Yum! Brands Misses Revenue Expectations Due to Slower Pizza Hut Sales

Yum! Brands

Yum! Brands (NYSE:YUM) reported its Q3 earnings, surpassing expectations in adjusted earnings per share (EPS) but falling short on revenue. The lackluster sales performance of Pizza Hut weighed on the overall results, while Taco Bell and KFC continued to drive growth for the fast-food conglomerate.

Q3 revenue came in at $1.71 billion, missing estimates of $1.77 billion, while adjusted EPS was $1.44, surpassing Wall Street’s expectation of $1.27.

In the third quarter, same-store sales increased by 6%, with KFC up 6% and Taco Bell up 8%, both exceeding estimates. Yum! Brands CEO David Gibbs referred to these two brands as “twin growth engines,” with KFC demonstrating strength in both developed and emerging markets. The performance of KFC in China, where a quarter of its sales are generated, outperformed expectations, with total restaurant sales increasing by 16%. In contrast, sales in the US remained flat. The introduction of chicken nuggets last summer was well-received, and the company plans to further promote boneless items.

Taco Bell continued to perform well in the US, benefiting from higher-income consumers trading down to more affordable options during economic uncertainties. According to TD Cowen analyst Andrew Charles, the reintroduction of the Volcano Menu, a nostalgic menu item from the 2000s, may have contributed to increased orders, as it ranked as the second most requested historical item after the Mexican Pizza.

On the other hand, Pizza Hut’s performance disappointed, with same-store sales growing by just 1% in the quarter, while the Habit Burger Grill Division experienced a 5% decline in same-store sales.

Year-to-date, Yum! Brands’ shares have decreased by nearly 6%, compared to the S&P 500’s 8.5% gain.

Key Earnings Figures

  • Adjusted EPS: $1.44 (versus expected $1.27)
  • Revenue: $1.71 billion (versus expected $1.77 billion)
  • Same-Store Sales: 6% (versus expected 4.93%)

During the quarter, the company expanded its brand portfolio by adding 1,130 new locations. Digital sales played a significant role, surpassing $7 billion in the quarter and accounting for 45% of total sales, emphasizing the importance of digital channels and loyalty programs.

Prior to the earnings report, Baird analyst David E. Tarantino noted that Yum! Brands are well-positioned to navigate macroeconomic uncertainties and maintain solid franchisee-led unit growth, thanks to its strong brand portfolio. This resilience allows Yum! Brands to withstand various economic scenarios.

Featured Image: Unsplash @ Saumya Rastogi

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