Bankrupt Pizza Hut Operator NPC to Close up to 300 Stores

    Most of the closures will be dine-in units. 

    Finance | August 2020 | Ben Coley
    Pizza Hut pizza on a wooden table.
    Pizza Hut
    Pizza Hut franchisee NPC International will close up to 300 locations.

    Pizza Hut operator NPC International, which declared bankruptcy in July, reached an agreement with the pizza chain to permanently close up to 300 stores as it launches a sales process for its Pizza Hut business.

    NPC entered bankruptcy with more than 1,200 Pizza Hut locations. Most of the potentially closing units are dine-in, which is in line with Pizza Hut’s ongoing strategy to move toward off-premises. The operator said no decisions have been made about which restaurants will close or the timing of the shut downs. 

    “The agreement with Pizza Hut follows an extensive analysis that the parties conducted of its entire Pizza Hut portfolio to best position NPC’s Pizza Hut business for long-term success, and has the support of the ad hoc group of NPC’s first lien lenders,” NPC said in a statement. 

    “ … The optimization of NPC’s Pizza Hut restaurant footprint is expected to increase the potential value that could be generated from the Pizza Hut business, either through the sale path, or if value is not maximized through such effort, through a standalone plan of reorganization, and possibly through a hybrid of the two options.” 

    NPC, also the operator of nearly 400 Wendy’s units, weighed restructuring options even before the COVID pandemic. The franchisee went into bankruptcy proceedings with $903 million in debt and negotiated a restructuring agreement with 92 percent of first-lien lenders and 17 percent of second-lien lenders. 

    That agreement also "provides for certain milestones that contemplate a sales process for the company's Wendy's business as well as a potential sale of the company's Pizza Hut business.”

    In the court filing, NPC attributed the bankruptcy to its Pizza Hut franchises seeing a huge drag on profitability because of a lack of sales growth, volatility in the commodities market, and increased labor pressures. The company blamed the lack of sales growth to loss of market share, ever-expanding optionality of pizza restaurants, pricing pressures, reduced traffic, and certain barriers specific to Pizza Hut. NPC noted that Pizza Hut’s turnaround efforts have put it in a difficult financial position. 

    Pizza Hut said that if NPC sells its Pizza Hut business, the chain will ensure new ownership brings a strong capital structure, healthy balance sheet, commitment to operational excellence, and a growth mindset.

    “We have continued to work with NPC and its lenders to optimize NPC’s Pizza Hut restaurant footprint and strengthen the portfolio for the future, and [Monday’s] joint agreement to close up to 300 NPC Pizza Hut restaurants is an important step toward a healthier business,” Pizza Hut said in a statement. “Closing these restaurants, which significantly underperform the rest of NPC’s Pizza Hut system, will strengthen NPC’s portfolio, resulting in the reallocation of employee resources to thriving locations across the business where possible.”

    Pizza Hut’s U.S. same-store sales grew 5 percent in Q2. The domestic off-premises channel generated 21 percent comps growth when excluding closed Express units. Additionally, the chain witnessed its highest average sales week for delivery and carryout in the past eight years during May.