No, that’s not the waft of bad pizza, it’s the smell of sweet vindication. On March 13, we promised that if Domino’s Pizza met its FY18 guidance of “[~]20 per cent net profit growth (without propping it up with those old chestnuts, ‘extraordinary’ and ‘non-recurring’ items)” we’d quit this newspaper and work for Don Meij “delivering ham and pepperoni meal deals to the cités of Libyan gangs outside Paris”.
Last week, Domino’s trotted out the one-off items alright, but even still could only get to 15 per cent. Setting Don’s weird and wonderful add-backs aside, NPAT growth was just 3.6 per cent – an incredible underlying miss. Les banlieues will have to do without us.
As predicted by anyone of sound mind (“we believed we were right there to the end,” Meij said, despite its mathematical improbability), the Australia & New Zealand business missed its same store sales (SSS) growth guidance of between 6 and 8 per cent. But what happened to the World Cup miracle predicted with such independent-minded confidence by Morgan Stanley’s Tom Kierath, Macquarie’s Quinn Pierson and Ben Gilbert at UBS? Far from making up for the home market’s underperformance, the Europe business missed its guidance too. Great modelling, fellas!
And both of those were misses using a seriously ropey methodology. In reality, the picture is significantly worse. In ANZ, for example, the SSS growth reported by Domino’s over the past four years compounds to be around 20 per cent higher than growth in network sales per store (based on the average number of stores for the year). Which begs the question: what is SSS growth?
Depends who you ask. According to the Domino’s FY18 annual report released on Tuesday, “same store sales growth means comparable growth in sales across those stores that were in operation at least 12 months prior to the date of the reported period.” The wording in the FY17 report was identical.
Which isn’t what Domino’s advised the market in February last year. Sitting alongside Meij, ANZ division chief Nick Knight told investors that “we do split some stores in the network [and] I would exclude them.” That excludes more than 75 per cent of new stores, plus the existing stores in their territory, from the reported SSS growth numbers – a carve-out missing from the formally reported definition. What’s more, Knight told the same analyst call it is only stores trading for 24 months, not 12 months, that are included. So which is it?!
Despite Knight having confirmed Domino’s accounting definitions are haphazard at best, Meij defended them at a private briefing of around 40 money managers (as always, in Kierath’s office) on Tuesday, claiming that “SSS growth gets audited.”
But signing off on the audited accounts, Deloitte, Domino’s auditor of 17 years, specifies the consolidated statements it takes responsibility for the accuracy of: “the consolidated statement of financial position, of profit or loss, of other comprehensive income, of cash flows, and of changes in equity for the year, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration.” None of these materials includes SSS growth. “The directors,” Deloitte declares, “are responsible for the other information.”
More smoke and mirrors – no wonder the board is always so hazy on the detail.
And if only these were the only oddities in Meij’s latest set of numbers. The rest will have to wait another day.