Pizza Hut's performance warms up

by Monica Watrous
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Performance at Pizza Hut

LOUISVILLE, KY. — Pizza Hut is “starting to turn the corner,” capping its best quarter in three years with same-store sales growth of 2% in the United States, said parent company Yum! Brands, Inc.

Greg Creed, Yum! Brands
Greg Creed, c.e.o. of Yum! Brands

“I’m very encouraged by the start of 2016 for Pizza Hut,” said Greg Creed, chief executive officer of Yum! Brands, during a Feb. 4 earnings call with financial analysts. “I have confidence that you will see us deliver sequential improvement in same-store sales this quarter versus the fourth quarter. And every journey has to start somewhere, and I think that journey started in the fourth quarter of 2015.”

For the fiscal year ended Dec. 26, 2015, Yum! Brands had net income of $1,293 million, equal to $2.97 per share on the common stock, up 23% from year-ago income of $1,051 million, or $2.37 per share. Total revenues fell 1% to $13,105 million from revenues of $13,279 million the year before.

Net income for the fourth quarter advanced to $275 million, or 64c per share, which compared with a loss of $86 million for the prior-year period. Total revenues declined 1% to $3,951 million from $3,997 million.

Worldwide system sales grew 5% for the year and 6% for the quarter.

“Our U.S. results in the fourth quarter were particularly strong for all three brands, as KFC posted its sixth consecutive quarter of same-store sales growth, Taco Bell continued to outperform the category, and Pizza Hut grew same-store sales 2%,” Mr. Creed said. “These successes complemented our international results in the quarter, where KFC posted 2% same-store sales growth with solid results in both emerging and developed markets, and Pizza Hut grew same-store sales 3% in emerging markets.”

During the year, Yum! opened more than 2,300 units globally, and executives expect to open nearly 2,400 this year, which translates to more than six restaurants a day, Mr. Creed said.

Pizza Hut division operating profit for the quarter was $81 million, up 3% from $80 million and up 6% without foreign currency translation. System sales grew 2% for the quarter and year, excluding foreign currency translation. Same-store sales rose 1% for the quarter and year.

“At Pizza Hut U.S., we are starting to turn the corner with our focused emphasis on making it easier to get a better pizza,” Mr. Creed said. “This runs the gamut from improved operations and insight-driven food innovation to digital enhancements and consistent value. While we recognize there’s a lot more work to do, we are now generating consistent positive transaction and same-store sales growth in the United States.”

In the KFC division, operating profit for the quarter was $206 million, down 7% from $221 million, but up 7% excluding foreign currency translation. System sales increased 6% for the quarter and 7% for the year excluding foreign currency translation. Same-store sales grew 3% for the quarter and full year.

“We not only have an ability to generate meaningful growth in mature markets where we have a long-established presence, we also have tremendous potential in emerging markets, where we have a significant lead over the competition,” Mr. Creed said of KFC. “So we are taking our global brand identity and unifying that with local cultural insights to expand and grow our business all around the world. We are 100% focused on our real, authentic, and freshly prepared food and merging that with value and innovation to drive results.”

Taco Bell division operating profit fell 7% to $152 million from $163 million, due to higher expenses related to incentive compensation and investment in strategic growth and technology initiatives. System sales grew 7% for the quarter and 8% for the year. Same-store sales advanced 4% for the quarter and 5% for the year.

“Taco Bell delivered a fantastic 2015, surpassing $9 billion in system sales, and we expect a solid year in 2016 as well,” Mr. Creed said. “Taco Bell is on the cutting edge of Q.S.R. and is the industry gold standard for social engagement, product development, brand positioning and advertising.

“We have several new exciting products launching this year, including one we will announce during the Super Bowl… Our innovation focus extends beyond just food. We are encouraged by early results of our delivery program and are developing expansion plans for additional cities.

Taco Bell plans to unveil its new secret menu item during the Super Bowl.

“The addition of our loyalty program in November builds on our mobile app and will increase brand affinity as it rewards social behavior. Furthermore, we are focused on our core value messaging to drive transactions.”

Yum! saw sequential improvement during the year for its China business, which posted fourth-quarter operating profit of $96 million, up 195% from $32 million for the year-ago quarter. System sales grew 7% for the quarter and 2% for the year, excluding foreign currency translation. Same-store sales grew 2% for the quarter but fell 4% for the year.

The India division turned in an operating loss of $4 million for the quarter. System sales fell 9% for the quarter and 5% for the year, excluding foreign currency translation.

In the year ahead, executives expect to deliver 10% operating profit growth in constant currency. The company said it is on track to complete the spin-off of its China business to create two independent companies by the end of the year.

“The fundamental goal of Yum!, however, is unchanged,” Mr. Creed said. “We are 100% dedicated to building and strengthening KFC, Pizza Hut, and Taco Bell all around the world, as strong brands are critical to delivering sustained growth and creating shareholder value over the long term.”
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