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

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

Editor’s Note: This post is breaking and will be updated

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.

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

Despite the lackluster quarter, there is cautious optimism that the company can bounce back in the second half of the year.

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.

Over the last 3 years, Yum has “acquired several digital/technology companies that are helping to drive both in-restaurant operational improvements as well as more targeted marketing optionality,” the analyst wrote.

“We view these investments as a winning formula for continued unit growth and [same-store sales] growth, while helping to improve franchisee operations and profits, and helping to drive YUM’s platform business share-growth opportunity,” he continued.

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

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) — has helped drive demand as innovation slows in the fast food space overall.

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 revealed during its last earnings call that 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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