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Yum Brands misses estimates as Russian exit, foreign exchange weigh heavily on sales

·Senior Reporter
·4 min read

Yum Brands (YUM), the parent company of KFC, Taco Bell and Pizza Hut, reported fiscal second quarter earnings that missed expectations as China lockdowns and an exit from Russia weighed on sales, in addition to macroeconomic pressures like inflation and foreign exchange.

Here are Yum Brand's second quarter results compared to Wall Street's consensus estimates, as compiled by Bloomberg:

  • Revenue: $1.64 billion versus $1.65 billion expected

  • Adj. earnings per share (EPS): $1.05 versus $1.09 expected

  • Global same-store sales: 1% growth versus 0.75% growth expected

China lockdowns heavily dragged down global comparable sales. Excluding China, the company reported same-store sales growth of 6%.

On an individual business unit basis, same-store sales also came in soft — with the exception of Taco Bell, which is relatively insulated from overseas pressures compared to KFC and Pizza Hut.

KFC missed same-store sales estimates for the quarter (-1% versus the +0.45% expected.) Yum removed 1,112 units in Russia from its global KFC unit count, causing KFC's year-over-year operating profit growth (excluding foreign currency) to dip by 4 percentage points.

KFC's ex-China same-store sales grew 7%, the company said. China is KFC’s largest market by system-wide sales at 27%. It's the second largest for Pizza Hut at 16%.

Pizza Hut reported a wider-than-expected same-store sale loss of -3% versus the expected -1.04%.

Persistent staffing shortages, including a recent delivery driver shortage, hindered the ability to meet demand. Yum also removed 53 units in Russia from the global Pizza Hut unit count.

Excluding China, Pizza Hut International same-store sales grew 6%.

Taco Bell was the only company to exceed estimates with global same-store sales coming in at +8% versus the expected +4.03%, aided by the return of the Mexican Pizza and strong international growth.

Taco Bell U.S. system sales grew 9%, while Taco Bell International system sales surged a whopping 31%.

Shares were relatively flat in pre-market trading.

"This is one of the most complex environments ever seen in our industry," Yum CEO David Gibbs said on the earnings call, although he surmised that "we're probably past peak inflation."

Internationally, the emerging market consumer is returning, and he's seen developed markets fairly stable on overall performance.

However, the executive warned that the global consumer is "getting more cautious." As a result, Yum has leaned on value offerings around the world and domestically in the U.S.

Lower-income consumers pulling back "has become more pronounced," he added, emphasizing that the formula to win is creating brand buzz, delivering innovative product news, and offering brand value.

He cited Taco Bell as a prime example amid the successful Mexican Pizza re-launch, in addition to the cost-attractive Cravings Value Menu.

"Changes in consumer behavior won't get us off our game if we stick to our formula," Gibbs reiterated, doubling down that value is the main focus amid current macroeconomic challenges.

"This quarter demonstrates that we can thrive in any environment," he concluded.

Yum Brands revealed that Taco Bell will be increasing its international presence as the brand leans on popular menu items like the Mexican Pizza.
Yum Brands revealed that Taco Bell will be increasing its international presence as the brand leans on popular menu items like the Mexican Pizza.

Last month, Goldman Sachs (GS) issued a double upgrade on the stock, setting a Buy rating with a price target of $135 a share (up from $125.)

Analyst Jared Garber maintained that the fast food corporation's high-franchise mix and strong unit growth can help offset macro-volatility. He added that technology remains a positive lifeline, crediting the brand's digital advancements.

The company saw digital system sales in the second quarter hit nearly $6 billion.

Another bright spot in the quarters to come? Innovation.

A greater emphasis on new product rollouts and the return of fan-favorite menu items — like KFC's chicken nuggets and Taco Bell's Mexican pizza (which will come back as a permanent menu item on September 15) — helped drive demand in the quarter.

According to foot traffic analytics platform Placer.ai, nationwide visits to Taco Bell spiked on the heels of the Mexican Pizza's May reintroduction. Meanwhile, KFC locations in Charlotte, North Carolina (where the nuggets are currently being tested) saw traffic patterns surge the week of the launch.

The company reiterated its full-year growth guidance, saying it's on track with prior expectations for high-teens core operating profit growth in the second half of the year.

Yum Brands' stock is down about 10% year-to-date.

Alexandra is a Senior Entertainment and Food Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at alexandra.canal@yahoofinance.com

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