Cost of being acquired eats into Pizza Hut franchisee's profits

OVERLAND PARK Kan. Despite a 5.4 percent revenue increase driven by new restaurant acquisitions and increased same-store sales, NPC International Inc., the operator of 873 franchised Pizza Hut units, reported a 97-percent drop in fourth-quarter profit, mainly because of increased interest expenses and other costs related to its May 2006 acquisition by Merrill Lynch Global Private Equity.

For the quarter ended Dec. 26, NPC earned $395,000, compared with a profit of $13.6 million in the year-earlier fourth quarter. The company's interest expense in its latest quarter more than doubled from a year earlier to $9.4 million. In addition, NPC's gain on the sale of assets dropped in its latest quarter to $171,000 versus a gain of $3.9 million a year earlier.

Total sales increased 5.4 percent to $158.7 million, helped by the purchase of 39 Pizza Hut units early in the quarter and a 1.1-percent same-store sales increase. Subsequent to the quarter's end, NPC purchased an additional 59 restaurants for $27.1 million.

For the full year, NPC reported a net loss of $2.7 million compared with a profit of $47.3 million for fiscal 2005. The company's latest-year net income included $24.3 million of expenses related to the acquisition of the company, and increased interest expense of $14.4 million associated with the related financing. Fiscal 2006 sales rose 1.0 percent to $618.3 million, the company reported. Same-store sales remained unchanged from the year earlier.