Pizza delivery made a comeback during coronavirus lockdowns. Investors worry the hunger won’t last

July 15, 2020, 1:46 PM UTC

Americans on lockdown have rediscovered delivery pizza, giving once shaky brands like Pizza Hut and Papa John’s a boost. But this rekindled love may be destined to fade.

Homebound consumers turned to the original delivery staple at unprecedented levels this spring, with Papa John’s International. preliminarily reporting North American same-store sales growth of 28% in the latest quarter and Yum! Brands’s Pizza Hut posting in May its best week for delivery and carry-out sales in eight years. Domino’s Pizza, the strongest of the big pizza brands heading into the pandemic, said the shift to more takeout and delivery offered a “tailwind.”

But even as share prices soar, investors aren’t convinced these new customers will stick around.

“I would be absolutely shocked if they can keep these kinds of sales levels once things return to normal,” said Brian Yarbrough, an analyst for finance firm Edward Jones. The normal growth rate for pizza same-store sales is in the mid-single digits, he said.

The trepidation comes as the U.S. economy is increasingly reopening despite a surge in COVID-19 cases. More restaurants operating means there’s more competition for pizza joints that for months were among the only establishments delivering in some parts of the country. If competing restaurants remain open, pizza chains will face a stiff test in holding onto the customers they picked up during the pandemic.

Wall Street is already growing more bearish. Although pizza chains’ second-quarter earnings are expected to be some of the strongest in history, with Domino’s on Thursday seen posting its highest second-quarter revenue ever, the outlook gets darker in the third quarter and beyond.

Analysts who had until late May expected Domino’s third-quarter sales to surpass those from the previous period reversed course as more of America came off lockdown in late May. A similar change has occurred to the outlook for Papa John’s.

Domino’s and Papa John’s declined to comment, while Yum—which also owns Taco Bell and KFC—didn’t reply to a request for comment.

Still, if virus cases continue to rise in parts of the country, slowing the pace of recovery, Americans may keep ordering in delivery, giving these chains a continued boost. While it’s unlikely the entire nation backtracks into quarantine again, it’s possible that pizza sales will spike in states like Texas and Florida where cases are rising, said Bloomberg Intelligence analyst Mike Halen.

Maintaining the recent rate of sales growth may ultimately prove unrealistic, but if companies can simply improve on what they were seeing pre-pandemic, then “that’s a home run,” said Peter Saleh, an analyst with brokerage firm BTIG.

In the meantime, pizza chains are doing what they can to keep the momentum going. In June, Domino’s accelerated its pandemic-friendly options, starting contactless car-side pickup and a pizza registry for weddings that were scaled down or postponed due to COVID-19. Pizza Hut and Papa John’s are also advertising contactless delivery and pickup options.

“The days of people actually going into a restaurant and sitting down and eating a pizza,” Yarbrough said, “those have kind of went by.”

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