'Malaise in the US' challenges Yum! Brands

by Monica Watrous
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 KFC
KFC marked its eighth consecutive quarter of same-store sales growth in the US behind the strength of recent promotions, such as Extra Crispy chicken.
 
LOUISVILLE, Ky. — Yum! Brands, Inc. executives hope to drive improved sales performance at KFC, Taco Bell and Pizza Hut over the next six months after “a malaise in the US” challenged results in the recent quarter, said Greg Creed, CEO.
Greg Creed, Yum! Brands
Greg Creed, CEO, Yum! Brands Inc.

“Outside of China, challenging industry conditions in the US contributed to soft sales results,” Creed said during a July 14 earnings call with financial analysts. “However, our three brand divisions in the aggregate delivered core operating profit growth largely in line with our expectations and remain on track to deliver against their full-year core operating profit growth targets. We are confident in our plans to drive second-half sales improvement led by a continuous focus on innovation, value and our core products.”

At Pizza Hut, same-store sales grew 1 percent in the United States, which makes up approximately 60 percent of the division’s sales.

“While second-quarter results in the US were softer than expected as competitors responded to our first-quarter success with more aggressive promotions, we are pleased to see transaction growth in the US and a continuation of the positive sales trends in our US business,” Creed said. “We believe our focus on making it easier to get a better pizza, whether it be by providing consistent value through the $5 Flavor Menu and $6.99 ANY Medium Pairs Deal, or by improvements in technology...”

KFC marked its eighth consecutive quarter of same-store sales growth in the United States, up 2 percent from the prior year, behind the strength of recent promotions, such as Extra Crispy chicken.

“As further evidence we are gaining traction with our strategy in the US, our two-year same-store sales growth lapped 3 percent growth in the prior year, so on a two-year basis, comps were plus 5%,” Creed said.

Same-store sales at Taco Bell in the United States declined 1 percent, which compared with a gain of 6 percent in the year-ago quarter.

 

“While a plus 5 percent on a two-year stack is ahead of the category, we expect more out of Taco Bell given the strength of this brand,” Creed said. “In the current environment, we need to pair innovation with value that clearly resonates with our consumers.

 Taco Bell
Taco Bell's $5 Cravings Deal bundle improved results toward the end of the second quarter.
 

 

“For example, our $5 Cravings Deal bundle improved results toward the end of the second quarter, and through the first five weeks of the third quarter, same-store sales are positive. We believe that the Taco Bell brand is extremely well-positioned to succeed in a challenging environment. In market research, Taco Bell always ranks as one of the top brands in providing value and innovation to consumers.”

Based on first-half results and current trends in China, the company raised its full-year core operating profit growth forecast to at least 14 percent from 12 percent.

“2016 is truly a transformational year for Yum!,” Creed said. “We are confident we will deliver at least 14 percent core operating profit growth, and I’m pleased with the momentum in our China business as we near completion of the China separation.”

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