Yahoo Finance Yum Brands Inc (YUM) Q1 2024 Earnings Call Transcript Highlights: Strategic Growth and Digital ...
Core Operating Profit Growth: 6% increase this quarter.
Digital Sales: Approaching $8 billion, up 11% year-over-year.
Annualized Digital Sales: $30 billion, representing over 50% of system sales in Q1.
KFC System Sales: Grew 4% this quarter, with 8% unit growth and a 2% decline in same-store sales.
Taco Bell U.S. System Sales: Grew 4%, with 2% same-store sales growth.
Pizza Hut System Sales: Declined 4%, with 5% unit growth and a 7% decline in same-store sales.
The Habit Burger Grill System Sales: Declined 2% with 6% unit growth.
First Quarter System Sales: Grew by 2% driven by 6% unit growth.
First Quarter Core Operating Profit: Grew 6%, exceeding internal plans.
First Quarter EPS: Ex special EPS was $1.15, including negative impacts from investment losses and foreign currency translation.
Q1 General and Administrative Expenses: $265 million, down 4% year-over-year.
Net Capital Expenditures: $38 million for the quarter.
Net Leverage Ratio: Ended the quarter at 4.1x.
Cash Balance: Ended at $652 million.
Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Yum Brands Inc (NYSE:YUM) reported a 6% growth in core operating profit this quarter, demonstrating resilience in a challenging operating environment.
Digital sales continued to rise, reaching approximately $8 billion, an 11% increase year-over-year, with digital transactions now representing over 50% of system sales.
The acquisition of 218 KFC franchise restaurants in the U.K. and Ireland is expected to add approximately $40 million of incremental EBITDA in the next 12 months.
Yum Brands Inc (NYSE:YUM) opened over 800 new units in the first quarter, including the milestone of KFC's 30,000th global restaurant, indicating strong development momentum.
Significant advancements in proprietary digital and AI-powered platforms, with ongoing deployment across brands, enhancing operational efficiency and customer experience.
Negative Points
Same-store sales faced pressures, including a 2% decline at KFC International, primarily due to impacts from the conflict in the Middle East.
Pizza Hut division experienced a 4% decline in system sales and a 7% drop in same-store sales, continuing to face challenges in lapping previous year's high performance metrics.
The Habit Burger Grill saw a 2% decline in system sales despite a 6% growth in unit numbers, indicating potential operational or market challenges.
General and administrative expenses, although reduced by 4%, included $21 million related to ongoing resource optimization, indicating potential restructuring costs.
Despite overall growth, the operating environment remains challenging with discrete consumer demand pressures and inflationary concerns impacting performance.
Q & A Highlights
Q: Encouraging to see the G&A curve bending. Can you provide some context around what's flowing through that line to help move it lower and maybe where you anticipate this moving over the long term for the business? A: Christopher Lee Turner - Yum! Brands, Inc. - CFO: We expect that ex special G&A on a 52-week basis will be flat to slightly down. Factors influencing this include lapping the cyber event last year, some expenses related to the acquisition of stores in the U.K., and our resource optimization program which has allowed us to find efficiencies. We're also driving productivity by deploying more of our technology through increased franchisee adoption.
Q: You reiterated your 2024 target to grow core operating profit in line with your long-term algorithm of at least 8%. What's the global same-store sales base case that you're thinking is required for the rest of the year to comfortably reach your operating profit goals? A: David W. Gibbs - Yum! Brands, Inc. - CEO & Director: We don't provide quarter-to-quarter same-store sales guidance, especially in this environment. We're preparing for various scenarios to achieve the 8% number, with a strong lever being on the development front. Forecasting same-store sales growth is challenging given the current impacts.
Q: Can you provide more color on international, KFC International, Pizza Hut International? What were some of the highlights and lowlights on same-store sales trends in terms of your brand geography combinations? A: David W. Gibbs - Yum! Brands, Inc. - CEO & Director: KFC International grew system sales 6%, adjusting for Middle East impacts to 8-9%. Strong growth was seen in Africa and Latin America. The international consumer is emphasizing value, which KFC is well equipped to navigate.
Q: Could you provide more detail on bending the curve on digital and technology spend, especially how it might influence '25 and '26 type of total G&A growth? A: Christopher Lee Turner - Yum! Brands, Inc. - CFO: We invested ahead in digital and technology, which initially created pressure on the G&A line. As we deploy our platforms to more markets and get increased adoption, we expect to get increasing leverage on our G&A, and it should come down over the long run.
Q: Could you speak a bit more to how you think about the trajectory of the brands in the U.S., especially with tougher comparisons and weather headwinds behind you? A: David W. Gibbs - Yum! Brands, Inc. - CEO & Director: Taco Bell U.S. improved throughout Q1 and into Q2, showing acceleration in same-store sales growth trends. Taco Bell is well positioned for a more normal consumer environment, emphasizing value. Pizza Hut U.S. saw an acceleration of 2-year trends in Q1 versus Q4.
Q: What impact did the Middle East conflict have and is it dissipating? Are you doing anything specific like brand marketing to mitigate this? A: David W. Gibbs - Yum! Brands, Inc. - CEO & Director: The impact from the Middle East conflict is dissipating over time, which is usually the case with global issues we face. We're not doing anything special beyond our usual strategies to recover from such impacts.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
