Can Goldilocks save Pie Five?
The struggling Dallas-based fast-casual pizza chain, coming off another decline in same-store sales and a quarter in which it closed five units and opened none, has a new prototype it hopes can fuel growth in the future.
Rave Restaurant Group, the owner of Pie Five, calls the prototype “Goldilocks,” because it’s “right sized.” The model is smaller, so it comes with reduced labor and rent costs.
“Its reduced startup costs offer franchisees a competitive return,” Rave President Bob Bafundo said on the company’s fiscal fourth quarter earnings call Monday. “The model focuses on speed and simplicity, with a limited menu and more off-premise sales, carryout, online ordering and third-party delivery.”
Pie Five has struggled in recent years amid steeply falling same-store sales and closing units. Once considered a pioneer in the burgeoning fast-casual pizza sector, the chain now has 73 total locations, a reduction of 11 over the past year after five closed last quarter. The company has refranchised many other locations, selling them to franchisees. It now operates just one of those restaurants.
On a three-year, stacked basis, same-store sales have fallen 34% over the past three fiscal years, including a 12.9% full-year decline in the year ended June 24.
But company executives believe the brand is showing signs of life. Same-store sales aren’t falling as badly as they had been—they declined 6.4% in the company’s fiscal fourth quarter ended June 24. Scott Crane, Rave’s CEO, said those same-store sales have “compressed” into the current period.
Pie Five has aggressively overhauled its menu in a bid to get new customers. The chain added a cauliflower crust option for customers, which has proven to be popular, and it added a larger “shareable” pie as well as sandwiches, all in a bid to generate stronger sales.
The new menu has “led to increased frequency from loyal guests and introduced new guests to the brand,” Crane said. “We believe sales will improve as revenue streams continue to expand.”
The company’s flagship brand, Pizza Inn, recorded its sixth straight quarter of same-store sales growth, up 2.5%. Pizza Inn has 153 locations in the U.S. and 58 international restaurants.
The company has also continued to open its new “Pie” concept designed to go into airports, convenience stores and other nontraditional locations.
The refranchising and improved sales at Pizza Inn, in particular, have improved the chain’s financial position. Net income in the quarter was $3.3 million, up from a $1.1 million loss in the same period a year ago.
The full-year improvement is even more dramatic. Net income for the full year was $1.9 million. The company recorded a $12.5 million loss in the year before.
“There is no cash burn from here on out,” Crane said. “From when I started we were figuring out how to make a check run to now we have cash, equity, we’re growing the business. We are fixing this thing.”
Crane also defended the performance of Pie Five, noting that same-store sales continue to stabilize. “There’s so many things going on here that’s exciting, it’s hard to ascertain that from the call,” he said. “But that’s where we’re at.”
Still, when asked whether he would make a prediction on growth for the upcoming year, Crane declined. “No,” he said.