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Yum Brand shares slip on weak sales at Taco Bell, Pizza Hut still struggles

  • Yum Brands posted earnings excluding items of 68 cents a share on revenue of $1.45 billion.
  • The parent of KFC, Taco Bell and Pizza Hut had been expected to post earnings of 61 cents per share on $1.42 billion in revenue, according to Thomson Reuters estimates.
Pedestrians walk past a Yum! Brands Inc. KFC restaurant in Shanghai, China
Qilai Shen | Bloomberg | Getty Images
Pedestrians walk past a Yum! Brands Inc. KFC restaurant in Shanghai, China

Yum Brands may have topped earnings expectations Thursday, but a same-store sales miss at its Taco Bell stores sent shares sliding.

    The company, which also owns KFC and Pizza Hut, saw sales at restaurants open at least one year rise 2 percent in the second quarter ended June 30, higher than analysts' expectations of 1.8 percent, according to StreetAccount.

    Here's how Yum Brands did versus expectations:

    • EPS: 68 cents adjusted vs. 61 cents expected, according to Thomson Reuters
    • Revenue: $1.45 billion vs. $1.42 billion expected, according to Thomson Reuters
    • Global same-store sales: up 2 percent vs. up 1.8 percent expected, according to StreetAccount

    While KFC and Pizza Hut exceeded same-store sales expectations, Taco Bell's same-store sales fell short of analysts' forecasts for 5.4 percent growth. The Mexican food chain said same-store sales rose 4 percent in the quarter.

    Shares of the company fell about 1 percent on Thursday.

    Taco Bell has been a golden goose for Yum in recent quarters, helping to offset ongoing issues at Pizza Hut. The chain's innovative menu items, like the Naked Chicken Chalupa, have lured in diners and boosted sales.

    Restaurants rely heavily on quirky menu items to drive sales and attract new customers. Taco Bell, in particular, has had a strong track record, with several of its limited-time additions becoming part of its permanent menu.

    Despite the weaker-than-expected same-store sales at Taco Bell, the company exceeded analysts' earnings and revenue expectations during the quarter.

    Yum posted earnings excluding items of 68 cents a share on revenue of $1.45 billion. Yum Brands had been expected to post earnings of 61 cents per share on $1.42 billion in revenue, according to Thomson Reuters estimates.

    Net income from continuing operations fell to $206 million, or 58 cents per share, from $266 million, or 64 cents per share a year earlier.

    The company has made strides to bolster sales at its pizza division. In April, CEO Greg Creed said the company would invest $130 million towards upgrading equipment, improving restaurant technology and boosting advertising through 2018 at its Pizza Hut restaurants.

    The company struck a deal with franchisees in May for this effort, which is aimed improving brand alignment and accelerating improvements. In the latest period, Yum took steps towards these goals, and reported a $12 million charge related to investments it's making in digital initiatives at its pizza division.

    Pizza Hut has already announced that it will hire 14,000 delivery drivers by the end of 2017 and launched a loyalty program on Tuesday. The company declined to say how much of the investment money has gone toward these two initiatives.

    In 2015, Yum announced that it would invest $180 million into KFC to help boost deflated sales. The chicken chain has seen 12 quarters of same-store sales growth since third-quarter 2014.

    Yum chains compete with fast-food giants McDonald's, Restaurant Brands, and Dunkin' Brands.