Yum Brands misses estimates as Russia exits, foreign exchange rates significantly affect sales

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

Yum Brands (YUM), the parent company of KFC, Taco Bell and Pizza Hut, reported second-quarter financial earnings that missed expectations as lockdowns in China and an exit from Russia weighed on sales, as well as macroeconomic pressures such as inflation and foreign exchange.

Here are Yum Brand’s second-quarter results compared to Wall Street estimates, as compiled by Bloomberg:

  • he won: $1.64 billion vs. $1.65 billion forecast

  • Earnings per share (EPS): $1.05 vs. $1.09 expected

  • Global Same Store Sales: 1% growth vs. 0.75% expected growth

Lockdowns in China have reduced comparable global sales. Excluding China, the company reported same-store sales growth of 6%.

On an individual business unit basis, same-store sales were also weak – with the exception of Taco Bell, which is relatively insulated from outside pressures compared to KFC and Pizza Hut.

KFC missed its same-store sales estimate for the quarter (-1% vs. +0.45% expected). Yum removed 1,112 units in Russia from the number of global KFC units, causing year-on-year operating profit growth for KFC (excluding foreign exchange) to fall by 4 percentage points.

The company said that KFC store sales in China outside of China grew by 7%. China is Kentucky Fried Chicken’s largest market in terms of system-wide sales at 27%. It is the second largest Pizza Hut at 16%.

Pizza Hut posted a bigger-than-expected same-store selling loss of -3% vs. -1.04% expected.

Ongoing staff shortages, including the recent shortage of a delivery driver, have hampered the ability to meet demand. Yum also removed 53 units in Russia from the number of Pizza Hut’s global units.

Excluding China, Pizza Hut International’s store sales grew 6%.

Taco Bell was the only company to beat estimates with global same-store sales coming in at +8% vs. expected +4.03%, buoyed by the return of Mexican pizza and strong international growth.

U.S. Taco Bell System sales grew 9%, while Taco Bell International system sales increased 31%.

The shares were relatively flat in pre-market trading.

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

Despite the lackluster quarter, there is cautious optimism that the company could rebound again in the second half of the year.

Last month, Goldman Sachs (GS) issued a dual upgrade to the stock, setting a buy rating with a target price of $135 per share (up from $125).

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

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

Over the past three years, the analyst wrote, “Yum has acquired several digital/tech companies that help drive in-restaurant operational improvements as well as more targeted marketing choices.”

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

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

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

Another bright spot in the coming quarters? innovations.

More focus on new product launches and the return of fan-favorite menu items – like Kentucky Fried Chicken and Taco Bell’s Mexican pizza (which will be back in the form of Permanent List Items 15th September) – Help drive demand as innovation in the fast food space in general slows.

According to foot traffic analytics platform, Placer.ai, visits nationwide to Taco Bell are up following the reintroduction of Mexican pizza in May. Meanwhile, Kentucky Fried Chicken locations in Charlotte, North Carolina (where the coins are currently being tested) saw increased traffic patterns in launch week.

The company revealed during its latest earnings call that it is on track with previous forecasts of core operating earnings growth for teens in the second half of the year.

Yum Brands stock is down about 10% since the start of the year.

Alexandra is the Senior Entertainment and Food Correspondent at Yahoo Finance. Follow her on Twitter aliecanal8193 And email it to alexandra.canal@yahoofinance.com

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