Yum readies for aggressive growth Pizza Hut

Yum stock surges on Pizza Hut performance

Executives confident sales will continue to grow after investments in brand

Yum! Brands Inc.’s stock rose more than 6 percent on Thursday on improving results at Pizza Hut and the company’s better-than-expected earnings performance.

The Louisville, Ky.-based company, which also owns KFC and Taco Bell, said Pizza Hut’s U.S. same-store sales were flat in the third quarter ended Sept. 30. 

That was below the performance of rivals Papa John’s International Inc. and Domino’s Pizza Inc., but it was better than the chain’s performance in recent quarters. Same-store sales in the second quarter declined 1 percent, and fell 3 percent in the first quarter.

Executives on an earnings call expressed confidence that sales could continue to grow in the coming months as the chain’s investments in quality, speed and technology take hold. 

Earlier this year, Yum said it planned to invest $130 million in Pizza Hut as part of a “Transformation Agreement” with franchisees to bolster the chain’s sales. The agreement was modeled after a similar deal with KFC operators in the U.S. that is widely credited with bolstering same-store sales. 

“We’re raising our performance,” Yum CEO Greg Creed said during the earnings call. “They will help keep us competitive in the marketplace.”

The changes include more national marketing and a new delivery pouch the company promised will result in pizza 15 degrees hotter, with a crispier crust, when delivered. Pizza Hut is hiring 14,000 delivery drivers and making other operational changes to improve efficiency. 

Photos courtesy of Pizza Hut

In August, the company unveiled a new loyalty program and is “encouraged by initial trends,” Creed said. 

Still, the investments the company is making in Pizza Hut are expected to take time, and the chain’s U.S. unit count declined 2 percent in the quarter, executives said during the call.

“Do not expect the Transformation Agreement to yield results overnight,” Creed said. “But we do expect improvement over time.”

One thing not affecting Pizza Hut’s sales, at least according to executives: Weak NFL television ratings.

A day after John Schnatter, CEO of Papa John’s International Inc., blamed poor ratings and the controversy over player protests for his chain’s performance, Yum executives said they saw no such issue at Pizza Hut.

“We also love live sport,” Creed said. “We’re not seeing any impact from any of that on our businesses.”

Here are more key points from the earnings call:

Earnings growth

Investors were encouraged by Yum’s earnings growth in the quarter, with global sales improvement at all three of Yum’s concepts.

Earnings per share excluding special items increased 22 percent, to 68 cents per share, a number that bested investor expectations, according to figures from the website Earnings Whispers.

Yum revenue was $1.4 billion, a decline from $1.5 billion reported a year ago. The decline was due to refranchising company locations. Yum said franchisees now operate 95 percent of its 44,000 global locations. 

Same-store sales at KFC worldwide increased 4 percent. Pizza Hut’s global same-store sales rose 1 percent, and Taco Bell’s same-store sales increased 3 percent in the quarter.

KFC delivery

Yum has big plans for chicken delivery around the world. Creed said the company plans to double global delivery sales to $2 billion by 2020.

Executives recently visited China, where delivery is very popular, and were able to get chicken delivered on a train. The order was made via mobile phone and the delivery arrived at the next stop, Creed said.

“I think [Colonel Sanders] knew we were going to do delivery, and so that’s why he made the bucket 60 years ago,” Creed said, referring to the bucket as a good delivery vehicle.

Still, Yum said delivery will be a huge part of KFC’s growth in the future. The chain operates 21,000 locations around the world, and the company said it can grow system sales 7 percent a year.

Delivery represents “a lot of new occasions,” Creed said. Those occasions come with higher average checks than traditional visits. “Both drives system sales,” Creed said.

Taco Bell international. Another area of growth for the company is Taco Bell, which operates 6,738 locations, the vast majority in the U.S. 

But the chain opened 15 international units in the third quarter, and executives said markets outside the U.S. will help the chain grow for years. Yum is targeting India, Brazil, China and Canada for Taco Bell’s growth. 

Contact Jonathan Maze at [email protected]

Follow him on Twitter: @jonathanmaze 

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