News

Yum! Brands reports 21% profit growth

April 25, 2016

Yum! Brands reported that Q1, which ended March 19, resulted in a better-than-expected core operating profit growth of 21 percent, driven by 42 percent growth in the chain's China business. The brand in the U.S. is also improving, said CEO Greg Creed.

"KFC China had an outstanding Chinese New Year bucket promotion leading to 12 percent same-store sales growth for the quarter, underscoring the power of delivering insight-driven marketing that resonates with our customers," he said. "I'm very pleased with our results in the first quarter, including companywide, as all four of our divisions posted positive same-store sales and core operating profit growth. I'm especially encouraged by the continued turnaround of our Pizza Hut U.S. business, which delivered 5 percent same-store sales growth."

While it's early in the year, and there may be bumps ahead, the chain is confident in raising core operating profit growth guidance to 12 percent, from 10 percent previously, Creed said.

"This is a transformational year for our company as we remain on track to finalize the separation of our China business by year end"” he said. "We look forward to establishing two powerful, independent, focused growth companies dedicated to building on our brand strengths and rewarding our shareholders."

Q1 highlights:

• Worldwide system sales increased 5 percent.
• Worldwide same-store sales increased 2 percent.
• Worldwide core operating profit increased 21 percent.
• EPS excluding special items increased 19 percent to $0.95. Reported EPS increased 14 percent to $0.93.
• Foreign currency translation negatively impacted operating profit by $28 million.
• Opened 295 new restaurants worldwide; 72 percent of international development occurred in emerging markets.

China division

The brand's Chinese division reported the following:

• System sales increased 11 percent, excluding foreign currency translation.
• Same-store sales increased 6 percent, with an increase of 12 percent at KFC, partially offset by a decline of 12 percent at Pizza Hut Casual Dining.
• Opened 68 units during the quarter.
• Restaurant margin was 22.4 percent, an increase of 3.5 percentage points driven by sales leverage at KFC, productivity initiatives and commodity deflation, partially offset by labor inflation.
• Foreign currency translation negatively impacted operating profit by $13 million.
• Consistent with prior years, China division's first quarter includes January and February results only. The first quarter includes Chinese New Year, which is peak season for the China division.
• Leap year added an extra day in the quarter, resulting in an additional $6 million of operating profit.

KFC Division

The KFC Division reported the following:

• Opened 79 international restaurants in 32 countries, including 56 units in emerging markets. 77 percent of these new units were opened by franchisees.
• Operating margin increased 0.5 percentage points driven by new-unit development.
• Core operating profit grew 7 percent in the quarter excluding the incremental advertising expense associated with the 2015 agreement reached with KFC U.S. franchisees.
• Foreign currency translation negatively impacted operating profit by $13 million, as approximately 90 percent of division profits are generated outside the U.S.

Pizza Hut

Pizza Hut division reported the following:

• Opened 63 international restaurants in 27 countries, including 30 units in emerging markets. 87 percent of new units were opened by franchisees.
• Operating margin increased 3.1 percentage points, driven by same-store sales growth and reduced G&A.
• Foreign currency translation negatively impacted operating profit by $1 million.

Taco Bell

Taco Bell division reported the following:

• System sales increased 3 percent, driven by 1 percent same-store sales growth and 3 percent unit growth.
• Opened 49 new restaurants; 90 percent of new units were opened by franchisees.
• Restaurant margin was 21. percent, an increase of 1.5 percentage points driven by favorable U.S. commodities and prior-year pricing actions, partially offset by labor inflation.
• Operating margin increased 1.5 percentage points driven by new-unit development and same-store sales growth, partially offset by increased G&A primarily related to higher legal costs.