Pizza chains like Domino's and Pizza Hut 'are under siege'

The nation’s biggest pizza companies are under attack from upstart third-party delivery companies like Uber Eats and Grubhub. Eat up these pizza stocks at your own risk, investors.

“These [pizza] companies are under siege,” Hedgeye Risk Management restaurant industry analyst Howard Penney said on Yahoo Finance’s The First Trade Wednesday.

GrubHub and Uber Eats are bringing people their fast-food of choice on demand. Up until a few years ago, it was either pizza or Chinese food available on the fast-food delivery circuit. Now, no more.

Penney’s contention is not an understatement when digesting the first-quarter earnings from Pizza Hut (YUM) and Domino’s (DPZ).

Yum! Brands’ Pizza Hut segment delivered a meager 1% same-store sales increase in the first quarter, the fast-food giant reported today. Pizza Hut operates more than 7,500 locations in the U.S.

In a bid to jumpstart sales and fend off the third-party delivery services, Pizza Hut said it would expand its delivery of beer to 1,000 more locations by year end. About 1,500 Pizza Hut locations deliver beer currently.

The picture isn’t much brighter at Domino’s.

Domino’s U.S. same-store sales have trended lower since a peak in the third quarter of 2016 (+13.6%), notching a so-so 3.9% growth rate in the first quarter of this year. 

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Discounts were key

Domino’s CEO Richard Allison told analysts last week the discounting by the third-party services drove new orders among consumers in urban and suburban markets. “I think [this] led to a slightly greater impact on our same-store sales growth than perhaps it did in previous years.”

Interestingly, Allison doesn’t appear inclined to chase the food aggregators down the rabbit hole of offering aggressive discounts.

“As we think about our longer view and what we ultimately do about it, it's really unchanged frankly, if not reiterated,” Allison said.

Allison added, “So it's hard to imagine that the current approach is sustainable over the long term, but we don't know, we'll have to see how that plays out. What's clear for us is that our strategy has to remain the same and that's to continue to fortress the markets that we operate in. That helps us win on service, it helps us win with our drivers by getting more runs — and it helps us to continue to build that very important and profitable carryout business that we've been talking to you about for a long time.”

There’s one winner from Uber Eats? McDonald’s (MCD). The fast-food chain’s CEO Steve Easterbook told analysts Tuesday Uber Eats was unlocking sales for the Golden Arches.

Brian Sozzi is an editor-at-large and co-host of ‘The First Trade’ at Yahoo Finance. Follow him on Twitter @BrianSozzi 

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