Taste Holdings would continue with its operational implementation of Domino’s Pizza stores in South Africa, despite a legal threat hanging over its master agreement licence with the American pizza giant, Taste chief executive Carlo Gonzaga said yesterday.
Gonzaga said Taste was only the second respondent in the legal application brought by a local consortium, which claims to have secured the initial trading agreement with Domino’s Pizza.
He said the group could only reply to these allegations based on Domino’s Pizza’s legal reply, “but for now we have been advised to continue with our operational implementation”.
This would include plans to rebrand the Scooters and St Elmo’s Pizza outlets as Domino’s Pizza stores, “a move that has been welcomed by franchisees”, Gonzaga said.
On Tuesday the company advised its shareholders that certain aggrieved local parties, who had been unsuccessful in previous negotiations with Domino’s Pizza, were objecting to the validity of Taste’s recently secured rights to roll out the US pizza brand locally.
Last month Taste entered into a 30-year master agreement with Domino’s Pizza, which has more than 10 800 stores in about 70 countries, including the US, India, Mexico and South Korea.
Amid these developments, Taste’s share price surged as much as 5.26 percent yesterday as it released annual results that pleased investors.
The group’s management reported a 15 percent increase in revenue to R582.7 million for the year to February, while earnings after tax were up 23 percent to R30.3m.
Operating profit increased 16 percent year on year to R49.7m, while the operating margin remained unchanged at 8.5 percent.
Headline earnings a share grew 20 percent to 16c, while the final gross cash dividend rose 22 percent to 6.2c a share from 5.1c last year.
Both divisions contributed to the increase in revenue, with jewellery stores growing turnover 15.4 percent and a similar increase of 15.6 percent in the food division.
In the jewellery division same-store sales in corporate-owned stores increased more than 10 percent for a third consecutive year while system-wide sales in NWJ stores rose 8 percent to R284m.
Gonzaga said Taste had also introduced a credit offering facility underwritten by RCS.
“This has attracted new customers and substantially larger spend per transaction than traditional cash-based business, albeit with credit customers accounting for less than 10 percent,” he said.
Gonzaga was particularly pleased with the company’s food distribution and manufacturing brand, Buon Gusto, turning a profit after reporting losses in the previous year.
“We have better margin control and have improved on efficiencies. For an example, we managed to cut down on a number of trucks we use for distribution and we have moved our sauce plant from Cape Town to Johannesburg. These ideas have helped to save.”
Gonzaga said Taste’s low-market offering had taken strain in the past six months.
“Lower LSM consumers [are] still under a bit of pressure; we are not immune from that and this has impacted on our Fish & Chips and Zebro’s Chicken stores. We saw sales dropping significantly in the second half of the year and had to pull back on some store numbers and openings.”
Taste shares closed 3.98 percent higher at R3.98 yesterday.