Pizza Hut franchisee's 2Q same-store sales fall 5.6%

NPC International Inc. said same-store sales at its Pizza Hut restaurants decreased 5.6 percent in the July 1-ended second quarter, but executives said they were confident in the franchisor’s efforts in advertising and digital to help stem the sales dips.

Overland Park, Kan.-based NPC, which is Pizza Hut’s largest franchisee, and has also been adding franchised Wendy’s units, generated a net loss of $1.4 million in the quarter, compared with net income of $8.1 million in the same period last year. Revenue rose 9.1 percent, to $285.9 million, from $262 million in the prior year period.

Same-store sales at Pizza Hut units in NPC’s system rolled over a 3.7-percent decrease in the same quarter last year, according to the company, which is a subsidiary of NPC Restaurant Holdings LLC, but reports quarterly earnings because of publicly held senior notes.

“Our second quarter was an extremely difficult and, frankly, disappointing quarter for our Pizza Hut business,” NPC president and chief executive Jim Schwartz told analysts on a call Monday.

“We continue to work very closely with the leadership team at Pizza Hut on revised advertising positioning and related innovation,” Schwartz added.

“This revised positioning is designed to better connect with the Millennials while improving the brand’s overall relevancy, as well as improving our overall digital access,” he said.

In a May call, Schwartz said Pizza Hut’s digital strategy was lagging in innovation. But on Monday, he said the brand was making inroads in both digital and advertising.

“The promotions we’ve had recently really focused around one of our key product innovations, which is Cheesy Bites,” Schwartz said. “That has been a terrific promotion for us this quarter. And we have coupled that with providing the consumer access to value through our online or digital channels, which is becoming a much greater part of our business as well as the category’s business.”

Pizza Hut currently has two online-only deals: the $11 Any Pizza and the large $7.99 two-topping pizza, Schwartz said.

“So balancing innovation that can be accessed through all of our order channels, like Cheesy Bites, and then providing additional value opportunities for the consumer when you order online seems to have improved our overall trends,” Schwartz said, compared with past years, when discounting was more prevalent.

Schwartz said NPC has been working with Pizza Hut, which is based in Plano, Texas, and is a division of Louisville, Ky.-based Yum! Brands Inc., to focus on improving Pizza Hut’s digital and marketing presence.

Commodity cost increases in the quarter also pressured the bottom line, NPC executives said.

NPC’s second quarter was marked by “a soft top line and significant ingredient inflationary pressures, primarily in meats and cheese,” said NPC chief financial officer Troy D. Cook. “These factors conspired to significantly pressure our margins relative to our prior year.”

Commodity inflation in the quarter was more than 6.5 percent, Cook added.

Cook said the Wendy’s business was “strong.” Wendy’s revenue in the quarter was $33 million, or 12 percent of NPC’s overall sales. On July 14, NPC completed the purchase of an additional 56 Wendy’s units, mostly in North Carolina.

Year to date, NPC has made $35 million in capital expenditures, much of that going to what Cook called “the aggressive rollout of WingStreet across our system.” The Yum-owned wing brand is now in about 1,000 locations, or about 82 percent of NPC’s Pizza Huts units, he said.

At the end of the quarter, NPC operated 1,265 Pizza Hut units in 28 states and 145 Wendy’s locations in five states.

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