Domino’s China IPO sprints again: it wants to open another 300 stores within two years, and it is expected to lose at least another three years

After the prospectus, which was first submitted in March this year, has recently expired, Domino’s Pizza’s exclusive master franchisee in China, Das, plans to sprint for an IPO again.

On the evening of October 14, DPC Dash Ltd (DPC Dash Ltd, referred to as “Dash Shares”) once again submitted a prospectus to the Hong Kong Stock Exchange.

To be a stake in Dase, “China’s premier pizza company”, the number of stores has increased by 1.7 times in more than 3 years. As of June 30, 2022, Dase has a total of 508 stores, and its revenue has increased from 837 million yuan at the end of 2019 to 1.611 billion yuan in 2021. In the first half of 2022, its revenue was 909 million yuan, but Dase shares in the reporting period. It has not yet made a profit within three and a half years, and the adjusted net loss has accumulated to nearly 600 million yuan.

In three and a half years, the number of stores has increased by 1.7 times, and 300 new stores are planned to be opened this year and next year.

Pizza, also known as pizza, is a food that originated in Italy and is very popular around the world. Domino’s Pizza is the world’s largest pizza delivery company. According to the official website, in 1960, American college student Thomas Mona and his brother James bought DomiNick’s, a pizzeria, for $900. Five years later, the company changed its name to Domino’s Pizza.

After 62 years of development, Domino’s Pizza has more than 19,200 stores in more than 90 markets around the world, featuring affordable pizza and fast delivery, with the slogan of “30-minute delivery”.

In the capital market, Domino’s (NYSE: DPZ) was once called “the first odd stock in the universe” by netizens. Since the U.S. stock market went public in 2004, the stock price has more than doubled in the past decade. Today, Dase Co., Ltd. claims to be “China’s premier pizza company”.

Domino’s Pizza first entered China in 1997. Dase was established in 2008, and at the end of 2010 acquired Pizzavest China Ltd (the general franchisee of Domino’s Pizza in Beijing, Tianjin, Shanghai, Jiangsu and Zhejiang provinces at that time) and became the general franchisee of Domino’s in China .

Dase shares expanded slowly after taking over Domino’s China business, and did not open its first store outside Beijing and Shanghai until 2016.

2017 was a turning point for Dase, when former McDonald’s China executive Wang Yi joined Dase as CEO. Under Wang Yi’s rule, Dase shares restructured and renewed the contract with Domino’s Global, and expanded the franchise scope to the whole of mainland China, Hong Kong, China and Macau, China. Since then, it has become “Domino’s China” and embarked on a road of scale expansion.

From January 1, 2019 to June 30, 2022, the number of stores of Dase increased by 1.7 times to 508, of which about 56% of the stores were located in Beijing and Shanghai. In addition, Dase has established three central kitchens in Shanghai, Sanhe City, Hebei Province, and Dongguan City, Guangdong Province. These three areas have also become the main areas for Dase to expand.

For the purpose of fundraising, Dase shares said that it plans to use part of the funds for store expansion, and plans to open 120 and 180 new stores in 2022 and 2023, respectively. The prospectus disclosed that in the first half of 2022, Dase will add 40 new stores.

Under the direct sales model, Domino’s has not been slow to expand in recent years. Compared with Le Caesar Pizza, which started with “durian pizza”, it is also directly operated. Le Caesar Pizza, which was established in 2010, said it currently has more than 140 stores.

But Domino’s still struggles to catch up with competitors that rely on direct sales and franchises to expand rapidly. Yum China’s (09987.HK) 2022 interim results show that Pizza Hut has more than 2,700 stores in China; the official website of local brand Zumbo Pizza shows that its number of stores exceeds 2,000.

In fact, there are financing blessings behind the expansion of Dase shares all the way. Since its establishment, Dase has completed 10 rounds of financing. Before 2020, Dase has raised more than 90 million US dollars. Since 2020, Domino’s has also continued to invest in this Chinese franchise. In May 2020, Domino’s Pizza invested US$40 million in Dase shares, and added an additional US$40 million and US$9.1 million in January and December 2021, respectively.

Before Dase shares knocked on the door of listing, the company’s controlling shareholder Marshall held 37.28% of the shares through Good Taste Limited, a family trust, and Domino’s held the largest share of pre-IPO investors through Domino’s Pizza LLC, reaching 15.66%. The directors and other core related persons of Dase Holdings hold a total of 5.32% of the shares, of which, Chairman Frank Paul Krasovec directly holds 2.25% and indirectly holds 0.11% through FPK Dash LLC; Wang Yi holds 0.86% through Molybdenite Holding Limited %.

Loss of nearly 600 million yuan in three years, it is expected to lose at least another three years

In the prospectus, Dase shares quoted Frost & Sullivan’s report that it has become the fastest growing company among the top five pizza brands in China, and the third largest pizza company in China in terms of sales revenue in 2021.

From 2019 to 2021, Dase’s revenue was 837 million yuan, 1.104 billion yuan, and 1.611 billion yuan, respectively. In the first half of 2022, the revenue of Dase shares increased by 18.6% year-on-year (compared to the same period of the previous year) to 909 million yuan, and the Beijing and Shanghai markets contributed more than 60% of the revenue.

The latest prospectus of Dashi shares according to the market’s revenue

Despite the rapid growth in the number of stores and revenue, Dase has not yet achieved profitability during the reporting period. From 2019 to the first half of 2022, Dase shares recorded net losses of RMB 182 million, RMB 274 million, RMB 471 million and RMB 95 million respectively; adjusted net losses were RMB 168 million, RMB 199 million, RMB 143 million and RMB 83 million respectively. 593 million yuan has been “burned” in three and a half years.

Among them, of the net loss of 471 million yuan in Dashi shares in 2021, 201 million yuan is the loss included in the loss caused by the change in the fair value of convertible preferred ordinary shares. In 2020, this part of the loss is 13.93 million yuan, and in the first half of 2022, this part of the loss is 1.07 million yuan.

Profit/loss of Dase during the reporting period Latest prospectus of Dase

Dase shares pointed out in the prospectus that it has invested a lot of resources in researching potential new markets, opening more stores and central kitchens, marketing and promoting brands, investing in equipment for the establishment and operation of more new stores, and training store-level staff, etc. It recorded a net loss during the reporting period.

Dase pointed out that it plans to improve the underlying profitability at the group level by increasing revenue while reducing costs and expenses. However, Dase shares also admitted that it is expected to continue to record losses for at least the next three years.

It is worth noting that Dase shares, while expanding rapidly, takes same-store (open for at least 18 months) sales growth as a key performance indicator to measure the operation level of existing stores.

From 2019 to 2021 and the first half of 2022, the overall same-store sales growth rate of Dase shares was 7.3%, 9.0%, 18.7% and 13.9%, respectively, and said that it recorded positive same-store sales growth in each quarter of the reporting period. . Among them, as a new growth market (excluding key cities including Beijing and Shanghai) that Dase shares will focus on in the future, the year-on-year growth rate of same-store sales in 2020, 2021 and the first half of 2022 will be 18.0% and 37.7% respectively. , 22.1%.

At the same time, since 2021, Dase’s profitability indicators at the store level have also increased. From 2019 to 2021 and the first half of 2022, Dase’s store-level operating profit margins were 4.4%, 4.0%, 9.2% and 9.2%, respectively; store EBITDA (earnings before interest, tax, depreciation and amortization) profit margins were 10.6%, 10.6%, 15.0% and 15.2%.

The same-store sales performance of Dase Shares Latest Prospectus of Dase Shares