Dominos Pizza Store Sales Under Pressure

Dominos Pizza IndiaIndian Consumer discretionary spends are coming under stress as weakness in the macro-economic environment weighs on demand by massive mis-management of Economy. This has reflected in SSS growth for Jubilant, the exclusive franchisee of Dominos’ Pizza in India. Over the past few quarters, we have seen Dominos’s SSS growth dropping from 30% in 3QFY12 to 16% in 3QFY13.

Dominos management indicated that SSS growth for FY13 is likely to remain below 17% as the demand environment remains weak. Note that the company had pruned its FY13 SSS growth guidance from 18-19% to 17% SSS in the 3Q conference call. However, revenue growth from new stores should help ensure that overall revenue growth remains healthy at 30% YoY, lower than the 40%+ level seen over most of FY06-FY12.

Following the recent budget notification by Congress government bringing Dominos Pizza Outlets under the service tax ambit, the management has decided to pass on this tax increase to customers while it awaits clarity on whether this is applicable on delivery/ take-away sales. Levy of service tax on Jubilant’s sales would result in a 4% increase in transaction costs.

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