Pizza Hut Reveals Huge Expansion In Eastern, Southern Europe

Yum! Brands Inc. (NYSE:YUM) division Pizza Hut is geared to expand further intoCentral and Eastern Europen markets. It has inked a development agreement with its partner AmRest Holdings SE to develop 300 more restaurants in this region over the next five years. Amrest currently operates 80 Pizza Hut restaurants in Poland, Russia and the Czech Republic.

As per the agreement, Amrest will act as a master franchisee and have the right to own, develop and sub-franchise Pizza Hut restaurants in markets of Poland and Czech Republic, where it already has a presence, as well as expand into newer markets of Hungary, Bulgaria, Serbia, Croatia, Slovakia and Slovenia. Pizza Hut currently operates 700 restaurants in continental Europe.

The agreement with Amrest is part of Yum brands’ refranchising strategy. That is, by refranchising, Yum! Brands has adopted a de-risking strategy by reducing its ownership of restaurants. Notably, the company is committed to become at least 96% franchised by the end of 2017. Refranchising a large portion of the system reduces the company’s capital requirements and facilitates earnings per share growth and ROE expansion.

Free cash flow will continue to grow, facilitating reinvestments to increase brand recognition and shareholder return. Notably, the shift to refranchising has substantially benefited the company’s operating margin over the years. Moreover, since a major portion of its business is refranchised, Yum! Brands, currently carrying a Zacks Rank #3 (Hold), will be less adversely affected by food inflation than most of its peers.

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Better-ranked stocks in the retail restaurant sector includes Del Taco Restaurants Inc. (NASDAQ:TACO) , Restaurant Brands International Inc. (NYSE:QSR) and Jack in the Box Inc. (NASDAQ:JACK) , each, with a Zacks Rank #2 (Buy).