Pizza Hut had just announced that it had great run in China, but The Inquisitr had also reported it had a less than stellar performance back at home.
The chain of restaurants witnessed its revenues decline a concern–worthy 5 Percent points, which prompted Yum! Brands CEO David Novak, to openly confirm that his primary goal is to ensure a turnaround in the revenues, and that too in the very near and foreseeable future. However, he wasn’t very specific about how he planned to bring his plan to fructification.
Pizza Hut has changed the reporting format of its revenues and has apparently made it a little unclear to compare the earnings to previous years. It was Yum, who changed how Pizza Hut reports sales for its business units. Moreover, until this year, sales for Pizza Hut U.S. were reported separately from sales abroad. Now, all Pizza Huts outside China and India form one Pizza Hut Division, reported Dallas News.
Now this is where it gets very interesting. Despite the broad news that Pizza Hut did well in China, for the division as a whole, first-quarter operating profit actually dropped 15% to $84 Million, and restaurant margins decreased 4.2 Percentage Points to 10.8%. However, the chain attributes this decline to escalation of food and paper costs, shared an analyst privy to the information.
Additionally, what is truly concerning, despite being a relatively small point, is the fact Pizza Hut witnessed a 2% decline in same–store sales. In other words, stores have witnessed not just customer erosion, but gross revenue per person too, saw a decline. Interestingly, emerging markets saw an increase of 3% in same–store sales.
These finding indicates that Pizza Hut can become an appealing factor primarily to cost–conscious customers. In the past, the company has successfully tested this hypothesis when it had heavily promoted its value-oriented offerings, including $10 for almost any pizza & its Big Dinner Box.
Pizza Hut, it seems, has been severely hit by the competition, who realized early on that the simple secret to success in the pizza business is to offer simple and delicious pizzas quickly, efficiently and ensure the customer doesn’t burn a hole in his pocket.
Speaking about the company from a financial perspective, Pizza Hut is certainly not in dire straits. The parent company Yum Brands saw profit of $399 Million, or 87 Cents a share. This figure is better than what analysts’ predicted (84 Cents). But the company will have to stick with the times and not ignore market cues to climb back.
[Image via Bing]