Domino's UK falls as amortization hit overshadows strong start to 2023

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Domino's UK falls as amortization hit overshadows strong start to 2023

By Geoffrey Smith -- Shares in U.K.-based Domino's Pizza Group (LON: DOM ) fell sharply on Thursday after the company warned of higher depreciation costs and an end to cash flows from its German affiliate this year.

The news overshadowed a strong fourth quarter for the group, which posted record sales thanks in part to the FIFA World Cup. It also overshadowed what the group said was a strong start to 2023, with like-for-like system sales excluding split stores and VAT up 10.8% in the first 10 weeks. Orders were up 2.5% and new app customers were up by 46%.

That still wasn't enough to compensate fully for the inevitable slowdown in its business last year due to the end of the pandemic, which allowed restaurants to reclaim the market share they had lost to Domino's - a delivery and takeaway specialist - during the previous two years.

Full-year pretax profit fell to £99 million (£1 = $1.1855) from £114M a year earlier, while adjusted earnings per share fell 7.4% to 18.8p.

Underlying earnings before interest, taxes, depreciation and amortization fell due to the group changing its accounting treatment for investment in its Cloud-based technology platform, and by a lower contribution from Germany. The company has signed an option to sell its interest there and expects no contribution from Germany to its 2023 earnings. The sale of the business will yield some £79M in cash.

Analysts at Deutsche Bank said they expect the sale of the German operation combined with this year's expected cash flows should free up to £100M for shareholder returns this year. In 2022, Domino's Pizza Group raised its dividend by 2% to 10p, while also buying back £86M of stock.

By 06:00 ET (11:00 GMT), Domino's Pizza Group shares were down 7.2% at their lowest in four months.

Domino's Pizza Group is unrelated to Domino's Pizza Inc in the U.S.

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