Pizza Hut Restaurants back in the black but ‘uncertainty’ over group’s future remains

Heart with Smart (HwS), the operator of Pizza Hut Restaurants in the UK, saw a 7.7% rise in like-for-like sales in the year to 3 December 2023, which contributed to the £4.7m increase in operating profit.

Total turnover decreased by 1.5% to £156m, with overall profit for the period of £1.66m, compared with £168,000 in 2022.

Trading EBITDA was £7.96m, compared to £4.67m in 2022.

It comes after HwS revealed back in April that it had completed a significant restructuring of its debt and equity.

In its accounts last year, the group said it was in talks to refinance almost £31m of its £73m debt pile, which led auditors at PwC to warn of a ‘material uncertainty’ over the future of the business​​.

The group says the restructuring of its balance sheet provides a ‘strong foundation for future growth’ and that it is not forecasting to breach its covenant levels other than in a ‘severe but plausible’ downside scenario in which in guest demand declines sharply in the summer of 2024 before stabilising in October.

As a result of this, PwC notes in its auditor’s report that this ‘indicates the existence of a material uncertainty which may cast significant doubt about the company’s ability to continue as a going concern’.

HwS says in its accounts that while market conditions have ‘improved noticeably’ since 2022, consumers ‘remain challenged’. And despite recent rises in disposable household incomes, current growth in spending ‘remains stubborn’.

Combined with this, the cost of business ‘remains challenging’, according to the group, with commercial energy costs remaining above pre-pandemic levels, ongoing food inflation, and rising wage costs.

Despite this, though, the group’s management believes the long-term fundamentals of the market ‘continue to be strong’.

Alongside the strengthening of its financial position, HwS says it has continued to invest in the evolution of its Pizza Hut Restaurants model to a fast casual experience, with the mobile device ordering – which is currently used by around 60% of guest – and payment solution continuing to deliver improved levels of labour productivity and higher average ticket levels.

It also continued to invest in kiosk ordering and payment in 2023, with further investment in kiosks remaining a high priority for 2024.

Over the period, HwS signed a new 10-year Pizza Hut franchise agreement with the brand’s owner, Yum Brands, which it says provides ‘a stable platform for growth’ through to 2032.

Pizza Hut Restaurants is the dine in arm of Pizza Hut in the UK and is an entirely separate entity to Pizza Hut Delivery, which has more than 350 locations across the UK including some with dine-in facilities and is owned by Yum! Brands.

It was acquired by HwS from London-based turnaround investor Rutland Partners in 2018 as part of a management buy-back deal.

At the time the group operated an estate of around 260 restaurants.

However, in 2020, amid the Covid-19 pandemic, the group underwent a Company Voluntary Arrangement (CVA) that led to the closure of many of its sites.

According to its website there are currently 142 Pizza Hut Restaurants in the UK.