UK’s Domino’s stock slumps on weaker 2023 outlook on tech costs

A person walks past a Domino's pizza restuarant in London

By Muhammed Husain

(Reuters) -Shares in Britain’s Domino’s Pizza Group fell as much as 10% as the company’s 2023 outlook disappointed due to higher interest costs and investments in technology.

The company said it expects underlying core profit this year to be within market expectations for 137.6 million pounds ($163.73 million), excluding about 9 million pounds from investments in two new cloud-based IT systems.

However, brokerage Jefferies, said the outlook including those investment costs, implied a 7% decline from expectations.

Domino’s said the investment costs are being reclassified from capital expenditure to operating expenditure, but this would have no impact on cash.

“The market may focus more on the incremental operating expenditure, which was previously going to be treated as capex,” according to a note from Barclays.

The brokerage also highlighted that Domino’s expects underlying interest charges to come in the range of 15-18 million pounds this year, compared to its own estimate of 12 million pounds.

Shares of London-listed Domino’s, a franchisee of U.S.-based Domino’s Pizza Inc, fell as much as 10.2%, and were last down 9% at 259 pence as of 1000 GMT.

On a positive note, Domino’s interim Chief Executive Officer Elias Diaz Sese told Reuters the group’s collections business is benefiting as more buyers collect their orders and seek to cut down charges from deliveries.

Collection orders in the fourth quarter of 2022 rose 28%, beating 4% annual growth in total orders.

Delivery orders were down 8.5% from the prior year as a result of tougher comparisons as the group benefited from COVID-19 lockdowns in 2021.

Domino’s reported 2022 underlying core profit of 130.1 million pounds, compared with 136.4 million pounds in the previous year, affected by technology investments, higher costs and food inflation.

Reported revenue rose 7% to 600.3 million pounds.

($1 = 0.8426 pounds)

(Reporting by Muhammed Husain in Bengaluru; Editing by Savio D’Souza, Devika Syamnath and Sharon Singleton)