Pizzeria Uno eyes strong 2Q after 44% income increase

Nation's Restaurant News, April 17, 1995 by Theresa Howard

WEST ROXBURY, Mass. -- Continuing the momentum that has helped spur a turnaround, Pizzeria Uno expects to post strong second-quarter results after yielding a 44-percent increase in net income, to $1.5 million, on a 30-percent revenue hike, to $136 million, for the first quarter ended Jan. 2.

The turnaround, which began in 1993 when the casual dinner-house chain experienced its first positive results in more than two years, stems from a significant boost in comparable-store sales, guest checks and traffic counts.

"Their performance has been strong since they implemented the kitchen retrofit, which has improved the quality of their non-deep-dish items," said Michael Mueller, a vice president and analyst with Montgomery Securities in San Francisco. "Other things began to happen as well. New England began to stabilize, and at the same time, Uno got back to its roots and the momentum has continued to build on itself."

Although the company has not posted second-quarter results, Mueller estimates the chain will realize an 8-percent-to-10-percent increase in comparable-store sales for the period just ended April 2. "That quarter was trending at an 11-percent increase vs. 8 percent last year. Same-store sales were up 6.6 percent in January and 8.5 in February."

Uno's strong performance is running ahead of the general trend of the casual-dining segment, which saw a comparable-store sales increase of only 1.6 percent for the month of January, according to Malcolm Knapp's Knapp-Track report.

"We've had comparable-store sales growth since April of 1993," said Uno's president and chief operating officer, Craig Miller. "It all started when we increased the size of our pizzas. The increased value to the consumer, higher-quality nonpizza products, solid operations and controlled growth have given us an advantage."

Uno's new focus is seen as a way to counter both the explosive growth of Italian dinner houses and the perception that traditional American casual eateries are beginning to experience "menu fatigue," Miller said.

"We're one of the few casual concepts that have a line of signature items with our deep-dish pies," he said. "What we've been able to do is hang on to the pizza customer and get ourselves positioned so the customers view us as more than a pizza place."

About a year ago Uno completed the rollout of phase 1 of its turnaround effort that, to date, has included the addition of the fry, grill and saute stations for an expanded menu, store redesigns and training and service improvements. But it has been the equipment upgrades that have led to a sharp impact on mix of sales, which in turn has helped drive up guest checks.

"The whole category of specialty items is up, now representing a 15-percent mix of sales," Miller said. The specialty category includes chicken and steak items.

"Those specialty items are priced about 15 percent higher than pizza items, running an average of $8.50 compared to $6 for pizza items," he said.

According to a report by the Baltimore-based Alex. Brown & Sons, those figures have helped drive per-person guest checks up about 5 percent, to $9.24. The report, written by Steven Rockwell, also notes that the menu variety has translated to a 1.5-percent-to-2.5-percent jump in traffic -- both variables contributing to the solid jump in comparable-store sales for the first quarter and what is expected to be a repeat performance in the second quarter.

"The performance has been so good, and the dominant reason has been the menu changes. The changes we made 18 to 24 months ago are at the heart of the improvement," said Robert Brown, Uno's chief financial officer.

However, he added, "we're not going to sit here and see continuous increases in check averages. We may see some, but most of that is behind us. Hopefully, the changes will lead to increased frequency and a broadened consumer base."

Helping to build further on the chain's momentum has been its ability to drive traffic by spending only 2.5 percent of sales on advertising. In 1995 the company expects to spend $3.5 million to $4 million on television when rates are affordable, on radio, on freestanding inserts and on print. Later this year the chain will begin advertising on television throughout Washington, D.C., Miller said.

In the meantime, the company is broadening its sales opportunities in nontraditional and retail venues. It continues to expand its partnership with American Airlines and supermarkets, 800 of which carry a line of Uno par-baked products throughout the country.

The company also is looking to expand its test with General Cinema, a theater chain with 250 outlets. Currently, the Uno brand is available in about 12 General Cinema theaters. "Uno receives a 7-percent royalty on each pizza sold," said Montgomery Securities' Mueller. "This is a nonexclusive arrangement and could be a really big deal for them."

Uno's Miller said he expects the company's retail division to account for 10 percent of fiscal 1995's revenues, which are projected to be about $150 million.