LOUISVILLE, Ky. – Yum! Brands Inc. reported a 7 percent gain in core operating profit for its second quarter which proved a solid enough performance for the company to raise its full-year core operating profit guidance to 14 percent from 12 percent.
Results were helped by the company’s China division which reported system sales gained 3 percent excluding foreign currency translation. Yum! noted that the company is on track to complete the spin-off of its China business by Oct. 31. During the quarter, Yum! reported a Special Items charge of $10 million for costs related to the spin-off and the company’s recapitalization.
|Greg Creed, CEO of Yum! Brands
“I’m particularly pleased with the continued sales momentum at KFC China, which delivered better-than-expected same-store sales growth of 3 percent,” CEO Greg Creed said in a statement. “This represents our fourth-consecutive quarter of positive same-store sales growth at KFC China despite the second quarter being our most difficult of the year from a historical sales overlap standpoint. Importantly, our China Division is off to a good start in the third quarter for both KFC and Pizza Hut Casual Dining, including a return to positive same-store sales at Pizza Hut Casual Dining in recent weeks.”
Outside of China, Creed said, challenging conditions weighed on sales results in the United States. However the company remains confident in plans to drive second-half sales growth by a continued focus on innovation, value and core products.
On a division basis:
China same-store sales were flat with a 3 percent increase reported for KFC which was offset by an 11 percent decline at Pizza Hut Casual Dining, Yum! Brands reported. Operating profit climbed 6 percent. The China division opened 72 new units during the quarter.
KFC reported division system sales increased 6 percent, excluding foreign currency translation. Operating margin increased 0.5 percentage points on new-unit development. The division opened 132 new international restaurants in 42 countries including 90 units in emerging markets, the company said.
Foreign currency translation weighed on the KFC Division operating profit by $9 million. Approximately 90 percent of division profits are generated outside of the United States.
System sales in the Pizza Hut Division climbed 1 percent. The division opened 84 new restaurants in the 38 countries including 45 emerging markets. Yum! Brands noted that 94 percent of new international restaurants were opened by franchisees.
The Taco Bell Division reported a 2 percent increase in system sales, driven by 3 percent unit growth and partially offset by lower same-store sales of 1 percent. Taco Bell opened 48 new restaurants, 88 percent of which were opened by franchisees.
Overall, for the second quarter ended June 11, 2016, the company reported net income of $339 million, or 81 cents per diluted share, compared with 235 million, or 53 cents per share in the year-ago quarter.
Revenue for the period, which includes franchisee licensing fees, retreated 3 percent to $3.008 billion.
“This is a transformational year for our company as we remain on track to finalize the separation of our China business with a targeted completion date around Oct. 31, 2016, ultimately creating two powerful, independent, focused growth companies,” Creed concluded. “Our capital structure is fully in place and we plan to return a significant amount of capital to shareholders both prior to and after the spin.”