Domino's UK cuts profit forecast as labour costs climb, shares plunge 20%

By Yamini Kalia

Aug 5 (Reuters) - Britain's Domino's Pizza Group DOM.L cut its forecast for annual core profit on Tuesday as higher labour costs exacerbated pain from weak customer demand, prompting its shares to slide 20%.

Increases to employers' social security contributions went into effect in April.

"There's no doubt that through National Insurance and all the costs, they definitely are hurting our business...we're talking in the millions," CEO Andrew Rennie told Reuters in an interview.

Rennie added that the company will increase prices relative to the wider market to offset the rise in costs.

The company now predicts underlying core profit to come in between 130 million pounds and 140 million pounds ($173 million -$186 million) for 2025. It previously expected to meet company-compiled market estimates of 141 million pounds to 150 million pounds.

Shares in the company fell as much as 20.2% to 196.2 pence, set to mark their biggest-ever one-day percentage fall.

For the 26 weeks ended June 29, underlying core profit fell 7.4% to 63.9 million pounds.

As firms pass on higher costs to customers, Britons are choosing to be more conservative with their spending. The British Retail Consortium expects food inflation to rise by as much as 6% by the end of the year.

The group, which operates under the umbrella of U.S.-based Domino's Pizza DPZ.O in the UK and Ireland, also saw lower-than-expected store openings in the first half of the year, as its franchisees were wary of opening new stores amid higher staffing costs.

It now expects new store openings to be in the mid-twenties for the year, down from a previous prediction of more than 50.

Analysts said, however, that Domino's UK was faring better than competitors such as Pizza Hut and Papa John's which have shuttered outlets across the country.

($1 = 0.7527 pounds)