Yum Brands misses estimates as Russia exit, FX weigh heavily on sales

Yum Brands misses estimates as Russia exit, FX weigh heavily on sales

Editor’s Note: This post is out of stock and will be updated

Yum Brands (YUM), the parent company of KFC, Taco Bell and Pizza Hut, reported fiscal second-quarter results that beat expectations as China shutdowns and an exit from Russia weighed on sales, in addition to macroeconomic pressures such as inflation and exchange rates.

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

  • Revenue: $1.64 billion vs $1.65 billion expected

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

  • Worldwide same-store sales: 1% growth vs. 0.75% growth expected

Closures in China weighed heavily on global comparable sales. Excluding China, the company recorded same-store sales growth of 6%.

On an individual business unit basis, same-store sales were also weak — with the exception of Taco Bell, which is relatively immune to foreign pressures compared to KFC and Pizza Hut.

KFC missed estimates for same-store sales for the quarter (-1% vs. +0.45% expected.) to fall 4 percentage points.

KFC’s non-China same-store sales rose 7%, the company said. China is KFC’s largest market in terms of system-wide sales with 27%. This is the second largest for Pizza Hut at 16%.

Pizza Hut reported a bigger-than-expected same-store sales loss of -3% versus -1.04% expected.

Ongoing staff shortages, including a recent shortage of delivery drivers, have affected 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 increased 6%.

Taco Bell was the only company to beat estimates with global same-store sales up +8% versus +4.03% expected, helped by the return of Mexican pizza and strong international growth.

Sales of Taco Bell systems in the United States increased 9%, while sales of Taco Bell International systems jumped 31%.

The shares were relatively flat in premarket trading.

“Our second quarter systems sales grew 5% excluding Russia, driven by strong development momentum. Despite a complex operating environment and the strongest same-store sales growth in our history, our global businesses continue to perform well. “said Yum CEO David Gibbs. in a press release, citing Taco Bell’s impressive same-store sales results.

Despite the lackluster quarter, there is cautious optimism about the company’s ability to rebound in the second half.

Last month, Goldman Sachs (GS) released a double upgrade for the stock, setting a buy rating with a price target of $135 per share (down from $125 previously).

Analyst Jared Garber argued that the fast food company’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 its second-quarter digital systems sales reach nearly $6 billion.

Over the past 3 years, Yum has “acquired several digital/technology companies that contribute to both restaurant operational improvements and more targeted marketing options,” the analyst wrote.

“We see these investments as a winning formula for the continued growth of the unit and [same-store sales] growth, while helping to improve operations and profits for franchisees, and helping to drive the market share growth opportunity of the YUM platform,” he continued.

Yum Brands revealed that Taco Bell will increase its international presence as the brand builds on popular menu items like Mexican pizza.

Another glimmer of hope in the coming quarters? Innovation.

A greater focus on rolling out new products and bringing back fan-favorite menu items – like KFC’s Chicken Nuggets and Taco Bell’s Mexican Pizza (which will return as a permanent menu item September 15) – has helped drive demand as innovation slows across the fast food industry.

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

The company revealed on its latest earnings call that it was on track with past expectations for growth in teenage core operating profit in the second half.

Yum Brands shares are 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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