The future looks tasty for Domino’s in Japan

What's behind Domino's Pizza blowout FY profit
What's behind Domino's Pizza blowout FY profit   

After reporting blowout profits Domino's Pizza Enterprises told CNBC on Tuesday its venture into Japan was providing a large slice of its success.

The Australian headquartered franchise reported a 48 percent lift in net profit to $42.3 million for the 12 months to June 30 on Tuesday – up from $28.7 million a year ago, and forecast another 20 percent rise in earnings in the fiscal year 2014-2015 as it rolls out 185 new stores.

Much of the firm's success has been fueled by progress in Japan, following its acquisition of a controlling 75 percent interest in Japan's Domino's Pizza chain for $135 million in August last year, which meant 61 Japanese stores were added to its franchise.

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As a result the company's group revenue nearly doubled to $588.7 million, with earnings per share increasing 31.6 percent to 54.6 cents.

"We've just become the number two player in Japan – we think we could become number one by the end of next year," said Don Meij chief executive officer Tom.

"We're up 10.7 percent in like-for-likes for the full year – it's an incredible business," he added.

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Japan's largest pizza chain is currently domestic company Pizza-La. Other prominent pizza delivery chains operating in Japan include U.S. brand Pizza Hut and another domestic firm Aoki's pizza.

According to Meij, operations in Japan are proving to be less costly than in their home market of Australia – where the pizza chain is the largest player.

Domino's Pizza Enterprises is the master franchise for the Domino's Pizza brand, and currently operates out of six countries: Australia, New Zealand, France, Belgium, the Netherlands and Japan.

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"The exciting thing about Japan is that costs aren't as high as they once were. In fact costs in Japan for our business are materially lower than they are in Australia, New Zealand and parts of Europe," he said.

"Rents are more affordable, our labor costs are materially lower than they are in Australia – in fact they are almost half. Ingredient prices are a little higher, as everything is imported – but prices are also pretty good for us in Japan," he added.

Domino's Pizza Enterprises also said much of its strong trading results were thanks to strong trading results in Australia and New Zealand, structural changes gaining momentum in Europe, as well as Japan's store relocation strategy and TV advertising.

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Same store sales rose 5.8 percent across all of its markets for 2013-2014. In the first five weeks of the current fiscal year, same store sales were up 14.8 percent in Europe, compared to a 5 percent decline a year ago, and 10.3 percent in Australia and New Zealand, compared to a 4.7 percent rise a year earlier.

The company declared a final full-franked dividend of 19 cents per share, in addition to an interim dividend of 17.7 cents per share, bringing the full year dividend to 36.7 cents, up 18.8 percent from the previous year.

Shares in Domino's traded on the Australian Securities Exchange were up 7.8 percent in Asia morning trade on Tuesday. The company's stock is up 938 percent since it first listed in mid-2005.