DP Poland: Accelerating growth rates, poised for store expansion

Dominos Pizza Poland is listed on the Aim market of the London Stock Exchange and has a market capitalisation of £100m. The company owns the Dominos master franchise for Poland and Croatia. There are currently 112 Dominos stores in Poland and 4 Dominos stores in Croatia.

We were delighted to welcome Nils Gornall, CEO,  and Edward Kacyrz, CFO, to present at the latest Yellowstone Advisory webinar. A recording of the webinar can be found here.

CEO Nils has been in charge for 2 years but he has 30 years of Dominos Experience and started work in his fist Dominos store aged 14 in Australia. He has owned 20 Dominos franchisees and pretty much done every job there is to do in a Dominos store. In 2020 he bought the Dominos master franchise for Croatia and opened the first store there in July 2020. In 2022 he sold the Croatia business to DP Poland and became the new CEO. Edward Kacyrz, the CFO, joined at the end of 2022 and has spent his career working in finance and strategy roles mainly in the retail sector. He has a complimentary skill set to Nils.

The first two years of their tenure have been very much about turning the company around but the foundations have now been set for a very successful business. Average Weekly Order Count (AWOC) has grown 40% over the last 2 years and the company is past the breakeven point setting them up well for a positive future. LFL system sales grew almost 20% in 2023 and increased by more than 22% in the first half of 2024. A focus on operational excellence has resulted in store profitability improving significantly and with the recent addition of a new head of the franchise department, DPP is well positioned for expansion and hitting the 200 store target by 2026. With the recent £20.5m fundraise completed the company is also well financed for future expansion.

Looking at the key points from the 2023 results, revenues grew 25% to £44.6m, AWOC in Poland grew 19% to 731 and group EBITDA grew 108% to £3.5m. The drop through to EBITDA was helped by COGS growth of 17.9% below revenue growth as food prices fell slightly from midway through the year. Payroll costs were up 32% due to the impact of an increase in the minimum wage. On the balance sheet there were no material changes although post the year end £4m of the loan was repaid from proceeds from the £20.5m equity raise leaving a balance of c£2.8m.

Looking specifically at Poland the growth in AWOC has been very impressive over the last 3 years increasing from c500 in July 2021 to over 900 in June 2024 which has a very positive impact on unit economics. For 2023 in total AWOC reached 731, for the first half of 2024 this had risen to 825 and in Q2 2024 this had risen again to over 850. Improvements were driven by the focus on operational excellence which delivers tasty, hot pizzas in under 25 minutes. New product development introducing products like the KitKat Calzone has also helped bring in new customers and increase the basket size.

The 30 month chart on store economics shows a steadily improving picture of store profitability and increased volume is the key to this success. In June 23 the company became profitable at the store level and has been consistently profitable through 2024. Management expect to end the year with even higher levels of store profitability.

Another measure of the improved performance of the company is seen in the improvements to customer satisfaction. The Net Promoter Score for both new and returning customers has risen by 20% and 38% respectively. The customer base is growing, ordering more frequently and increasing their basket size. The 279% increase in mobile app installations is also having a positive impact on profitability as these customers order more frequently and are more loyal.

In Croatia total sales grew 44% in 2023 and LFL sales grew 3%. In 2024 LFL sales have increased to 6% YTD despite the entry of Pizza Hut into the market. The team has raised their game to deal with new competition improving the menu and reducing delivery times. Two more stores are expected to open in the 4th quarter o f this year taking the total to 7 and the first franchisee is currently building a new store.

The business is well placed to expand having raised sufficient capital back in March and the company is on track to meet the 200 store target by 2026. The 900 AWOC target for 2026 is already in sight and will likely have to be increased.  Currently 16 new stores are in the process of being prepared for opening in the second half of this year and a further 25-30 stores are on track to be opened in 2025. The target remains to increase the percentage of franchised stores to 45% by 2026 and to this end a new head of the franchise team was recently appointed. Six stores are also currently being refurbished and after previous refurbishments they have witnessed a good uplift in sales.

Improvements have also been made to the supply chain and back office functions. The Commissary (the factory that makes the dough) capacity is on course to be doubled with investment in new four silos and new mixing equipment which should be completed by the end of the year. An automated order placing system, whereby orders from aggregators go straight into the store online order systems is on trial currently and should be rolled out in the second half of the year with significant labour cost savings anticipated.

In summary, 2024 is shaping up to be a great year for the company with LFL sales up over 20% YTD. The customer base is growing too at the same pace as sales which is key to profitable growth. The growth trend at the top line is also being replicated at the EBITDA level. The focus on product quality, service and brand image continues to drive higher customer satisfaction and repeat sales. The store economics continue to improve as the AWOC goes up through 850 in the 2Q 2024. The store expansion program is on track and there is a long pipeline of potential locations. So overall management are really pleased with the performance delivered so far this year and look forward to the rest of 2024 with confidence.

A recording of the webinar can be found here.