Yum! Brands (YUM), which owns Pizza Hut, closed trading today down 0.6% on weak volume one day after the release of its latest quarterly report.
Yum! Brands reported earnings per share of $0.95, topping analyst estimates by $0.12 per share. However, its bottom-line beat was overshadowed by the fact that its Chinese operations performed admirably in the quarter as Yum! looks to offload the division.
Chinese operations account for about half of Yum!'s revenue, and while the division has been volatile in recent quarters,in the latest quarter Chinese operations saw a 6% gain in same-store sales. Analysts on average were expecting growth of just 2% for the period.
Last year, amid lagging sales and food safety scandals, unloading the company's China division made sense. However, investors may be punishing Yum! In the wake of the division's strong quarter, causing Yum! to suffer from its own success.
So as Yum! prepares to exit China, it will need to lean on innovation at home to make up any possible loss in profitability. Pizza Hut casual dining growth remains sluggish -- same-store sales in the quarter fell 12% -- as consumers increasingly use delivery services. Pizza Hut could take a page from one of its rivals.
Domino's Pizza (DPZ) has risen nearly 20% in 2016. Over the past six months it has climbed over 27% amid technology innovations and increased focus on digital marketing. During its previous earnings call, the company pointed to improvement through better execution as one of the main drivers of its success.
Domino's customers can order a pizza on social media using a pizza emoji, by voice or through Domino's revamped mobile app. However, while technological innovation has been a big revenue driver, the company still focuses on the quality of its product. "It does seem like technology recently has been the driver," Domino's chief information officer Kevin Vasconi said in an interview with NRN in March. "But a lot of groundwork was laid before we doubled down on technology. We have a great product and a really good value, and if we didn't have those things, the technology story wouldn't be nearly as big."
Domino's is scheduled to report its quarterly results on Thursday, with analysts expecting revenue in the period to increase 8.5% year over year to $544.5 million. The company reported that 50% of its U.S. sales were through digital channels in the fourth quarter.
With the company introducing ordering from the Apple (AAPL) Watch and increasing spending on e-commerce initiatives, digital revenue is expected to grow even more.
Domino's has set the blueprint for letting innovation drive sales higher. Now it's up to Yum! and Pizza Hut to follow their lead and get their slice of the digital pie.