Harvey Norman reported FY24 EBITDA down 11% with a drop in Franchising and New Zealand earnings and increase in its property earnings. The company has lost market share in both Australia and New Zealand over the past five years and its EBITDA margin recovery is yet to emerge. We expect New Zealand to remain a headwind in FY25e but Australian earnings should rise slightly. The quality of the FY24 result was low with reduced lease amortisation supporting earnings.

Domino’s 1H24 result revealed mixed information. Same store sales growth momentum has improved early in 2H24e and is an encouraging sign. However, the underlying cost growth for the business looks elevated and franchisee profitability is well below levels that will reignite store openings. While earnings may have troughed, we expect an acceleration in store growth is two years away given such low franchisee profitability.

Domino’s reported network sales down 4% and EBIT down 21% in 1H23. The worrying sign near-term is weak same store sales growth (SSSg) trends persisted into 2H23e and the company has seen a volume reaction to its price rises, limiting its much-needed improvement in system profitability. Our primary concern is the deterioration of franchisee profitability which is trending 30% below recent peaks and at a level that will discourage new store openings.

Domino’s AGM update gave some positive signs about sales trends improving, but also solidified concerns about the challenge in raising prices to cover higher costs. The company is planning for a much better 2H23e, which looks difficult to achieve in our view, particularly given franchisee profitability is falling.