Pizza Hut slump hampers Yum as US fast-food wars heat up

A closed sign hangs on the drive through of a KFC restaurant after problems with a new distribution system in Coalville, Britain, February 19, 2018. — Reuters pic
A closed sign hangs on the drive through of a KFC restaurant after problems with a new distribution system in Coalville, Britain, February 19, 2018. — Reuters pic

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NEW YORK, Aug 2 — Yum! Brands Inc still has to work do on its pizza business.

The dining-chain company saw its quarterly results pulled down by a surprise drop in same-stores sales at Pizza Hut, sending the shares down in early trading.

The parent company of Taco Bell, KFC and Pizza Hut, which split off its China operations in 2016, has tried to revitalize its pizza brand amid stiff competition from rivals Domino’s Pizza Inc and Papa John’s International Inc Yum has been trying to improve the chain’s appeal by embracing delivery, but discounts across the entire fast-food industry are making it difficult to drive growth.

Yum shares slid as much as 3.1 per cent in early trading, even after it beat on profit and revenue. The stock had dropped 2.6 per cent this year through the close of trading yesterday.

Pizza Hut comparable sales fell 1 per cent in the latest quarter, while analysts had projected a 1 per cent gain, according to Consensus Metrix. Globally, Yum’s comparable sales rose 1 per cent, missing estimates for 1.9 per cent growth.

Rival sputters

In an effort to drive a turnaround, Pizza Hut has recently expanded its beer-delivery push, and will look to benefit as some consumers dine less at Papa John’s after its founder and former chairman admitted to using a racial slur. While John Schnatter later apologised and said he was taken out of context, the board and company has made an active effort to distance themselves from him, and Stifel analyst Chris O’Cull has said the brand has been damaged.

In February, Pizza Hut stepped in as the official pizza partner of the NFL, replacing Papa John’s after an earlier controversy over comments Schnatter made about the league’s handling of the national anthem protests.

With Papa John’s mired in controversy, there could be an opportunity for Pizza Hut to find its stride, but the company faces challenges as it tries to update its image to focus more on delivery, according to Jennifer Bartashus, an analyst at Bloomberg Intelligence.

“There’s something about the execution and product innovation that is not quite resonating with customers,” she said.

Delivery push

Earlier this year, Yum partnered with GrubHub Inc to expand delivery across the US Its Pizza Hut president also joined GrubHub’s board. McDonald’s and other chains are heavily pushing delivery as well, including Chipotle Mexican Grill Inc, which has teamed up with DoorDash and Postmates.

Taco Bell’s same-store sales also missed estimates in the quarter, climbing 2 per cent compared to an estimate that called for 2.8 per cent growth. KFC gave parent company Yum a boost, posting 2 per cent growth in same-store sales to beat the 1.9 per cent estimate.

The Yum chains are fighting for customers in an increasingly competitive fast-food market. McDonald’s reported last week that its US same-store sales gained 2.6 per cent, less than analysts had been expected. Executives said that chain is tweaking its new Dollar Menu in the US and trying to add more value meals to better compete in the cutthroat marketplace.

“The competition in the US on value remains very very strong,” Bartashus said. “That’s where KFC and Taco Bell are playing.” — Bloomberg

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