NPC CEO sees consumer ‘skittishness’NPC CEO sees consumer ‘skittishness’

Consumers are displaying some skittishness in their restaurant spending, Jim Schwartz, CEO of NPC International Inc., said Monday.

Schwartz said the Overland Park, Kan.-based company, which franchises the Pizza Hut and Wendy’s brands, saw increased promotional discounts among restaurants in April.

“With respect to the consumer, I would probably signal some cautionary overtones,” Schwartz said in an earnings call with analysts. “We are seeing the consumer behave a little bit more purposeful in their transactions.”

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Schwartz said the pizza and burger brands are well positioned with value-oriented offerings, such as Pizza Hut’s $5 Flavor Menu and Wendy’s 4 for $4 offers.

For the first quarter ended March 29, NPC posted same-store sales increases at its Pizza Hut restaurants of 4.1 percent and at its Wendy’s units a rise of 2.4 percent.

But April sales produced some cautionary signals, Schwartz said.

“We definitely are seeing some, frankly, just some overall skittishness by the consumer at this point in time, and we are watching that very closely,” he told analysts.

Schwartz said NPC had formalized in mid-April a long-term asset initiative with Pizza Hut to amend franchise agreements, calling for every restaurant in the system to remodeled over the next 10 years. As noted in a March earnings call, the company will be converting a number of dine-in Pizza Hut units to the “more efficient” delivery, carry-out — or Delco — stores.

March story:
http://nrn.com/quick-service/pizza-hut-franchisee-moves-away-dine-units

“Priority will be given to the oldest and least maintained restaurants in the system,” Schwartz said.

The scope of the work and investment will vary depending on population density and asset condition. The estimated costs of the remodels range from $175,000 to $400,000 for a dine-in restaurant and $50,000 to $150,000 for a delivery and carry-out restaurant, he said.

Delivery and carry-out units now represented about 45 percent of NPC’s Pizza Hut store base at the end of 2015, and the company wants to migrate that to at least 85 percent by 2025, Schwartz noted.

In the next five years, NPC plans to convert 220 dine-in restaurants to the delivery and carry-out model, pushing the number to about 75 percent, Schwartz said. About 70 stores will be closed, sacrificing the lower volume dine-in business, he said.

Troy Cook, NPC’s chief financial officer, said the company might choose to speed up the conversions were it not for long-term leases on many properties.

“One of the things that is a great limiting step for us is that a vast majority of our assets, 95 percent and greater of assets, are leased,” Cook said.

“One of the things we’ve got to do is the rather delicate dance around leases expirations and balance that with what our requirements are under the plan,” Cook said.

For the first quarter, NPC reported net income was up 54 percent, to $7.6 million from $5 million in the same period a year ago. Sales were up 3.3 percent, to $319.5 million, from $309.2 million in the prior-year period.

“Our margins benefitted from a favorable commodity environment and more than offset the labor cost associated with a higher mix of more labor intensive delivery transactions,” Schwartz said in a statement.

NPC is a subsidiary of NPC Restaurant Holdings LLC, which releases earnings quarterly because of outstanding senior notes. The company owns 1,241 Pizza Hut units in 27 states, making it that brand’s largest single franchisee, and 146 Wendy’s units in five states.

Contact Ron Ruggless at [email protected]
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