Pizza Hut franchisee NPC's 1Q profit rises 46%

Pizza Hut’s largest franchisee, NPC International Inc., reported a 46-percent boost in first-quarter profit despite same-store sales declines in the first quarter.

Executives for Overland Park, Kan.-based NPC told analysts in a Monday morning call that cost savings in restaurant operations and commodities helped the company book net income in the quarter ended March 26 of $13.2 million compared with $9 million in the same quarter last year.

NPC, which is privately held but reports because of publicly held debt, said same-store sales in the quarter dipped 2.2 percent, rolling over an increase of 5.1 percent in the same quarter last year.

Jim Schwartz, NPC’s president and chief executive, said a “sluggish consumer” dominated the quarter for the pizza franchisee.

“The first quarter was challenging as the consumer remained under pressure, and our marketing message did not drive adequate perceived value to compel the consumer to trade with us,” Schwartz told analysts.

Pizza Hut introduced some new items, such as the smaller Big Pizza Sliders, during the quarter, but Schwartz said he was more confident value-oriented consumers would find the current “Living Large” campaign — which offers a large pizza for the price of a medium starting at $8 — would help move the needle for the consumers.

“We’ve got some work to do,” Schwartz said. “We’ve got some work to figure out the better, innovative value messaging in the marketplace, because that’s what the consumer is reacting to today.”

The strongest consumer ordering method in the first quarter was delivery, Schwartz said. “We were a little softer in carry-out, which, as we’ve talked about historically, is traditionally where we see the value consumer,” he said

Troy D. Cook, NPC’s chief financial officer, added that “during the first quarter, our top line was softer than expected as we rolled over a strong comp-sales growth of the prior year while encountering a sluggish consumer who was impacted by higher taxes and delayed tax refunds.”

Despite those headwinds, Cook added, NPC saw cost of sales decrease 20 basis points, or 0.2 percent, from the same quarter last year, primarily due to favorable product mix changes and cost savings initiatives that more than offset higher ingredient costs.

NPC opened six Delco Lite units during the quarter, with 40 expected by year’s end, Cook said. Pizza Hut’s Delco Lite is a smaller delivery-carryout layout that fits into small malls and in-line/end-cap shopping centers.

NPC also completed 15 Wing Street conversions and has an additional 275 targeted for the balance of the year, the executives said.

NPC, a division of Stamford, Conn.-based private-equity firm Olympus Partners, has 1,232 restaurants.

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