Domino’s Pizza Group’s (LSE: DOM) full-year results for 2015, released in March, revealed like-for-like sales up close to 12%, representing the ninth consecutive quarter of double digital LFL rises. And a quick look at the Dominos business model makes it understandable how such consecutive quarterly of growth in the UK was achieved.
Domino’s is essentially a franchise business. Franchisees not only buy the ingredients from Domino’s but also pay a royalty on the sales they make. It would appear that increasing the amount of franchisees is the name of the game for Domino’s as that bolsters top-line growth.
However, having a store in every nook and cranny doesn’t guarantee success, both the demand and customer awareness has to be there too. Fortunately for Domino’s, Britain’s annual spend on fast food exceeds £29bn and expenditure on pizza is predicted to grow by 28% to £7.6bn by 2020.
The majority of that growth will be driven by online and mobile ordering. This is where Domino’s really has the upper hand as its digital business now accounts for 77.7% of all UK delivered sales, a 30% increase from a year earlier.
There are a few bumps on the road ahead for Domino’s such as the living wage, introduced in April, which will surely prove a drag on top-line growth as it increases costs for its franchisees. But this could be offset by lower input costs should the price of cheese and wheat continue to fall.
Income and capital gain investors have reason for optimism as the company has increased its annual dividend by 19% to 20.57p and said it will resume share buybacks over the medium term.
Return to growth
Tomorrow (17 May), Vodafone Group (LSE: VOD) will report its full year results for the year ending 31 March 2016. Apart from the all-important service revenue figures – a core metric for Vodafone’s mobile operations – investors will be keen to get an update on potential deals/takeovers. This stems from the worry that Vodafone may be falling behind competitors such as BT as competition to become the ultimate quad-play service provider, offering broadband, mobile, phone and pay-TV, intensifies.
Fortunately, Vodafone has some good news to wax lyrical about as the number of people using its new money transfer system – a service that connects to a bank account and allows users to send and receive money, or pay bills across Africa, Asia and Europe – has increased 27% from a year ago.
The City is expecting a return to service revenue growth in two of its largest markets, Germany and Italy. Service revenues are expected to have risen by 1.6% to £9.5bn in the final quarter with the largest growth expected to come from its emerging market businesses. Turkey is of particular importance as services revenues are forecast to rise by more than 20%, which should help offset the decline in the UK and Spain.
Importantly, for income investors, Vodafone’s current yield of 5.03% may look more secure come this time tomorrow as the company is expected to end its capital-intensive improvements to its network infrastructure. Analysts expect capital expenditure to decrease from 22% to around 15% of sales by 2017. This should help strengthen the current dividend cover, which is currently around 0.5 times.
