By Rajasik Mukherjee and Sneha Kumar
Feb 25 (Reuters) - Australia's Domino's Pizza Enterprises flagged a weak start to the second half of the year on Wednesday citing extreme weather in Germany and the Netherlands, sending its shares more than 4% lower.
The company, which operates Domino's stores in 12 countries across Australia, New Zealand, Asia and Europe, reported a 7.2% fall in same-store sales for the first eight weeks of the second half. Analysts see a 0.2% fall for the six-month period, according
to Visible Alpha estimates.
Domino's Pizza has adopted a new approach in Australia and New Zealand, reducing reliance on national discounting and advertising spend to improve returns for franchise partners, as it navigates sliding sales and rising competition.
"We reduced reliance on discounting during the (first) half. Volumes moderated, as expected, but unit economics improved. That was a conscious trade-off to build a stronger system," said Executive Chairman Jack Cowin.
The approach, however, led to reduced earnings for the first half as it reported a group revenue of A$1.10 billion, compared with A$1.17 billion a year earlier.
"The reset improves profitability in the near term, but unless revenue growth stabilises, the benefits of trading customer volumes for higher margins are likely to be temporary," said Cliff Man, CEO at ETF Shares.
Shares of the pizza chain operator slumped as much as 16.3% to A$18.130, hitting their lowest level since November 3, before closing 4.4% lower.
The stock was the top loser on the broader ASX200 benchmark index, which rose more than 1% to hit a record high.
"The market reaction suggests investors remain cautious about the sustainability of the turnaround strategy," said Cliff.
"The key concern is whether the company can successfully transition from discount-driven volume growth to a more margin-focused model without impairing its customer base."
Earlier this month, the largest master franchise of the U.S.-based Domino's Pizza tapped former McDonald’s executive Andrew Gregory as CEO.
(Reporting by Sneha Kumar & Rajasik Mukherjee in Bengaluru; Editing by Sumana Nandy and Subhranshu Sahu)
