Taco Bell parent earnings beat, fueled by strong demand for KFC
- Yum Brands topped Wall Street's estimates for its third-quarter earnings and revenue.
- The company reported same-store sales growth of 5%, falling short of StreetAccount's estimates.
- KFC's same-store sales climbed 6% in the quarter.
Yum Brands on Thursday reported quarterly earnings and revenue that topped analysts' expectations, fueled by strong demand for KFC's fried chicken.
However, with late-night and breakfast sales still pressured by the coronavirus pandemic, Taco Bell's performance was weaker than expected, and led to a shortfall in Yum's same-store sales growth.
Shares of the company fell 1.5% in morning trading.
Here's what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:
- Earnings per share: $1.22 adjusted vs. $1.08 expected
- Revenue: $1.61 billion vs. $1.59 billion expected
The company reported fiscal third-quarter net income of $528 million, or $1.75 per share, up from $283 million, or 92 cents per share, a year earlier.
Excluding items, Yum earned $1.22 per share, beating the $1.08 per share expected by analysts surveyed by Refinitiv.
Like other restaurant companies, Yum is facing higher inflation, particularly in the United States. But executives shook off worries about costs eating into margins, citing its scale in the U.S. and adding that international markets account for 60% of sales.
Net sales rose 11% to $1.61 billion, topping expectations of $1.59 billion. Across all of its chains, same-store sales increased by 5%. Wall Street was expecting same-store sales growth of 5.8%, according to StreetAccount estimates.
The global spread of the Covid delta variant weakened demand for Yum's pizza, chicken and tacos in some key Asian markets. Some customers may have stuck to ordering their food to go or choosing delivery. Yum said it is seeing sustained momentum in digital sales, which accounted for roughly 40% of orders this quarter. Systemwide digital sales topped $5 billion in the quarter.
KFC's same-store sales climbed 6% after falling 4% a year ago. While growth in China, its largest market, was muted during the quarter, its home market saw same-store sales climb 4%. On a two-year basis, U.S. same-store sales were up 13%. As of July, its digital sales year to date surpassed those for all of 2020.
Pizza Hut reported same-store sales growth of 4% as international markets bounced back. In the United States, its same-store sales rose by just 2% as it faced tough comparisons with a year ago and staffing challenges. On a two-year basis, Pizza Hut's U.S. same-store sales are up 8%. Domestic off-premise sales climbed 17% in the quarter, fueled by accelerated growth of its carryout business.
Taco Bell's same-store sales rose 5% in the quarter and 8% on a two-year basis. The chain has struggled to recover late-night and breakfast sales throughout the pandemic, but it relaunched its breakfast in August. The Mexican-inspired chain's same-store sales had the biggest miss of Yum's portfolio. Estimates from StreetAccount forecast that the chain would report same-store sales growth of 6.2%.
"It does have its own unique challenges since it skews a little bit more towards individual meals versus family occasions," Yum CEO David Gibbs told analysts. "You're seeing the brands like Pizza Hut and KFC that skew towards family occasions performing even better, but Taco Bell performance is strong."
Yum added 760 net new locations across all of its brands during the quarter, setting a record for the company.