• Pizza Hut forecasts solid ''04 on heels of strong economy, new product launches

LOUISVILLE, Ky.—David Novak, chairman and CEO of Pizza Hut parent Yum! Brands, believes new products and a strong U.S. economy will help the world's largest pizza chain post an average 2 percent same-store sales gain throughout 2004.

Listeners to a first-quarter '04 earnings conference call on April 22 heard Novak report that Pizza Hut registered 6 percent comparable-store sales gains for the quarter, ended March 28, and 3 percent comp-store gains for April, marking the company's 11th such increase in the last 12 periods.

Novak credited Pizza Hut's 4forALL pie with energizing sales over the last few periods and said the item likely will become a permanent menu item. More new products, he added, are expected for the year (see Pizza Hut intros Buffalo Chicken Pizza). The company also expects to open more Pizza Hut-Pasta Bravo units this year, and continue cobrand efforts with its burgeoning Wing Street chain.

A key change from 2003, Novak said, will be the abandonment of "a lot of dumb discounting at Pizza Hut." The chain instead will focus on driving sales by product mix rearrangement and through focus on transaction averages.

"We're not seen as the low price leader in the category, so when we try to win by being cheaper than the next guy, we don't see as much impact as when we're innovative and bringing forth new product news," Novak said.

Regarding Pizza Hut's ability to endure this year's cheese price increases, Yum chief financial officer Dave Deno said he believed Pizza Hut did a good job covering its costs for the first quarter, but that he'd have liked to have been better hedged in the second quarter.

"But that's Monday-morning quarterbacking on my part," he said, adding that cheese market prices rose faster than anyone expected. "We want to just take a look at our strategies for right now and see where we are" going forward.

Asked how Pizza Hut is handling the impact on delivery of rising gasoline prices, Deno said the company is examining driver pay packages, and that in some areas, reimbursement rates increased slightly.

"For now we're going to adjust as necessary and ... try to stay on top of it," he said.

To read related Pizza Hut stories, click here.

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