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Should Yum Brands divest Pizza Hut? At least one analyst thinks so.
Mark Kalinowski, an analyst with Nomura-Instinet, wrote in a research note that the company should "examine its corporate structure" and think about spinning off the pizza chain.
Citing Technomic, Kalinowski said Pizza Hut's share in the U.S. limited-service pizza category has declined from 25 percent in 1995 to just 14.5 percent in 2015.
"Perhaps it could be divested in such a way that Yum Brands would be able to retain a minority stake," Kalinowski wrote. "Similar to how Wendy's has retained, in recent years, a meaningful (18.5%) minority stake in privately-held Arby's. Pizza Hut likely would be better off under this type of arrangement, just as Arby's has done very well once it was not tied so closely to Wendy's."
Following the 2011 sale, Arby's saw same-store sales growth rise. In 2013, its same-store sales were up 2.8 percent, and in 2014, they rose 5.7 percent. By 2015, they jumped 8.1 percent and in 2016 same-store sales rose 3.8 percent.
For Yum, Pizza Hut has been a drag on its performance. In fourth-quarter, Yum delivered earnings that beat Wall Street expectations but were just shy on revenue, as fewer customers ate at its Pizza Hut chains.
Same-store sales were weaker than expected for the company in the quarter, rising 1 percent compared to an expected 1.7 percent, according to FactSet.
Taco Bell and KFC each saw same-store sales growth of 3 percent. But Pizza Hut, suffered, with same-store sales down 2 percent.
"We have a lot of work to do," Greg Creed, CEO of Yum Brands, said on CNBC's "Squawk on the Street " Thursday, regarding Pizza Hut. "We have to work on assets and technology. We've got to work on all the things that will make this a more relevant brand. And we're doing that with the franchisees right now. We've got to get ourselves a long-term strategy. I believe...there's growth in the category. Our competitors are demonstrating that and we need to work harder to get our fair share."
In previous quarters, Pizza Hut has lagged behind as well. Analysts have blamed menu fatigue in the past for these soft sales.
"Unfortunately for Yum, KFC's growth has been overshadowed by the ongoing softness at Pizza Hut…., our data also show that Pizza Hut is losing customer share to delivery services like Papa John's and Domino's, " Hakon Helgesen, an analyst at GlobalData Retail, said. "A defection to cheaper fast-food alternatives, especially among younger families, has also been unhelpful. This is an uncomfortable position and underlines the fact that Pizza Hut still has much work to do in terms of reinvigorating its brand."
In the latest quarter, Yum posted earnings per share of 79 cents, excluding items, on $2.02 billion in revenue. Analysts had anticipated Yum to report earnings of 74 cents per share on $2.09 billion in revenue.
The latest-quarter results are Yum's first since spinning off its China business in November.
"Looking ahead, we believe that Yum! has a solid platform on which to build," Helgesen said. "However, it faces greater competition, including from Chick-Fil-A or Popeyes Louisiana Kitchen on the KFC side. This dynamic means it will need to up the pace of innovation if it is to thrive, especially within its core markets. "
In afternoon trading, Yum shares were trading up 1.4 percent.