Q3 2024 Earnings Summary
- Taco Bell's strong performance, with +4% same-store sales growth in the U.S. and positive international same-store sales, showcases the brand's unique ability to provide innovative value offerings that drive customer engagement and margin growth.
- Successful implementation of AI-driven technologies, such as personalized marketing campaigns and voice AI in drive-thrus, is enhancing customer experience and operational efficiency, positioning Yum! Brands as a leader in digital innovation within the QSR industry.
- Despite challenges, Yum! Brands achieved 6% core operating profit growth year-to-date, reflecting the resilience of its business model and the strength of its dual growth engines, with expectations for continued performance driven by digital capabilities and investments in long-term growth.
- Yum! Brands faces a potential risk of not achieving its targeted 5% net new unit growth this year, with current projections between 4.5% and 5.0%, due to elevated closures and challenging global conditions.
- Approximately two-thirds of the deceleration in net new unit growth stems from markets directly or indirectly impacted by conflicts, particularly in the Middle East, leading to weakness in those regions.
- Some smaller franchisees are struggling financially in conflict-affected areas, leading to elevated closures and the need to transition businesses, which may result in complexities and potential onetime accounting adjustments.
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Core Operating Profit Growth | Q3 2024 | At least 8% core operating profit growth for FY 2024 | Q3 2023 Operating Income = 613, Q3 2024 Operating Income = 619→ ~1% YoY growth | Missed |
G&A Expense (YoY Change) | Q3 2024 | Expected to be lower on a YoY basis by a low single-digit percentage, excluding the 53rd week | Q3 2023 SG&A = 267, Q3 2024 SG&A = 263→ ~1.5% YoY decrease | Met |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
8% Core Operating Profit Growth | Confidence in Q2, Q1, and Q4 2023 calls, reiterating a firm commitment to reach 8% despite volatile conditions. | Emphasis on the 8% target but sentiment turned more uncertain after achieving only 6% YTD in a challenging environment. | Shifted from confidence to caution |
Taco Bell | Maintained robust growth in Q2 (5%), Q1 (2%), and Q4 2023 (3%), driven by menu innovation and value offerings. | Posted a 4% same-store sales increase, continuing to outperform U.S. QSR peers. Attributed to strong value perception, innovation, and digital engagement. | Ongoing strong performance |
KFC International | Consistenly high expansion in Q2, Q1, and Q4 2023, reflecting strong brand power and franchisee returns. | Achieved 9% YOY unit growth, leading competition. Franchisees remain confident, with paybacks under 5 years in most key markets. | Stable strong expansion |
KFC U.S. Brand Reset | Called for a bold reset in Q1; minimal or no mention in Q2 and Q4 2023. | No explicit “brand reset” language, though competitive pressures in chicken QSR and new boneless offerings were discussed. | Reduced commentary |
Digital and AI | Q2 saw accelerated Voice AI tests; Q1 focused on pilots in a handful of stores; Q4 detailed broader rollout across KFC and Pizza Hut. | Voice AI in 300+ Taco Bell stores, AI-driven marketing campaigns showing higher engagement. Plans to expand AI solutions in labor scheduling and inventory management. | Growing strategic focus |
Middle East Conflict | Continual headwinds in Q2, Q1, and Q4 2023, covering forced closures and volatility in several regions. | Significantly impacted sales in some markets (15–45% declines). Risk of more store closures and caution on net unit growth. | Sustained challenge |
China Closures | No direct mention in Q2, Q1, or Q4 2023. | Newly highlighted as a risk for net unit growth, contributing to closures of lower-volume stores. Current estimate is 4.5–5.0% net growth. | Recently emerged issue |
Pizza Hut U.S. Underperformance | Q2 indicated some improvement; Q1 saw a 6% decline but better two-year trends; Q4 2023 declined 4%. | Showed initial traffic gains in Q3 but struggled to counter deep discounting by competitors. | Gradual improvement |
Emerging Markets (Lower AUVs) | Earlier caution in Q1 about lower volumes but faster growth potential; little to no references in Q2 or Q4 2023. | No direct mention of lower-AUV emerging markets or related concerns. | Dropped from discussion |
Macroeconomic Pressures | Noted in Q2 as cost-conscious demand and conflict concerns; Q1 addressed discrete consumer challenges; Q4 emphasized value in the U.S. | Described as a complex consumer environment with regional variability. Working with franchisees on pricing and value to protect margins. | Remains a persistent factor |
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Operating Profit Growth Outlook
Q: How confident are you in achieving 8% profit growth next year?
A: Christopher Turner acknowledged that they are likely to end below their 8% operating profit growth target for this year due to sales not meeting expectations in key markets like China and the Middle East, impacted by conflicts. However, he stated they are still working through plans for 2025 and see "no major things that are unusual right now" as they consider that plan. -
Net Unit Growth Outlook and Risks
Q: Is there risk of not hitting 5% net unit growth this year?
A: David Gibbs indicated there is risk to the 5% net unit growth target, with numbers rolling up in the 4.5% to 5.0% range. Higher closures are attributed to lower-volume stores and impacts from conflicts, particularly in the Middle East. However, they view this as not a widespread issue and expect long-term growth after addressing these challenges. -
Managing Profitability Amid Macro Pressures
Q: How will you manage profitability if macro pressures continue?
A: Christopher Turner stated they are still working on the 2025 plan but see "nothing significantly unusual" at this time. He emphasized their twin growth engines continue to perform strongly, and they have made productivity moves this year that will continue to benefit them, despite expected resets of incentive compensation. -
Q4 Guidance for Global Same-Store Sales
Q: What's the base case for global same-store sales in Q4?
A: David Gibbs noted it's a difficult environment to forecast sales globally but mentioned that trends seen in Q3 are continuing into Q4. He highlighted the continued momentum of Taco Bell's performance, with positive same-store sales in both the U.S. and internationally. -
KFC Q4 Comp Trends
Q: How are KFC comps expected in Q4 given macro pressures?
A: David Gibbs explained that although it's hard to forecast KFC sales due to conflicts affecting certain regions, they haven't yet reached the point where the impacts start to lap. He expects the lap to get better as they pass the one-year anniversary of the conflict, which should lead to a change in the trajectory of KFC sales. -
AI-Enabled Digital Initiatives
Q: Can you give more color on AI marketing and drive-thrus?
A: Christopher Turner discussed their AI-driven marketing, enabling personalized offers and rapid refinement using their massive data assets. On AI voice drive-thrus, he noted the results have been outstanding, improving customer experience and team member satisfaction, with rollout pace faster than originally envisioned due to operator and franchisee enthusiasm. -
Potential for Fee Collection from Franchisees
Q: Can you improve G&A by collecting fees from franchisees?
A: David Gibbs stated their goal with technology is to provide franchisees the best tech at the lowest possible cost. By offering technologies like voice AI at lower costs than competitors, they believe franchisees will see benefits in sales and margins, leading to more store builds and top-line growth. -
Taco Bell Value Positioning
Q: How did Taco Bell protect and expand value positioning?
A: David Gibbs highlighted that Taco Bell can offer unique value products that competitors can't, which helps franchisee margins. He mentioned the launch of the decades menu and the $7 Lux Box as ways to bring innovation and value to consumers.