U.S. retail giants experience "continuous blowups": Papa John's plummets, Yum Brands considers selling Pizza Hut

The American restaurant chain industry is undergoing a wave of intense shocks, with several pizza giants reporting negative news one after another, reflecting the grim reality that weak consumption is spreading from low-income groups to the middle class.

On Tuesday, Papa John’s stock price plummeted 21%, marking the biggest single-day drop since the outbreak of the pandemic in March 2020. According to reports, private equity giant Apollo Global Management withdrew its privatization offer of $64 per share for Papa John’s about a week ago.

On the same day, Yum Brands, the world’s largest restaurant group, announced it had launched a strategic review of its Pizza Hut business and did not rule out selling this struggling pizza brand. Pizza Hut’s sales have declined for eight consecutive quarters, with current annual sales at about $1 billion, down 20% from a decade ago.

This industry turmoil comes as Goldman Sachs has just issued a “red” warning about the health of U.S. consumers, saying that weakness has spread from low-income groups to the middle class. Executives of multiple companies stated that current consumer confidence is at its “lowest level in decades.”

Papa John’s Acquisition Collapse Triggers Stock Slump

Papa John’s stock price dropped as much as 21% during Tuesday trading, after media cited insiders saying Apollo Global Management withdrew its privatization offer for the pizza chain about a week ago.

This June, Semafor reported that Apollo, together with Qatar’s Irth Capital, had proposed a privatization plan.

Papa John’s will release its third-quarter earnings on Thursday; analysts surveyed by the media expect its adjusted earnings to fall 5.2% year-on-year. The company did not immediately respond to requests for comment.

The collapse of this acquisition highlights private equity’s cautious outlook on the restaurant industry. As consumer spending remains under pressure, even established chain brands struggle to attract buyers.

New Yum CEO Plans Pizza Hut Spin-Off Immediately After Taking Office

Chris Turner, CEO of Yum Brands for just a month, announced Tuesday that the company has begun a strategic review of Pizza Hut. This move marks Turner’s first major strategic action since taking the helm.

In a statement, Turner said: "Pizza Hut’s performance shows that additional action is needed to help the brand realize its full value, which may be better achieved outside of Yum." Pizza Hut currently accounts for less than 15% of Yum’s total revenue, and its sales have hovered around $1 billion for years, down 20% compared to ten years ago.

Pizza Hut’s struggles stem mainly from failing to attract customers. This isn’t a problem for the entire pizza market—competitors Domino’s and Papa John’s still see revenue growth in North America. In the last quarter, Pizza Hut’s global same-store sales fell 1%, marking the eighth consecutive quarter of decline.

In contrast, Yum’s other two major brands, Taco Bell and KFC, performed strongly. Third-quarter earnings show comparable U.S. sales for Taco Bell and KFC rose 7% and 2% respectively, while KFC’s international business (which makes up 86% of the brand) saw comparable sales increase by 3%. This helped Yum’s overall comparable sales rise by 3%, beating market expectations of 2.6%.

Robert W Baird & Co analyst David Tarantino noted in a research report that a Pizza Hut sale may be welcomed by investors, as the pizza brand has long been a drag on company growth rates. He estimates selling the unit could contribute about 1 percentage point to Yum’s system sales growth. Yum’s stock surged as much as 6.5% on Tuesday. As of Monday’s close, the stock was up 3.9% for the year, compared to a 16.5% gain for the S&P 500 over the same period.

Shadow of Consumer Downscaling Hangs Over the Restaurant Industry

The plight of pizza chains is a microcosm of worsening weak U.S. consumer demand. Ongoing inflationary pressure has led consumers to dine out less; Chipotle Mexican Grill has cut its sales outlook for the third time this year. CEO Scott Boatwright said: "Consumers are feeling the squeeze—we feel their pullback too." He pointed out that Chipotle’s lost customers are turning to grocery stores instead of other chains, suggesting people are choosing home-cooked meals to save money.

After Chipotle’s earnings warning, its stock plunged as much as 16.5% in after-hours trading. This warning from an industry benchmark shows that pressure to “trade down” is no longer limited to low-income groups and now affects middle- and higher-income consumers.

On November 1, Goldman Sachs consumer expert Scott Feiler pointed out that more companies are reporting slowing consumption, and the weakness has spread to middle-income groups, especially among consumers aged 25–35. In the past two weeks, consumer stocks have been heavily sold off, and the non-essential consumer sector has underperformed the broader market by 500 basis points.

Kraft Heinz CEO Carlos Abrams-Rivera said on an earnings call: "We are now facing some of the weakest consumer confidence in decades." The company cut its full-year sales guidance sharply, expecting a decline of 3% to 3.5%.

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