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    For Better and for Worse, Yum! Brands Defies Q1 Estimates

  • Same-store sales growth came up short, but revenue beat industry forecasts.

    Taco Bell
    Taco Bell may have lost its CEO to Chipotle, but the brand is still going strong.

    The first quarter of 2018 proved a mixed bag for Yum! Brands. Same-store sales growth fell short of industry expectations, but the company did manage beat revenue forecasts thanks in no small part to Taco Bell—arguably the overachiever of the trio.

    Consensus Matrix estimated same-store sales growth to increase 2 percent, up 2.8 percent at KFC, 1.8 percent at Pizza Hut, and 0.5 percent at Taco Bell. Ultimately growth stalled at just 1 percent, up 2 percent at KFC, 1 percent at Pizza Hut, and 1 percent at Taco Bell.

    And while analysts had revenue sliding more than 20 percent to $1.09 billion, Yum posted $1.37 billion with net income up $433 million or $1.27 per share.

    On the earnings call Wednesday morning, CEO Greg Creed emphasized Yum’s future-facing strategies—and the time necessary to cultivate success in those efforts.”

    “The turnaround in the U.S. will be gradual build,” Creed said of Pizza Hut, adding that the same-store sales growth as it sounds now was “not acceptable.”

    “I understand we have a lot of work to do to turn it around.”

    The brand may not be ready to unseat No. 1 pizza chain Domino’s, but it is expanding its reach. In February Pizza Hut became the official pizza of the NFL following Papa John’s controversial criticism of and break with the league. Given Pizza Hut already reserves that title in NCAA basketball, the new partnership with the NFL could give the chain its desired boost in the forthcoming season.

    In terms of initiatives, KFC had a relatively quiet quarter. The brand brought back its Extra Crispy chicken (this time in sandwich form), and Reba McEntire made her debut as the first woman to don Colonel Sanders’ signature white suit and goatee. But the most exciting Q1 initiative for KFC—and sister concept Taco Bell—was delivery. In early February, Yum announced its new partnership with third-party delivery service GrubHub, which promised to bring delivery to thousands of restaurants in its system. 

    On the call, Creed noted that not only was corporate leadership enthusiastic about this partnership, but franchisees were excited to implement delivery, too. Following successful tests, Yum will integrate GrubHub technology into the POS systems of KFC and Taco Bell locations, Creed said.

    Although Taco Bell was a relative bright spot amid an otherwise lackluster earnings report, the brand did suffer a blow in the first quarter. Chipotle poached CEO Brian Niccol in February—a move that has already boosted the Mexican fast casual’s quarterly earnings.

    Despite this loss (and the fact that Taco Bell remains without a CEO to this day), the brand maintained its momentum, which Creed credited largely to its Nacho Fries. The limited-time offer sold 53 million in the first five weeks alone.

    Behind the scenes, Yum Brands is doubling down on its commitment to diversity. In March, the company announced its plans to become a more attractive employer for women at all levels with a goal of reaching gender parity in senior leadership by 2030.

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