Bankrupt Pizza Hut and Wendy’s franchisee NPC International has given itself multiple options on how it will emerge from bankruptcy, including a $725 million sale of its whole business.
NPC is hoping to fetch at least $400 million for its nearly 400 Wendy’s units and at least $325 million for its Pizza Hut locations—a footprint that once covered 1,200 locations, but could see the closure of up to 300 underperforming stores.
The plan is to sell the assets separately or combined. If NPC does move forward with a sale, it will establish a wind down company and appoint a plan administrator to effectuate the wind down.
If NPC chooses not to pursue a sale, or only part of the business is sold, the bankruptcy plan allows for a switch to a comprehensive restructuring plan of its balance sheet and “significant investment of capital tailored that will strengthen the Debtors by substantially reducing their debt and increasing their cash flow on a go-forward basis.” This includes a reduction of funded debt ranging from $753 million to $903 million and a money rights offering to raise $150 million.
NPC filed bankruptcy on July 1, citing a drop in profitability from its Pizza Hut business because of labor pressures, a lack of sales growth, volatility in the commodities market, loss of market share, pricing pressures, reduced traffic, and more. In the court filing, NPC said many of the pressures were exacerbated by the COVID pandemic.
In August, NPC—the largest Pizza Hut franchisor in the U.S.—reached an agreement with Pizza Hut to close up to 300 stores, most of which are dine-in units. Pizza Hut wants to move toward off-premises and further away from dine-in, a strategy in which some franchisees like NPC have struggled. The closure of the stores is meant to increase the potential value either through a sale or standalone plan of reorganization.
When looking at recent trends, both brands have appeared to overcome the effects of COVID. After a decline early into the pandemic, Wendy’s has performed well throughout the summer. The brand saw domestic same-store sales grow 5.1 percent in June and 8.2 percent in July. Pizza Hut’s U.S. comps grew 5 percent in Q2, and the off-premises business generated 21 percent comps growth when excluding closed Express units. In early May, U.S. Pizza Hut locations recorded their highest delivery and carryout average sales week in the past eight years.