Yum Brands (YUM) Missed Q2 2022 Earnings Estimates

On Wednesday, Yum Brands reported mixed quarterly results as Covid lockdowns in China weighed on sales at KFC and Pizza Hut.

Taco Bell, however, saw stronger same-store sales growth in the United States, fueled by higher menu prices. It has a much smaller international presence than its sister channels.

Here’s what the company reported compared to what Wall Street expected, based on a Refinitiv analyst survey:

• Earnings per share: $1.05 adjusted vs. $1.09 expected
• Revenue: $1.64 billion, in line with expectations

Net sales for the quarter increased 2% from a year ago to $1.64 billion. The company’s global same-store sales rose 1%, driven by the Covid shutdowns in China. Excluding China, it recorded same-store sales growth of 6%.

KFC’s worldwide same-store sales were down 1%. China is the fried chicken chain’s biggest market, accounting for more than a quarter of its sales. In the United States, its second largest market, same-store sales fell 7%. Yum executives said on a conference call that the chain faced tough comparisons to the time a year before when it released a revamped chicken sandwich.

Similarly, Pizza Hut also saw its sales drop in the United States and China. The chain’s global same-store sales fell 3% as US demand for its pizzas slowed and sales in China fell 14%, excluding currency changes.

Yum said consumers around the world are increasingly cautious, pushing the restaurant company to rely more on value offerings around the world.

“If you look at the United States, I think what’s happened in the last quarter is that the pullout of low-income consumers has become more pronounced,” Yum CEO David Gibbs said. .

But he added that it was “probably a bit too simplistic” to say that higher-income consumers handle inflation better than lower-income ones. He noted the complex economic environment, which is clouded by rising wages, last year’s stimulus checks, reactions to the war in Ukraine and the pandemic.

Taco Bell was the only Yum chain to record global same-store sales growth. Its restaurants saw same-store sales rise 8%, fueled by price increases. Traffic to restaurants was steady, which Gibbs said shows the chain’s customers have not yet been deterred by rising menu prices.

The chain also benefited from its popular Mexican Pizza promotion, which sold out much earlier than expected. The chain plans to bring the menu item back in September as a permanent addition. Taco Bell’s margins were unchanged from a year earlier, showing it has been successful in mitigating inflation through price increases.

For the three months ended June 30, Yum reported net income of $224 million, or 77 cents per share, compared with $391 million, or $1.29 per share, a year earlier.

Excluding the impact of the withdrawal from Russia, refranchising gains and other items, the restaurant company earned $1.05 per share in the second quarter.

Since March, Yum has suspended all investment and development in Russia due to the Kremlin’s invasion of Ukraine. The company has redirected all company profits to humanitarian causes as it seeks new owners for its Russian restaurants. In June, it finalized the sale of its Russian Pizza Hut business to an operator who will rebrand the locations.

The company said on Wednesday it was in the “advanced stages” of selling its KFC business in Russia. Once this process is complete, Yum will have completely left Russia. The market accounted for 2% of Yum’s system-wide sales in 2021.

Yum’s total number of restaurants fell by 702 locations during the quarter. The company eliminated 1,165 Russian locations from its system, offsetting the 463 net new units it opened.

Read the full earnings report here.