Exclusive: Yum! Brands, Inc. SVP Jonathan Blum on Pizza Hut's Biggest Challenge

By Markets Fool.com

When Yum! Brands announced first-quarter 2015 results earlier this week, there was plenty to like about the fast-food giant's report. After all, Yum!'s KFC Division system sales climbed 8%, helped by 2% unit growth and 5% same-store sales growth.

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Meanwhile, Taco Bell sales jumped an even better 9%, driven by 3% unit growth and 6% same-store sales growth. Operating profit for the two divisions climbed 11% and 37%, respectively. And though Yum!'s massive China Division saw system sales fall 6% -- with 8% unit growth offset by a 12% decline in comps -- that was actually a marked improvement over last quarter, when China sales fell 11% thanks to a 16% plunge in same-store sales.

All told, Yum! Brands' revenue fell 4% year over year, to $2.62 billion, while earnings per share fell around 7%, to $0.81. But analysts, on average, were expecting roughly the same revenue to result in earnings of $0.80 per share. Shares of Yum! Brands rallied as much as 5% in Wednesday's early trading as a result.

Yum! Brands' CEO Greg Creed added: "While EPS declined in the first quarter, I'm pleased with the strong performance from our KFC and Taco Bell Divisions, as well as the continued progress we are making in China. I'm confident we will deliver full-year EPS growth of at least 10%, with a strong second half in China and solid brand-building initiatives under way at each of our divisions."

One crucial brand is still lagging
However, Creed later succinctly noted, "At Pizza Hut, our sale performance was relatively flat, but plans are in place to get the business back on track."

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This new logo debuted as part of Pizza Hut's brand revamp, Credit Yum! Brands.

Pizza Hut saw only a modest 2% increase in sales, which was driven entirely by new locations. Pizza Hut's same-store sales were roughly flat for the second quarter in a row, and its operating profit fell 13%. Most troubling, however, is that this flat performance comes despite Pizza Hut's massive brand and menu revamp launched this past November. At the time, Pizza Hut chief marketing officer Carrie Walsh called it "the biggest change that we've ever made as a brand."

But the problem isn't the actual revamp. Last quarter, Yum! Brands' Senior VP Jonathan Blum told me an impressive 90% of consumers who tried Pizza Hut'snew menu offerings had an intent to repurchase them.

I had the chance to speak with Blum again earlier this week. When I asked him how the rebranding effort was progressing, he insisted: "Consumers' repurchase intent is still high. But [Pizza Hut's performance] is still not as good as we'd like it to be."

The key to Pizza Hut's success
The problem, Blum says, is actually convincing consumers to try those new offerings given that high repurchase intent. He elaborated, "Our competition is doing a better job defining differentiation."

That seems fair enough. Shares ofDomino's Pizza jumped more than 10% early Thursday after the competing chain saw revenue increase 10.6%, helped by impressive 14.5% growth in domestic same-store sales, and a 7.8% increase in comps from international locations. The latter number marked its 85th consecutive quarter of international growth.

Domino's CEO J. Patrick Doyle explained, "Strong global sales, store growth and technology advancements all demonstrated the fundamental strength of the Domino's brand."

Meanwhile, last month,Papa Murphy's reported fourth-quarter systemwide comparable-store sales growth of 8.4% -- its 16th consecutive quarter of growth, enabled by a new product pipeline and strategic initiatives to drive increased brand awareness. In doing so, Papa Murphy's has effectively set apart its "take 'n' bake" pizzas as a mouthwatering alternative to Pizza Hut's delivered wares.

Even so, Blum also insisted, "With Pizza Hut, we recognize there's work to be done, and we have the plans in place to do it."

In the coming quarters, then, Yum! Brands' investors should watch closely to see not just how those plans unfold, but also whether they're having the desired effect in finally returning Pizza Hut to profitable growth. Because if all three of Yum! Brands' core restaurant concepts are finally able to fire on all cylinders at the same time, something tells me Yum! Brand's 5% pop earlier this week will look like pocket change for patient, long-term shareholders.

The article Exclusive: Yum! Brands, Inc. SVP Jonathan Blum on Pizza Hut's Biggest Challenge originally appeared on Fool.com.

Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.