LOUISVILLE, KY. — As many as 500 older U.S. dine-in Pizza Hut restaurants could close as the chain increases its focus on delivery/carryout.
“We are leaning in to accelerate the transition of our Pizza Hut U.S. asset base to truly modern delivery/carryout assets,” said David W. Gibbs, president, chief operating officer and chief financial officer for Yum! Brands, in an Aug. 1 earnings call to discuss second-quarter results. “This will ultimately strengthen the Pizza Hut business in the U.S. and set it up for a faster long-term growth.
“During this transition, we expect a temporary deceleration in the pace of new unit development for the Pizza Hut division as continued healthy international unit growth will be partially offset by a short-term decline in the absolute number of U.S. units. As a result, our U.S. store count could drop to as low as 7,000 locations over the next 24 months, primarily driven by closures of underperforming dine-in restaurants before rebounding to current levels and above in the future.”
Within the United States, about 6,100 Pizza Hut locations are traditional restaurants and 1,350 are express units, he said.
“But as far as the numbers and how the math works, it’s hard to estimate how soon the timing of when a store will close and then when the replaced unit will open,” Mr. Gibbs said. “There will be gaps on some of those, but certainly, our goal is to try to minimize those gaps.”
Pizza Huts with lower volume will close, he said.
“We are excited about collaborating with franchisees who are capable, well-capitalized, committed to the brand and who have a growth mindset to accelerate the closure of underperforming dine-in stores and replacement with new delivery or fast casual delivery assets,” said Greg Creed, chief executive officer for Yum! Brands. “By the same token, we also know we’ll need to directly address franchisees who are burdened with too much debt, don’t have access to capital or aren’t committed to the long term. Thus, in a few cases, some of these businesses will need to be restructured in the near term to address capital structure and leverage issues, particularly those franchisees with greater dine-in exposure.”
KFC and Taco Bell, both owned by Yum! Brands, are focusing on delivery as well. KFC, which is partnering with Grubhub, now has 2,300 units offering delivery, Mr. Creed said, and delivery is now live in 4,500 Taco Bell restaurants in the United States.
Net income for Louisville-based Yum! Brands was $289 million, or 94c per share on the common stock, in the second quarter ended June 30, which was down 10% from $321 million, or 99c per share, in the previous year’s second quarter. Second-quarter revenues of $1,310 million were down 4% from $1,368 million. Excluding foreign currency translation, worldwide system sales grew 10%. Pizza Hut, KFC and Taco Bell all were at 10%. Same-store sales increased 5% for Yum! companywide with Taco Bell at 7%, KFC at 6% and Pizza Hut at 2%.
Yum! Brands’ stock on the Nasdaq closed at $116.94 per share on Aug. 1, up 3.9% from the July 31 close of $112.52 per share.
Over the six-month period ended June 30, Yum! Brands had net income of $551 million, or $1.79 per share on the common stock, which was down 27% from $754 million, or $2.30 per share, in the same time of the previous year. Six-month revenues of $2,564 million were down 6% from $2,739 million.