Yum has a $130 million plan to turn around Pizza Hut

Key Points
  • Yum Brands says the $130 million upgrade for Pizza Hut will take place through 2018.
  • Analysts once again question whether it is time for Yum to unload Pizza Hut.
Yum has a pricey plan to turn around Pizza Hut
Yum has a pricey plan to turn around Pizza Hut

Yum Brands is hoping a $130 million investment will bring struggling Pizza Hut a much-needed boost.

After yet another quarter of lackluster same-store sales in its pizza division, Yum CEO Greg Creed said Wednesday the company will be upgrading equipment, improving restaurant technology and boosting advertising through 2018.

During an earnings call, he said he was confident these actions would "unlock significant value for years to come."

Creed equated the Pizza Hut investment to the $180 million that Yum put into KFC in 2015. The chicken chain has since seen 11 quarters of same-store sales growth, he said.

"While we aren't going to get into specifics, the [investment] agreement [with franchisees] includes a permanent system commitment to digital initiative contributions, alignment on marketing strategy and much more," Creed said. "Although this is a relatively modest investment in the scheme of Yum, it is quite significant to Pizza Hut U.S."

Yum China has a bright outlook: Restaurant analyst
Yum China has a bright outlook: Restaurant analyst

Pizza Hut saw same-store sales fall 3 percent in the quarter, while its partner brands Taco Bell and KFC saw stronger growth. Taco Bell's same-store sales were up 8 percent and KFC's rose 2 percent.

In the U.S. alone, Pizza Hut same-store sales were down 7 percent, according to the company.

In previous quarters, the chain has lagged behind as well. Analysts have blamed menu fatigue in the past for these soft sales.

"One of the big issues for Pizza Hut is that among younger age segments — especially students — it plays third fiddle behind Domino's and Papa John's," Hakon Helgesen, an analyst at GlobalData Retail, said in an email.

"This is one of the reasons why the chain has focused so much on digital initiatives, in an attempt to better connect with this cohort, which is driving much of the market growth. In our view, it will likely be disappointed, mainly because the success of other chains isn't just about digital — it's about brand perception, physical location, and price. On all three, Pizza Hut currently falls short."

Helgesen said this will be a "tall order," and that the chain will continue to drag on Yum's results in the near term. That's one reason why some investors have called for Yum to divest the brand, he said.

Shares of Yum were up about 2.4 percent in trading, at $67.96, just off the company's 52-week high of $68.98.