Industry News | November 2, 2017 | By Danny Klein | QSR Exclusive Brief

Pizza Hut's Sales Slump is Over

Pizza Hut's reenergized delivery and online efforts are paying off. Pizza Hut
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The slump is over at Pizza Hut. Yum! Brands beat Wall Street expectations Thursday with its third-quarter earnings, thanks in large part to the sales performance of its more than 16,500-unit brand. Pizza Hut’s same-store sales at restaurants open at least a year increased 1 percent, topping the 0.5 percent decline expected by analysts polled by research firm Consensus Metrix. Its sales grew 4 percent in developed markets (Japan, the United Kingdom, and Continental Europe). U.S. sales and emerging markets remained flat. For the year to date, system sales are down 4 percent for Pizza Hut in the U.S.

The positive sales growth, however, is a welcome change from recent results. Pizza Hut posted five consecutive quarters of declining sales coming in, with its comps dropping 1 percent in the second quarter and 3 percent in the first. In May, as U.S. sales plummeted 7 percent, Yum! revealed a $130 million plan to transform the brand.

Some of those initiatives are clearly taking hold.

Added advertising and promotions, as well as the move to make its $7.99 large, two-topping pizzas available for online ordering, are paying dividends. Pizza Hut recently revealed a new “oven hot delivery system” that contains a pouch made with 3M Thinsulate Insulation thermal technology and a pizza box with crisp sheet inserts to deliver pizza 15 degrees hotter to guests. The chain also improved its mobile presence. In August, Pizza Hut launched Hut Rewards, the nation’s only pizza loyalty program that rewards customers with unlimited points for every dollar spent online.

Pizza Hut also said it's not seeing any kickback from the NFL protests Papa John's chairman and CEO John Schnatter said were softening same-store sales.

"We're not seeing any impact from any of that on our business," the company said during an conference call Thursday

Pizza Hut’s move to a more digital, delivery-centric model is helping it gain ground on some competitors. Mainly Domino’s, which has reported sizzling sales in recent quarters, although the third was a bit muted compared to the first couple in 2017.

Yum! opened 192 new international Pizza Huts in the quarter in 47 countries, including 144 in emerging markets.

Overall, Yum! reported third-quarter earnings per share of $1.18, an increase of 115 percent year-over-year. Worldwide system sales grew 6 percent, with KFC reporting strong yet again at 7 percent and Taco Bell rising 6 percent versus the prior year period. The company opened 362 net new restaurants, which represented a 3 percent net unit growth.

"I’m pleased to report another strong quarter with 11 percent core operating profit growth and 22 percent EPS growth excluding special items, as a result of the continued focus on our four key growth drivers. We are maintaining our full-year 2017 guidance and remain on-track with our multi-year transformation strategy,” CEO Greg Creed said in a statement. “As we celebrate both our first anniversary from the spinoff of Yum China and our 20th anniversary as an independent company, I am proud of our accomplishments. I’m especially proud of our ability to leverage our culture to rapidly transform to a more focused, more franchised and more efficient company which delivers more growth to our shareholders.”

KFC’s same-store sales grew 1 percent in the U.S., 2 percent in international developed markets, and 5 percent in international emerging markets. The chain opened 291 new international restaurants in 51 countries, including 249 units in emerging markets, showing KFC’s ability to penetrate new markets around the globe.

Systemwide sales have grown 14 percent in the third quarter in China and 22 percent in Russia. Sales are also up 12 percent in Latin America and 15 percent in Continental Europe. For the year to date, KFC’s sales growth increased 1 percent in the U.S.

There are 21,063 KFC units worldwide.

Taco Bell continued to motor along, opening 70 new restaurants in the quarter to bring its total count to 6,738. In the third quarter, the company debuted 15 new international units. Operating margin increased 3.5 percent points driven by refranchising and same-store sales growth partially offset by food and labor inflation.

Same-store sales growth is up 5 percent year-to-date so far for Taco Bell. That’s a healthy boost from the 1 percent gain it reported in 2016.

Yum! also refranchised 209 restaurants in the quarter, including 72 KFC, 46 Pizza Hut, and 91 Taco Bell stores, generating gross proceeds of $395 million.