With no advance notice, Domino’s cut profit-sharing payments to franchisees in September, despite posting strong profits and high stock prices and spending tens of millions on share buybacks and dividends.
Domino’s franchisees who buy all their food from Domino’s supply chain receive profit-sharing checks from the supply chain operation, but the company surprised franchisees with smaller-than-expected payouts at the end of September. Without notice to franchisees, Domino’s decided to charge the supply chain segment a share of the company’s unexpected insurance expenses in the third quarter. The charge apparently resulted in smaller profit sharing checks.
In a letter to its members obtained by Blue Mau Mau, the Domino’s Franchisee Association board criticized Domino’s for failing to alert franchisees to the reduced payments:
…many Franchisees depend on the checks to reinvest in their businesses and/or to help manage their personal finances. While we understand there are Wall Street related regulations surrounding what can be shared about financial performance, we believe there has to be a better way than learning of the negative impact on the day the checks are processed.
Despite sharing less profit with its franchisees, Domino’s announced it would pay $17 million in dividends for the third quarter, in addition to more than $30 million in the first two quarters. The company also spent $40.1 million on share buybacks in the third quarter. At many companies, buybacks can prop up share prices and increase executive compensation but provide little direct benefit to franchisees.