break even there as much as two years later than expected.

Of the two remaining corporate stores, one will close and the group's flagship store in Dusseldorf will be retained.

"Underlying growth in the UK remains significant and, with agreements in place for all the planned corporate-to-franchise transfers, Germany losses should now start to fall," analysts at brokerage Numis said.

Domino's said it expected full-year profit to be in line with the market consensus, which Reuters data shows at 47.91 million pounds against the previous year's 46.7 million, with higher losses in its fledgling German arm offsetting higher than anticipated profit in the UK and Ireland.

Batchelor's exit followed that of finance chief Lee Ginsberg and came as some analysts also expressed concern over the pace of the group's UK store openings, which stood at 50 for the year, taking the total to 777.

In October it had slowed the openings target to 50 from 60, with some analysts now expecting that figure to fall further to 45 for future years.

The company said a search was underway to replace its CEO.

($1 = 0.6098 British pounds) (Editing by Kate Holton and David Holmes)