DPC Dash Achieved Profitability with Double-Digit Revenue Growth Despite Industry Challenges
HONG KONG, Sept 30, 2024 - (ACN Newswire) - In the first half of 2024, the restaurant industry faced significant challenges due to shifting consumer preferences, changing spending habits and intensified competition. The increasing cost of goods and fiercely competitive pricing have resulted in an overall decline in industry profitability, with several large-scale restaurants reporting losses. Despite this challenging environment, DPC Dash ("Domino’s Pizza China" or the "Company") (1405.HK) has leveraged these changes as a catalyst for growth, developing a new competitive edge focused on high quality-to-price ratios, allowing the company to flourish against prevailing trends.
DPC Dash, Domino's Pizza's exclusive master franchisee in the China Mainland, the Hong Kong Special Administrative Region of China, and the Macau Special Administrative Region of China, has successfully implemented its 4D strategy of Development, Delicious Pizza at Value, Delivery, and Digital. This approach has driven sustainable growth and profitability in the underserved Chinese pizza market in the first half of 2024, as reported in the company’s recently released interim financial report.
In the first half of 2024, DPC Dash generated record-high revenue of RMB2.04 billion, representing a year-over-year increase of 48.3%. This steady revenue growth reflects DPC Dash’s sustainable business model and resilient counter-cyclical strategy, which have significantly improved its profitability.
The Company’s financial improvement is demonstrated by its positive adjusted net profit and net profit after tax. Adjusted net profit turned positive in the first half of 2024 to reach RMB 50.9 million, compared to an adjusted net loss of RMB17.4 million in the same period of 2023. The company also reported a net profit after tax of RMB10.9 million, a 24.6% year-over-year increase compared to RMB8.8 million of the same period of 2023, positively impacted by the fair value gain of approximately RMB119.3 million on convertible senior ordinary shares.
Another testament to the company’s strong profitability is its same-store sales growth (SSSG), which compares the sales generated by same stores during the relevant period year-on-year. In the face of recent market challenges, it is extremely difficult to maintain positive SSSG momentum. DPC Dash has demonstrated its ability to deliver sustainable growth, achieving 28 consecutive quarters of SSSG, while continuing its expansion efforts.
As a franchisor of Domino’s Pizza, Inc., one of the world’s largest pizza companies, DPC Dash leverages this global strength to execute its 4D strategy, which continues to drive the company’s success in the underserved China pizza market.
DPC Dash has continued to execute its “go-deeper, go-broader” strategy, as DPC Dash added 146 stores and entered 4 cities in the first half of 2024. Total stores reached 914 across 33 cities as of June 30, 2024. This represents more than an eightfold increase in store numbers since the current management took over in 2017.
Newly-opened stores have been delivering exceptional performance. In the first half of 2024, revenue generated from new growth markets accounted for 61% of the total revenue, making new growth markets the Company’s main growth driver. Store numbers in the new growth markets exceeded 50% of all stores. At the beginning of May, DPC Dash expanded its presence by entering three new cities: Taizhou, Huizhou, and Jinhua in one week. The first stores in Huizhou and Jinhua both broke the DPC Dash record for daily sales. In June, DPC Dash celebrated the grand opening of its 900th store in Chengdu, Sichuan. As of July 31, 2024, DPC Dash held 28 of the top 30 positions for first 30-day sales among Domino's stores globally. In newly entered markets, DPC Dash continues to expand its presence with more stores opening, while maintaining strong performance in existing stores. Among 42 stores the Company opened in 12 new cities from the late December 2023 through the first half of 2024, 18 stores have already achieved payback. The Company is expecting a shorter payback period on new stores than previously, reflecting the efficiency of its expansion strategy.
A McKinsey report identifies several key trends shaping consumer behavior, including a notable rise in engagement among younger consumers, especially in lower-tier cities where confidence remains relatively high. This demographic is more inclined to explore new dining experiences and local cuisines, providing restaurants with opportunities to innovate and attract this growing market segment. The newly-opened stores of DPC Dash in new markets have enjoyed great popularity, with people forming long lines at new locations. In response, DPC Dash actively suspended delivery services for selected new stores to cater to the high demand for in-store dining.
Long queue in front of Domino‘s Pizza store in China Mainland
DPC Dash has continuously innovated its product offerings and services at value to better serve customers’ evolving tastes and provide satisfying dining experience. Domino’s Pizza has established a global reputation for tasty pizza products and very innovative menus. The company introduces new stock keeping units (SKUs) every six to eight weeks, on average. In the first seven months of 2024, DPC Dash introduced three new pizza varieties and two new crust options, such as barbeque pork stuffed crust and coconut and pumpkin double decker.
Now the menu boasts over 30 pizza varieties and approximately 20 crust options, with pizza sales contributing more than 75% of the total sales. DPC Dash recently launched the new Volcano crust, filled with oozing cheddar cheese magma and Oreo crumbs. This unique concept in the pizza industry has already garnered positive feedback and recognition from the customers.
Volcano Crust from Domino’s Pizza China
At the same time, DPC Dash has been offering value options on its menu with regular promotions on “Crazy Tuesday & Wednesday” and the “Mega Weeks”. Limited-time promotions partnering with popular brands cross sectors, such as Tencent Games and Hello Kitty, have also proven attractive to customers.
Meanwhile, brand marketing activities have become more targeted and cost-effective as the company strengthened its brand through network growth and strong performance in newly-entered markets. The Company has continuously enhanced its offering of personalized rewards, improving both new customer conversion and existing customer retention. As of August 2024, DPC Dash’s loyalty program has surpassed 20 million members, nearly doubling from 10.9 million members in June 2023. The Company continue to drive customer engagement, attracting new customers by dynamically engaging them through multiple online channels.
To cater to the surging demand, DPC Dash has set up central kitchens in Sanhe, Shanghai and Dongguan. In the central kitchens, the Company has already introduced automated machines to further boost production efficiency and management capability, as well as to improve delivery efficiency.
The success of the 4D strategy execution is reflected in enhanced profitability metrics on both store and group levels. The store-level operating profit margin increased to 14.5% in the first half of 2024, up from 13.5% in the same period last year. The store-level EBITDA margin increased to 19.3% in the first half of 2024, up from 18.7% in the first half of 2023. At the group level, group adjusted EBITDA reached RMB233.4 million, representing an 83.7% year-over-year increase from 127.0 million in the first half of 2023. Accordingly, group adjusted EBITDA margin rose to 11.4%, nearly tripling from 3.9% in year end of 2021.
In addition to serving consumers, DPC Dash remains committed to delivering long-term value to its shareholders. Only one year after its successful listing on Hong Kong Stock Exchange, DPC Dash has been officially included in both the Shanghai-Hong Kong Stock Connect Program and Shenzhen-Hong Kong Connect Program, and has been selected to be a constituent stock for the Hong Kong Hang Seng Composite Index, effective in September.
Reuters reported on September 27, "China stocks record best week since 2008." The New York Times stated, "The volatile Hang Seng Index in Hong Kong, which includes a range of companies with activities in Hong Kong and in mainland China, was also up 12.8 percent this week." DPC Dash's stock has experienced substantial growth since its IPO, increasing by over 20% in the past ten trading days as of September 27.
DPC Dash has announced plans to open approximately 240 new stores in 2024, and will open its 1000th store in the fourth quarter of 2024. As of August 20, 2024, the Company has opened an additional 31 stores, with 29 stores under construction, and 21 stores signed, putting it on track to meet its full-year opening target. The company expects to open approximately 300 to 350 stores in both 2025 and 2026.
The early months of 2024 have shown a remarkable 12.5% increase in foodservice sales, indicating a robust recovery in the hospitality sector, according to a report from McKinsey & Company. This surge reflects increased consumer confidence and a return to dining out as pandemic restrictions ease, suggesting that consumers are willing to spend more on experiences such as dining, which is crucial for the restaurant industry.
Amid the attractive, growing market with its vast geographical scope and population, companies are striving for profitability and growth that requires more stable and resilient strategies. DPC Dash will continue to execute its 4D strategy in an efficient manner, aiming to deliver delicious pizza at value to customers, and sustainable long-term value for all stakeholders.
