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

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Yum Brands (YUM), the parent company of KFC, Taco Bell and Pizza Hut, reported second-quarter earnings that beat expectations as lockdowns in China and an exit from Russia weighed on sales, alongside macroeconomic pressures such as 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 vs $1.09 expected

  • Worldwide sales in the same store: 1% growth versus 0.75% expected growth

The lockdowns in China have severely depressed global comparable sales. Excluding China, the company reported 6% same-store sales growth.

On a per-unit basis, same-store sales were also weak — with the exception of Taco Bell, which is relatively isolated from foreign pressure compared to KFC and Pizza Hut.

KFC missed same-store sales estimates for the quarter (-1% vs. expected +0.45%). Yum removed 1,112 units in Russia from the global number of KFC units, reducing KFC’s annualized operating profit growth (excluding foreign exchange) by 4 percentage points.

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

Pizza Hut reported a larger-than-expected loss in same-store sales of -3% versus the projected -1.04%.

Ongoing staff shortages, including a recent shortage of delivery drivers, hampered 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 same-store sales worldwide at +8% versus the expected +4.03%, helped by the return of Mexican pizza and strong international growth.

Taco Bell’s US system sales grew 9%, while Taco Bell International’s system sales grew a whopping 31%.

Shares were relatively flat in pre-market trading.

“Our second quarter system sales grew 5% excluding Russia, driven by continued development momentum. Despite a complex business environment and the strongest same-store revenue growth in our history, our global business continues to thrive,” said David Gibbs, CEO of yum. in a press release, citing the impressive same-store sales results from Taco Bell.

Despite the poor quarter, there is cautious optimism that the company can recover in the second half of the year.

Last month, Goldman Sachs (GS) issued a dual stock upgrade, setting a buy recommendation with a price target of $135 per share (vs. $125).

Analyst Jared Garber claimed the fast food company’s high franchise mix and strong unit growth could help offset macro volatility. He added that technology remains a positive lifeline, crediting the digital advancement of the brand.

The company saw sales of digital systems reach nearly $6 billion in the second quarter.

Over the past 3 years, Yum has “acquired several digital/technology companies that are helping to drive both operational improvements in the restaurants and more targeted marketing opportunities,” the analyst wrote.

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

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

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

Any bright spots in the coming quarters? Innovation.

A greater emphasis on new product introductions and the return of fan favorite menu items such as KFC’s chicken nuggets and Taco Bell’s Mexican pizza (which will return as a fixed menu item on September 15) — contributed to boosting demand as innovation in the fast food sector generally slows down.

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

The company revealed during its latest earnings call that it is on track with earlier expectations for core teen growth in the second half of the year.

Yum Brands’ stock is down about 10% so far.

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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