Pizza Hut's slumping US business eyes turnaround with new management

Key Points
  • Pizza Hut's U.S. same-store sales fell by 4% in the fourth quarter.
  • Parent company Yum Brands has tapped Kevin Hochman, the U.S. president of KFC, as interim U.S. president of the pizza chain.
  • Yum warned investors that Pizza Hut's U.S. troubles, along with the uncertainty around the coronavirus outbreak, could mean that the company misses its long-term targets in 2020.
Pizza Hut, owned by Yum Brands
Chris Ratcliffe | Bloomberg | Getty Images

Even with a sponsorship deal with the National Football League, Pizza Hut's U.S. business is struggling to find a win.

Yum Brands said Thursday that its 2020 results could fall short of its long-term outlook as a result of Pizza Hut's troubles in the U.S., as well as the hit from Wuhan coronavirus in China.

The warning follows yet another disappointing quarter from the pizza chain, which reported a same-store sales decline of 2% in the fourth quarter. In the U.S., which is its largest market by systemwide sales, same-store sales fell even further, dropping 4%.

In the wake of Pizza Hut's lackluster financial results, Yum also announced that it has tapped Kevin Hochman as interim president of Pizza Hut's U.S. division. Hochman is credited with turning around KFC in the United States.

During Hochman's tenure as U.S. chief marketing officer, KFC drew attention with commercials that expanded the list of celebrities who played the role of founder Colonel Sanders. Its $5 Fill Up combo meal also brought customers back into restaurants and turned same-stores sales positive. In 2017, Hochman was promoted to be KFC's U.S. president. He will maintain those responsibilities while serving as interim president of Pizza Hut U.S.

"He's using that same playbook at Pizza Hut. It's obviously too soon to start to talk about the specific tactics that he's going to deploy," Yum CEO David Gibbs told analysts on Thursday.

In the last three years, Pizza Hut has reported positive quarterly same-store sales growth in four of the 12 quarters. Its same-store sales consistently lag behind those of KFC and Taco Bell, Yum's other two brands.

In 2017, Pizza Hut lost the title of America's largest pizza chain by sales to Domino's Pizza.

Pizza Hut, historically known as a dine-in restaurant, has struggled because more consumers want their food delivered. Other national chains, like Domino's and Little Caesars, have built their businesses on delivery and carryout.

Pizza Hut is trying to adapt. The chain announced last year that it would shutter up to 500 dine-in locations in the U.S. as it opens smaller delivery-focused restaurants and tries to restructure the businesses of struggling franchisees. In 2018, Pizza Hut signed a sponsorship deal with the NFL after the league dropped Papa John's.

Still, Yum executives warned that Pizza Hut's U.S. business is in turnaround mode.

"There is potential for choppiness in near-term results of Pizza Hut U.S., primarily related to our largest franchisee," CFO Chris Turner told analysts on Thursday.

NPC International, Pizza Hut's largest U.S. franchisee, saw its debt slide further and further into junk territory in 2019 after credit downgrades from both S&P Global Ratings and Moody's.

Yum is also bracing itself for an impact from the Wuhan coronavirus. Its Chinese licensee Yum China has closed about a third of its stores in the Asian country, which is Pizza Hut's second-largest market. Yum's fourth-quarter earnings missed estimates but its revenue topped expectations.

Shares of the company were down 3.8% Thursday afternoon. Yum's stock, which has a market value of $30.9 billion, is up 8% in the last year.

How Domino's is winning the pizza wars
How Domino's is winning the pizza wars