NPC International Inc., the largest franchisee in the Pizza Hut system, has not yet seen sales increase from the brand’s November “Flavors of Now” relaunch, the operator said Monday.
NPC executives said during a call discussing earnings for the fourth quarter ended Dec. 30 that revenue still lagged after the “Flavors of Now” debut, with same-store sales falling 3.5 percent during the quarter and decreasing 3.7 percent for the year.
“Unfortunately, the new ‘Flavors of Now’ positioning did not deliver the sales momentum that we had anticipated,” said Jim Schwartz, president and CEO of Overland Park, Kan.-based NPC, which operates 1,277 Pizza Hut restaurants and 143 Wendy’s units.
The Pizza Hut relaunch included premium ingredients, lower-calorie offerings, more toppings and customizable features like drizzles. Parent company Yum! Brands Inc., based in Louisville, Ky., said it was the biggest change in the chain’s more than 56-year history.
While Schwartz said the NPC team was “bullish” on the Pizza Hut positioning, he added that, “we have to get the messaging right and continue to focus on getting the information to the consumer, as well as bringing value and innovation to the category.”
Schwartz said “Flavors of Now” gives the brand a position to better leverage Millennial consumers, a main consumer demographic in the pizza category.
“This positioning also has demonstrated positive benefits,” he said. “In fact, consumers who have tried our new flavors have a higher propensity to return to Pizza Hut when compared to those who have not tried the new flavor options.
“However,” he said, “it is clear we need to increase the awareness of the positioning and the related consumer benefits in the marketplace, especially with our core user, in order to achieve the desired result of increased market share and organic sales growth.”
Schwartz said the Pizza Hut corporate team was working on better positioning to balance value and innovation messages.
In addition, Schwartz said digital transactions were accelerating. NPC transacted almost 40 percent of delivery and carryout orders digitally in the fourth quarter, he said, “which is an increase of almost 45 percent over the prior year.”
Schwartz and Troy Cook, NPC’s chief financial officer, noted that the company is seeing “noticeable” commodity deflation and lower energy costs in its Pizza Hut business. Schwartz said that is “benefitting the our margins and mitigating the effect of our continued soft top-line sales results year to date.”
For the full year 2015, NPC expects commodity deflation in its Pizza Hut business of 3 percent to 5 percent. Schwartz said that “is welcome news following two years of compounded inflation of approximately 10 percent.” NPC said it expects commodity inflation in its Wendy’s business of 2 percent to 3 percent.
“Our fourth-quarter results were disappointing, as Pizza Hut’s sales remained soft and commodities and training investments pressured our margins,” Schwartz said.
For the 13 weeks ended Dec. 30, NPC reported a net loss of $72,000, compared with a profit of $5.8 million in the comparable 14-week period of 2013. Revenue rose 2 percent, to $298.1 million, from $292.3 million the previous year.
For fiscal 2014, the company reported net income of $1.7 million, compared with $29.7 million in fiscal 2013. Revenue rose 7.8 percent, to $1.179 billion, from $1.094 billion the previous year.
Privately held NPC International, a subsidiary of NPC Restaurants Holdings LLC, files public financial reports with the Securities and Exchange Commission because of senior note guarantees. It has Pizza Hut restaurants in 28 states and Wendy’s units in five states.
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