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How Pizza Companies Are Expanding their Businesses

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Mar. 29 2018, Updated 7:34 a.m. ET

Unit growth

Investors should be careful while comparing unit growth for companies with different models, as the opening of company-owned restaurants requires higher capital than franchised restaurants. All three companies considered for our analysis are focusing on franchising to expand their business. With a unit growth of 7.6%, Domino’s Pizza (DPZ) has outperformed its peers.

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Domino’s Pizza (DPZ)

In the last 12 months, Domino’s Pizza has net added 1,045 units to increase its unit count to 14,856 at the end of 2017. In the last four quarters, the company has increased the unit count of its international franchised restaurants by 829 to 8,440. It increased domestic franchised restaurants by 216 to 5,195 units. However, the unit count of company-owned restaurants remained unchanged at 392 units.

Papa John’s (PZZA)

Domino’s is followed by Papa John’s (PZZA) with unit growth of 2.7%. In the last 12 months, the company has net added 137 units to increase the unit count to 5,234 units by the end of 2017. The company has increased the unit count of domestic company-owned restaurants by six units, while the unit count of international company-owned restaurants has declined by seven units. During the period, the unit count of domestic franchised restaurants has declined by six units due to the closing of 116 restaurants and the opening of 110 new units. In international markets, the unit count of franchised restaurants increased by 144 units due to the opening of 257 new restaurants and closing of 155 units.

Pizza Hut

Pizza Hut, which operates under the umbrella of Yum! Brands (YUM), has increased its unit count by 328 units to 16,748 restaurants by the end of 4Q17. In the last 12 months, the company has grown the unit count of franchised restaurants by 717 units, while the unit count of company-owned restaurants declined by 389 units.

Next in this series, we’ll look at analysts’ revenue expectations for the next four quarters.

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