hotsauceman

Will Consumers Be Heading to Restaurants Anytime Soon?

I think the "leveling" is not statistically significant and not enough to signal any turnaround. With unemployment figures up the near future is anything but encouraging.


On Apr 05 10:45 AM stronzo wrote:

> Dominos Pizza Europe - House of Cards ?
> Openings and sales are progressing well but behind the fanfare things
> are not as rosy as they seem at Dominos Pizza Europe ... the franchisees
> can't pay their bills!
> The annual report 2007 shows trade receivables at the consolidated
> level (almost exclusively food and royalties from franchisees) of
> A$27 million, or about 49 days on Revenues of A$200m (see attached).
> This does not seem to concern the auditors who attest (note 7) that
> "the average credit period on sales of goods is 30 days". The same
> note reveals however that, since the acquisition of the Europe master
> franchise, consolidated trade receivables has shot up from $5.4m
> to $27m. In comparing the $27m consolidated trade receivables figure
> to the company one (A$7.4m) we must indeed suppose that this difference
> is driven by the Europe acquisition.
> Analysis of the French statutory accounts confirms this. Trade receivables
> in France as at 30/6/2007 stand at 9.498 million (A$15.077 million)
> or 127 days sales (versus €6.747 million 1 A$10.710 million or 116
> days at the end of 2005). Now, a large part of the 2005 receivables
> were either written off or converted into debt, hence the €3325k
> (A$5278k) "other receivables" that we see in 2007. If we therefore
> look at combined trade receivables and other receivables for France
> of €12823k (A$20335k) we arrive 171 days of franchisee debts ...
> just under 6 months! Another way of looking at this is to say that
> the French franchisees owe t equivalent of 3 times the 2007 group
> consolidated operating cash flow of A$ 6.976 million!
> Now, not all Dominos Franchisees in France are unable to pay their
> debts. A number have been around for years and are doing fine. Fine,
> that is, until they have to move to Dominos new contractual terms
> of 6.5% royalty in addition to paying 5.5% national marketing contribution
> to pay for the television campaign which has unfortunately not yielded
> sufficient sales uplift to pay for the investment.
> The bigger problem is the franchisees who are opening new units.
> In addition to paying the 12% of sales on royalty and marketing,
> the sales levels of openings are simply not high enough to pay the
> food (between 25% and 30% of sales for the franchisee, depending
> on the level of price discounting). It is these new franchisees who
> are causing the debts to accumulate ... from A$ 11.8 million at end
> 2005 to A$20.3m as at end June 2007.
> French law requires that payments to food suppliers be made within
> 45 days, which is clearly not the case for many of the French franchisees
> today.
> In addition, the French authorities generally take a dim view of
> big corporations (particularly foreign ones) using their financial
> muscle to attack their small independent entrepreneurs. One can imagine
> the conclusions they will come to when they look at the heavy price
> discounting behind Dominos highly publicised "High Volume Mentality"
> coupled with the rapidly accumulating Franchisee debts.