Yum Brands achieved solid sales growth in its recent quarter, as the company entered a new chapter focusing on its key brands following the recent sale of Pizza Hut.
For the second quarter ended June 30, worldwide system sales grew 5 per cent year-on-year. Unit count rose 5 per cent, with 1053 gross new units, and core operating profit improved 5 per cent.
Excluding Pizza Hut, system sales grew 7 per cent, with same-store sales up 4 per cent. Core operating profit jumped 8 per cent.
Last month, the company agreed to sell its Pizza Hut business for approximately $2.7 billion. The divestment will be made through two separate transactions, with Pizza Hut excluding Mainland China acquired by LongRange Capital for approximately $1.5 billion and Pizza Hut in Mainland China absorbed by Yum China for $1.2 billion.
Ben Parker, associate consulting director at GlobalData, said the latest numbers underscore that Pizza Hut has been something of a millstone around Yum’sneck.
“Yum’s second quarter results come at a pivotal time for the group,” Parker said.
“The recently agreed $2.7 billion sale of Pizza Hut is one of the most fundamental changes to the firm’s composition in years. And that sale makes it clear that management is focused on driving quality growth rather than simply maintaining scale. However, a smaller portfolio will also intensify scrutiny of the remaining brands,” he added.
Taco Bell is ‘the star of the show’
Taco Bell had a successful quarter with system sales soaring 9 per cent and same-store sales growing 7 per cent.
“Taco Bell remains the star of the show,” Parker said. “As Yum is now more reliant on Taco Bell for growth, it is essential that the group moves quickly to restore confidence and trust in the brand – the loss of which has been considerable, at least in the short term.
“Of course, this stellar performance will come under pressure in the next quarter thanks to the high-profile Cyclospora outbreak,” he added.
At KFC, system sales were up 6 per cent, and same-store sales improved 2 per cent. According to the analyst, sales were driven by expansion, as well as the continued popularity of boneless menu items, strong consumer interest in chicken, and some good digital innovations.
Pizza Hut’s system sales slid 2 per cent, with same-store sales down 1 per cent. This further shows that the disposal of Pizza Hut makes sense and that Yum has picked its best fighters and is now looking to invest further to drive more growth, Parker said.
“In our view, this investment should flow in the direction of menu innovation, restaurant remodels, franchise support, and improvements in technology. There are proof points that this works, including the menu enhancements around sauces and beverages made at KFC, which are improving interest and consumer engagement,” he added.
Looking ahead, Yum continues to target 5 per cent unit growth, 7 per cent system sales growth, and at least 8 per cent core operating profit growth.
