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Pizza Hut Hampered by Unit Closures, Overly Leveraged Franchisees

Will closing under-performing locations and adding more carryout-focused stores help Pizza Hut overcome their challenges?

Photo Courtesy of NRN.

Pizza Hut closures, dismal results to KFC’s Cheetos Sandwich promotion and charges tied it its Grubhub investment led to third-quarter revenue and profit declines for Yum Brands.

Taco Bell, however, lifted its parent company, once again and reported a 4% increase in same-store sales, driven by two menu promotions: Steak Reaper Ranch Fries and the return of the Triple Double Crunchwrap.

CEO Greg Creed, is “immensely proud” of the progress at Taco Bell and KFC. However, he and Yum President and COO, David Gibbs, also addressed increasing challenges at Pizza Hut.

“There is always unfinished business”, and that includes “consistently enhancing the customer experience by ensuring that we have the best people, technology and assets.

And this unfinished business is probably most pronounced at Pizza Hut U.S,” Creed said.

For the quarter, Yum’s Pizza Hut division reported flat sales. However, the U.S. segment of the brand saw a 3% decline in same-store sales.

Though Pizza Hut has worked to improve food quality and speed of service, the chain continues to face real estate challenges.

Yum said the chain’s transition plan would include closing as many as 500 underperforming stores over the next two years, many of those being legacy “red roof” dine-in locations.

Pizza Hut’s U.S. transition plan, which includes adding more carryout-focused stores, “will introduce some uncertainty in the business performance over the short term” but are necessary for the brand’s long-term success, Gibbs said.

That plan has also been hampered by overly leveraged operators.

“Some franchisees have some debt that makes it hard to relocate those assets and that's where we're working to get the stores in the hands of the right partners that are well capitalized to grow and build the business,” Gibbs said.

“We caution, we could see a continuation of soft sales and unit contraction throughout 2020 in the Pizza Hut U.S. business,” he said.

They are focusing on advancements in e-commerce and data and analytics that will improve both the customer experience and the economics in stores.

In the latest quarter, Yum reported revenue of $1.34 billion, down from $1.39 billion from the same period in 2018. The company said earnings were hurt by a $60 million pre-tax expense tied to its investment in Grubhub.

2019 NRN.

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