Here's why Domino's is tanking after posting a record profit

Joe Raedle/Getty Images

Domino’s Pizza posted a 31% increase in first half net profit to $59.7 million as sales soared to a record.

Yet its shares dropped as much as 9% in early trade.

A short while ago, the shares were down 8.6% at $57.5 compared with last year’s high of more than $80.

The reasons are down to challenges with the labour force. A new pay deal is being negotiated, and the company is also facing allegations that staff have been underpaid and that some franchisees were offering Australian residency visas in exchange for large payments.

In short, the market doesn’t appear to be entirely happy with how the company has addressed those questions in its statements today.

Expired wage agreements: Domino’s wage agreements expired almost four years ago and while it negotiates a new one, it has handed voluntary increases franchisees have not been paying weekend penalty rates stipulated in the fast food modern award.

“Further delays to negotiations are not envisaged, but should this occur, Domino’s may provide an additional voluntary increase. We expect the agreement to be finalised by mid-2017,” the company said.

Sunday surcharge: The surcharge has received a mixed reaction from customers, and analysts believe it could crimp Australian same-store sales growth. Domino’s said trading results following the introduction of a Sunday surcharge, to allow for higher wages for employees working on Sunday, were “positive.”

Wage abuse by struggling franchisees in Australia: Domino’s Pizza says it is investigating reports that its franchisees demanded payment from oversees workers to support their visa applications. A Fairfax Media report says the going rate is $30,000 to $150,000 to get a work visa, depending on the nationality and the job at Domino’s. The report also alleges some workers have been underpaid, with incorrect time sheets and overtime worked without payment in claims that echo the underpayments scandal at 7-Eleven franchise stores.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at