The Domino's effect will see marketing spend surge

Domino's Pizza is to triple its marketing spend over the next six months as it looks to grab an even greater slice of the £1 billion pizza delivery market.

The firm, which operates a franchise-based model with 688 stores in the UK, Ireland and Germany, including almost 50 in Scotland, has enjoyed rapid growth in recent years.

First-half results, released yesterday, show like-for-like sales were up 2.4 per cent in the 26 weeks to 26 June, down on the 4.2 per cent growth recorded in the first quarter.

Domino's described it as a "good" performance against the backdrop of a "very tough operating climate", strong year-ago comparatives and a rise in VAT.

The group, which also faces stiff competition from Pizza Hut and the fast-growing Papa John's chain, has stepped up its promotional activity with the launch of television commercials using the "It's what we do" slogan.

It is also sponsoring ITV's Red or Black, a new game show hosted by Ant and Dec in which players will be able to win 1 million on the spin of a wheel.

Chief executive Chris Moore said: "While the first half of the year has been tough, we are delighted that we are still showing good growth in the UK.

"Our marketing spend to the year end will be three times the amount for the second half of 2010 and, combined with some great new products and a heavyweight brand campaign in the coming months, we are very excited about the future."

Pre-tax profit in the half year rose by almost 12 per cent to 19m as the company relied on its long-term contracts with suppliers to offset the impact of rising foodstuff prices. Cheaper boxes also helped offset higher prices for dough and cheese.

Total system sales - those made by franchisees from all stores to the public - lifted 9 per cent to 258.4m, helped by a number of branch openings. Revenues generated via the group's internet operation surged 51 per cent to 85m and now account for more than 40 per cent of the business.

The shareholder dividend was increased by 22.2 per cent to 5.5p.

Over the past 12 months, Domino's opened 60 stores and says it is on track to open another 60 by the end of 2011 with the creation of some 1,800 jobs.

Chairman Stephen Hemsley said: "We have got great plans in place for the second half and, while the economic climate may still be tough, we are in a great place to tackle the challenges head on and deliver another good set of full year results."

Paul Hickman, an analyst at brokerage Peel Hunt, said Domino's had "done well" to maintain positive like-for-like sales in the second quarter. "We are not upgrading, although there is potential for later upgrades, driven by higher marketing spend and lower comparatives in H2", he added, reiterating his "hold" recommendation on the shares.Analysts at Numis Securities, which is advising investors to buy into the stock, said like-for-like sales should gather pace as the additional marketing spend kicks in, including the sponsorship of Red or Black in September.