Domino's Pizza is ruing missteps in its pricing strategy after lower margins sliced full-year net profit by three quarters.
The Australian-based pizza chain, which operates franchises in Europe, Asia and New Zealand, on Wednesday reported net profit after tax slumped 74.4 per cent to $40.6 million.
Earnings before interest and tax dropped 23.3 per cent to $201.7 million.
Overall sales value grew by 2.2 per cent to $4.0 billion, but this was mainly due to inflation and an additional 395 stores opening worldwide. Sales volumes declined as higher prices turned off customers.
Chief executive Don Meij says higher labour, ingredient and energy costs weighed heavily on margins and in some circumstances were passed on too quickly to customers.
"The scale and pace of these increases meant Domino's leadership needed to adjust our pricing and cost base faster than in our history," he said.
"While we did not always get our pricing right, our decisive action ensured the sustainability of more than 1000 small business owners whose livelihoods rely on the Domino's brand."
A seven per cent delivery service fee imposed in Australia and New Zealand "did not resonate with more price-conscious customers" and was subsequently removed.
Mr Meij reassured customers there would be no price increases this year, as increases in wage costs are negated by lowering ingredient prices.
In June, the company announced it would shutter all 27 stores of its Danish stores, as well as an additional 65 to 70 corporate stores globally. It anticipates this will save $50-60 million in the next financial year after a one-off $105 million cost.
The closures were more than offset by the purchase of 287 stores in Malaysia, Singapore and Cambodia as Domino's heads towards its goal of 7100 stores in the next decade.
The company announced it will sack staff in Australia and internationally as it restructures its operations, with the majority of leaders now wearing a "double hat".
Mr Meij will become CEO of Australia and New Zealand as well as the overall group.
Investors responded positively to the austerity measures, which are predicted to increase EBIT by $33 million-$40 million this financial year, eToro market analyst Farhan Badami says.
Domino's shares surged eight per cent higher by noon AEST.
Mr Badami believes the company faces a challenging task recovering sales volumes and profit margins.
"One of the biggest appeals for the brand is their affordable food items - if Domino’s keeps increasing prices, households will shy away from purchasing its food," he said.
Performance since the start of the new financial year has shown improvement, with same store sales in Europe and Australia and New Zealand up 6.6 per cent. But Asian sales are lagging, down 7.8 per cent, as customer ordering frequency remains stubbornly low.
Mr Meij touted upcoming products as the key to growing sales beyond the traditional dinner segment, with lunch now the company's fastest-growing segment.
"Domino's hasn't done well in snacking, and that's another important part of (quick service restaurants) - afternoons, late night, pre-lunch. And we've got a real rock star product that we're going to be launching in various markets," he teased.
The company is increasingly targeting single customer purchases, with its My Domino's Box individual pizzas set to hit Europe after success in the Asia-Pacific.
Domino's announced a full-year dividend of $1.10 per share - a 29.7 per cent drop from the previous year.
