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Pizza Hut franchisee expects customer shift to carryout as gas prices rise

NPC: Savings from fewer deliveries may help offset rising fuel costs

As gasoline prices continue to rise, Pizza Hut’s largest franchisee said its delivery-oriented restaurants expect to see more consumers picking up their orders.

That shift from delivery to carryout could help NPC International Inc., which operates 1,135 stores Pizza Huts, save on the reimbursements for delivery drivers, which are adjusted monthly as gas prices rise, the Overland Park, Kan.-based company said Friday.

“Our history tells us that traditionally when gas prices get high, our consumers want to slide into carryout mode,” Troy D. Cook, NPC’s executive vice president and chief financial officer, said during a conference call to discuss first quarter results.

“There’s a natural kind of hedge in our business against higher gas prices,” he said, “because the consumer says, ‘I don’t want to pay the tip to the driver, because I’m feeling squeezed on disposable income due to the higher gas prices, and I don’t want to play a delivery charge. So I’ll drive into that carryout access mode.”

Amid the heightened economic uncertainty in last year’s first quarter, for example, Cook said NPC’s carryout sales increased 39 percent.

“You expect to see the carryout access mode grow at a greater rate per se than our delivery access mode if fuel continues to be an issue,” he added.

Cook and Jim Schwartz, NPC’s president and chief executive, spoke with analysts Friday after the company reported essentially flat profit of $9.5 million for the first quarter ended March 29. Sales in the quarter slipped 5.1 percent, to $239.6 million from $252.6 million last year.

Same-store sales decreased 4.7 percent, compared with an increase of 10.2 percent in last year’s quarter, when same-store sales were boosted by the $10 Any Pizza promotion, Schwartz said. Severe winter weather also affected same-store sales in this year’s first quarter by about 1 percent, Cook said.

Pizza Hut promotions during the quarter like the Big Dipper pizza and the $10 Any Pan Pizza helped, Schwartz said, but “they were not successful in lapping the prior year’s strong sales growth in the face of aggressive competition tactics, extreme weather conditions and economic consumer headwinds.”

NPC executives addressed other issues affecting the company’s business, including:

Rising commodity costs: NPC executives described rising food costs as “manageable,” saying they expected increases of 3 percent to 4 percent for the rest of the year. “When you look at our commodity basket, though, we are not anticipating that cheese will be the major driver of our commodity pressure this year,” Cook said. “Most of that pressure for us, for our basket, is coming for dough and meat, dough probably being the greatest inflationary item we’re facing.”

Margins for the rest of year: NPC executives said they expect margins to improve throughout the rest of the year, compared with last year, which featured several value-heavy promotions. “Last year was about building the top line, re-engaging the consumer. We went heavy on value,” Schwartz said. “We’re still dedicated to value, you clearly have to be in this space at this point in time, but I think we are finding a better equilibrium point with the consumer where we can improve our margins and do it in a much profitable way than we did in 2010.”

Stuffed-crust promotion 'right on target': Pizza Hut’s Ultimate Stuffed Crust pizza, a limited time pie starting at $12.99 with three toppings, was introduced five weeks ago. “It’s right on target from an expectation standpoint in terms of mix, traffic and consumer reaction to it,” Schwartz said.

NPC International operates Pizza Hut locations in 28 states.

Contact Ron Ruggless at [email protected]

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