Pizza Hut franchisee NPC International Inc. warned that the “sales environment remains extremely challenging" even while reporting higher profit and positive same-store sales for the first quarter.
The Overland Park, Kan.-based operator of 1,147 Pizza Hut restaurants said same-store sales grew 10.2-percent in the first quarter, helping to fuel a 57.1-percent spike in net income to $9.5 million, compared with profit of $6.0 million a year ago. Total sales grew 13.8 percent to $264.5 million for the March 30-ended quarter.
Jim Schwartz, NPC's chief executive and president, cited Pizza Hut’s “$10 Any Pizza” promotion as largely responsible for “our successful first quarter top-line results.”
He had projected the double-digit increase in first-quarter same-store results in March, suggesting that a sales turnaround might be in the works for the 7,500-unit domestic system of Pizza Hut, which a month later reported a 5-percent bump in same-store sales for the first quarter after suffering from negative sales trends throughout 2009.
“We believe that the best path forward for NPC and the [Pizza Hut] brand is to maintain a simple marketing message that addresses value head-on,” said Schwartz, who at times in 2009 had been critical of Pizza Hut system marketing.
Referring to Pizza Hut’s pasta products and the chicken wings available at many of the chain’s restaurants with co-branded Wing Street operations, Schwartz added: “This strategy leverages our menu variety and innovation in a way that keeps the brand and category fresh and beats competition with an arsenal of innovation and new occasions for our customers.”
NPC reported several improvements to the company’s balance sheet but noted that discounting had pushed the quarterly cost of sales to 30.1 percent of net sales, compared with 26.8 percent in the first quarter of 2009.
Aggressive discounting in the pizza segment is not only pushing cost of sales higher at some chains, but also beginning to damper same-store sales at others. Papa John’s International Inc. last week reported a 1.6-percent decline in same-store sales at company units for the first quarter, and said that higher customer traffic “was more than offset by a decrease in average ticket spend as we increased discounting in response to the competitive environment.”
At NPC, higher cost of sales and other rising expenses were offset by the leverage of higher sales on fixed and semi-fixed costs, tighter labor controls and the elimination of more than $1 million in general and administrative expenses, the company said.
NPC said its debt decreased by $31.3 million during the quarter to $402.4 million, lowering its leverage ratio to 4.12 times consolidated earnings before income tax, depreciation and amortization, or EBITDA. That compares with a ratio of 4.51 at the end of fiscal 2009 and the leverage ratio maximum of 4.75 contained in its borrowing covenants, the company said.
Contact Alan J. Liddle at [email protected].