YUM! Brands Inc. is looking to close hundreds of struggling Pizza Hut locations in the U.S. while trying to grow its delivery and carryout business, executives said Aug. 1.
Pizza Hut's store count could drop to as low as 7,000 in the U.S. over the next 24 months, Yum! Brands President, COO and CFO David Gibbs said during the restaurant company's second-quarter earnings call. U.S. Pizza Hut locations would rebound to current levels and above in the future, said Gibbs, who put the figure at 7,449 locations as of the end of the second quarter.
"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," Gibbs said.
Yum! Brands is trying to transform its U.S. Pizza Hut operations in response to the growing number of consumers who prefer carryout and delivery to dining inside a restaurant.
Underperforming dine-in restaurants would primarily drive the U.S. Pizza Hut closures, Gibbs said.
Outside the U.S., Pizza Hut has opened 11,000 locations, including a new fast-casual delivery store in Dubai, Gibbs said.
There were 18,431 total Pizza Hut locations open in the year ended Dec. 31, 2018, according to an SEC filing.
By comparison, Domino's Pizza Inc. had more than 15,900 locations worldwide, including 5,486 franchised stores and 390 company-owned stores in the U.S. for the fiscal year that ended Dec. 30, 2018, according to an SEC filing. For the same period, Papa John's International Inc. had 5,303 total restaurant locations, 1,966 of which were international, according to filings.
A failure to turn around the Pizza Hut brand in the U.S. could put pressure on comparable store sales and operating profits for Yum! Brands, Bernstein Analyst Sara Senatore wrote in an Aug. 1 report.
For the second quarter, same-store sales for Pizza Hut grew by 2%, while Taco Bell grew at 7% and KFC at 6%, Yum! Brands reported. Net income for Pizza Hut in the second quarter was $96 million, up 18% from the year-ago period, according to Yum! Brands.
"While results were stronger across all brands, we are particularly impressed by Pizza Hut's 2% comp, which suggests continued momentum in the brand," Goldman Sachs Analyst Katherine Fogertey said in an Aug. 1 report.
Pizza Hut is navigating a restaurant industry where delivery orders continue to grow in popularity. To try to cash in, Yum! Brands invested in Grubhub Inc. and started offering delivery for Taco Bell and KFC customers.
When a customer orders Pizza Hut through the Grubhub app, Pizza Hut drivers are completing the delivery, Yum! Brands CEO Greg Creed said.
KFC continues to partner with Grubhub to add locations and expects to launch "a branded web experience by year-end," Creed added.