January 29, 2019 / 7:30 AM / 4 months ago

Domino's says overseas ops to slice into profit, shares dive

(Reuters) - Domino’s Pizza on Tuesday warned a slowdown in overseas markets would dent its 2018 underlying pre-tax profit, sending shares in Britain’s biggest pizza delivery firm down more than 10 percent, on course for their worst day in two years.

FILE PHOTO: A call out mechanic fixes a Dominos delivery scooter in the Clapham district of London, Britain June 8, 2018. REUTERS/Simon Dawson

It said it expects a 2018 loss 3-4 million pounds in its overseas business after fourth-quarter sales in a number of markets were hurt by unseasonably warm and dry weather and business integration challenges in Norway.

“Our international businesses offer significant long term potential, but we have experienced growing pains this year, particularly in Norway,” Chief Executive Officer David Wild said.

Domino’s said it plans to invest in Europe but added that the move would hit profitability in the short term. Sales in its international markets fell 2 percent in the fourth quarter.

Domino’s has been focusing on its online and overseas businesses but has struggled to control in-store costs, especially in Norway where it is converting the Dolly Dimple stores it acquired in 2017.

The company said it expects its international operations, which includes countries such as Germany and Luxembourg, to break even in 2019.

“Domino’s has never ever made international work, it has never made any money and there comes a time when shareholders have to ask what are they ever going to get back for all the investment, which runs into hundreds of millions of pounds,” Liberum analyst Wayne Brown told Reuters.

(Graphic: Domino's Pizza trails FTSE 250 as overseas costs bite - tmsnrt.rs/2HDzcoo)

Sales at UK stores open for over a year rose at a stronger-than-expected 4.5 percent during the fourth quarter. The popularity of the company’s cheeseburger pizza fueled record sales of more than 535,000 pizzas on the Friday before Christmas.

Growth came despite restaurant chains in Britain facing higher expenses from a rise in the national living wage and food costs and a slowdown in consumer spending due to uncertainty about Brexit.

Domino’s is scheduled to report its full-year earnings on March 12.

Underlying pre-tax profit was previously expected to be between 93.9 million pounds and 98.2 million pounds ($129.15 million - $123.50 million), the company said.

It reported underlying pre-tax profit of 96.2 million pounds in 2017.

Domino’s shares lost nearly a third of their value in 2018. At Tuesday’s low of 244.1 pence, the company was valued at 1.14 billion pounds.

($1 = 0.7603 pounds)

Reporting by Karina Dsouza and Noor Zainab Hussain in Bengaluru; editing by Saumyadeb Chakrabarty and Jason Neely

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