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    YUM
    Earnings call· Mar 2025(Q1 FY25)

    YUM BRANDS INC YUM

    Apr 30, 2025 Source

    Executive summary

    Yum! Brands Q1 FY25 — Strong Profit Growth Driven by Taco Bell U.S. and KFC International

    Yum! Brands delivered strong Q1 FY25 results, driven by exceptional performance from Taco Bell U.S. and KFC International, which fueled an 8% core operating profit increase. The company is leveraging its AI-powered digital platform, Byte by Yum!, and strategic value offerings to navigate a complex consumer environment, while also executing planned unit closures and refranchising to strengthen its system. Leadership transition is underway with CEO David Gibbs' planned retirement next year.

    Highlights

    5

    • Core operating profit increased 8% in Q1 FY25, highlighting the strength of the global multi-brand portfolio.

    • Taco Bell U.S. delivered a staggering 9% increase in same-store sales and 16% core operating profit growth.

    • KFC International posted 5% system sales growth (5% same-store sales growth excluding China) and 9% operating profit growth.

    • Digital sales grew 12% year-over-year, with Taco Bell's digital mix reaching 42%.

    • The company opened 751 new stores in Q1 across 68 countries, on track for 5% unit growth this year (excluding Turkey).

    Concerns

    4

    • Pizza Hut system sales declined 3% in Q1, primarily due to disappointing same-store sales performance in the U.S.

    • Pizza Hut's Q1 operating profit was negatively impacted by 7 percentage points (approximately $6 million) due to transition expenses and 3 percentage points due to timing of technology spending.

    • Planned closures included 537 units in Turkey (283 KFC, 254 Pizza Hut) and strategic closures in Pizza Hut markets like Chile, the U.K., and the U.S.

    • Lower profit growth is expected in Q2 due to one-time expenses, such as the global franchise convention.

    Guidance & targets

    8
    CategoryTargetConfidence
    Unit growth
    5%
    high materiality
    High
    Taco Bell U.S. operating margin
    24% to 25%
    medium materiality
    High
    Pizza Hut operating profit growth
    roughly flat
    medium materiality
    Medium
    Taco Bell International net new units
    100 units
    medium materiality
    High
    Interest expense savings
    $10 million
    low materiality
    High
    Core operating profit growth
    8%
    high materiality
    High
    Operating profit growth
    higher in H2 than H1
    medium materiality
    Medium
    FX tailwind to GAAP operating profit
    $10 million
    low materiality
    High

    Segment performance

    10
    SegmentRevenueYoYQoQMargin
    KFC Division
    System sales growth excludes the impact of foreign currency. Driven by international markets, value reset, menu upgrades, and innovation. Canada same-store sales accelerated to 6%, Korea 13%, Africa 8%. U.S. performance driven by value promotions.
    Unit growth: 6%Same-store sales growth: 2%Net value score improvement: 7 points vs largest competitorBrand perception gain among younger consumers: 2 points
    		—5%—51% of divisional operating profit, 9% operating profit growth
    KFC International
    Same-store sales growth was 5% excluding China. Outpaced Q1 development plan. Strong gains in brand perception. China delivered 9th consecutive quarter of traffic growth. Paybacks stronger in China, Thailand, Middle East.
    Traffic growth: low single-digitUnit openings: 524Global average payback: below 5 years
    		—3%——
    KFC U.S.
    Performance driven by Double Value promotion, $5 bowls, and $10 Tuesday Bucket.
    Transaction growth: low single-digit
    		————
    Taco Bell
    System sales growth excludes the impact of foreign currency. Exceptional quarter, driven by consumer penetration expansion and digital momentum. Named #1 franchise by Entrepreneur Magazine. Luxe Cravings Box successful across income levels.
    Same-store sales growth: 9%Traffic increases: low single-digit across all income cohortsDigital mix: 42%Digital sales growth: 37% year-over-yearActive loyalty membership growth: 45% year-over-year
    		—11%—37% of divisional operating profit, 16% core operating profit growth
    Taco Bell U.S.
    Staggering performance against soft industry trends. Significant expansion in consumer penetration. Luxe Cravings Box a massive win with low-income consumers.
    Same-store sales growth: 9%Traffic growth: low single digitsAdditional per store sales by 2030: >$225,000AUVs increase by 2030: ~10%
    		———24% to 25% (full year margin expectation)
    Taco Bell International
    Q1 net unit development reflects planned phasing and closures in Malaysia and China Tier 2 cities. Growth strongest in U.K., Spain, India.
    Gross units opened: 24 (Q1)Net new units target FY25: 100 units
    		————
    Pizza Hut
    System sales decline excludes the impact of foreign currency. Decline primarily due to U.S. performance. Excluding U.S., same-store sales were positive. U.S. sales started soft in January, improved through Feb/Mar.
    New units: 198 across 34 markets
    		—-3%—12% of divisional operating profit, operating profit impact: -7 percentage points (~$6M) from transitions, -3 percentage points from tech timing
    Pizza Hut U.S.
    Faced intense competitive environment. Focused on 3D strategy (distinctive offerings, dependable value, disruptive innovation). Digital orders processed through Byte Commerce.
    Highest-ever digital sales per restaurant (Super Bowl)
    		————
    Pizza Hut International
    Meaningful improvements across Asia, Europe, Middle East in same-store sales.
    		—positive——
    Habit Burger & Grill
    System sales growth excludes the impact of foreign currency. Tempura Avocado Wedge was a high-performing LTO. Shifted marketing to brand fame. Strong same-store sales growth in Florida, Washington, New Jersey. Exploring lower cost conversions.
    Digital mix expansion: 10 pointsKiosk sales as % of mix: 17% (up from 10% last year)
    		—flat—310 basis point improvement (restaurant-level margin YoY)

    Operational metrics

    24
    Core operating profit
    $586Mup 8%
    Q1 FY25

    Excludes impact of foreign currency

    System sales growth
    5%
    Q1 FY25

    Excludes impact of foreign currency

    Same-store sales growth
    3%
    Q1 FY25

    Excludes impact of foreign currency

    Unit growth
    3%
    Q1 FY25

    Excludes impact of foreign currency

    Ex-special G&A expenses
    $274Mup 3% year-over-year
    Q1 FY25
    Reported G&A
    $302M
    Q1 FY25

    Includes $24M in special expenses

    Special expenses (resource optimization/HQ consolidation)
    $24M
    Q1 FY25

    Related to resource optimization program and brand headquarter's consolidation

    Digital sales growth
    12%year-over-year
    Q1 FY25
    KFC loyalty members increase
    $4.5Mquarter-over-quarter
    Q1 FY25
    KFC kiosks as % of digital sales
    nearly 50%
    Q1 FY25

    Represents largest digital sales channel

    Byte Restaurant Coach expansion
    5,000additional
    Q1 FY25
    Taco Bell U.S. Byte back-of-house platform onboarding
    1,500additional
    Q1 FY25
    Net capital expenditures
    $56M
    Q1 FY25
    Refranchising proceeds
    $15M
    Q1 FY25
    Gross capital expenditures
    $71M
    Q1 FY25
    Shares repurchased
    1.56M shares for $228M
    Q1 FY25
    Net leverage ratio
    3.9x
    end of Q1 FY25

    Target to maintain at approximately 4x over medium term

    KFC Q1 gross openings
    528second highest for a first quarter in their history
    Q1 FY25

    Driven by growth in China, India, Japan and Thailand

    KFC openings countries
    53versus 43 countries last year
    Q1 FY25
    Pizza Hut U.K. mobile app transactions growth
    67%year-over-year
    Q1 FY25

    Powered by Byte Commerce platform launch

    AI-driven email marketing engagement improvement
    2x
    Q1 FY25

    Compared to traditional email marketing in first test

    Total new stores opened
    751roughly in line with Q1 last year
    Q1 FY25

    Across 68 countries

    Turkey closures
    537
    Q1 FY25

    Resulted from termination of franchise agreement in Turkey

    Pizza Hut U.S./U.K. store transfers
    >200
    Q1 FY25

    Transferred to more capable franchise partners

    Industry KPIs

    3
    MetricValueDetails
    Comparable sales comps3%%
    Global system wide sales5%%
    Net unit growth development pipeline751units

    Product announcements

    3
    ProductTypeDetails
    Live Mas Cafelaunch
    KWENCH by KFCexpansion
    Saucy by KFCexpansion

    Deals & partnerships

    2
    Serrano Group / IMCBinding agreement for majority ownership in a joint venture with IMC, KFC franchisee in Brazil.

    The Serrano Group is a world-class 3C partner managing nearly 800 stores across 6 countries in Latin America, having opened 183 new stores in the past 3 years. They leverage a sophisticated supply chain including in-house commissaries and chicken processing facilities.

    NVIDIAPartnership to accelerate the development and deployment of cutting-edge AI technology solutions across the Yum! system.

    Focus on three key areas: voice automated drive-thru and call center operations, computer vision technology for back-of-house and drive-thru efficiency, and advanced restaurant intelligence for personalized action plans for general managers.

    Risks & headwinds

    5
    Complex consumer environment and geopolitical challengesQ2 FY25

    Lower profit growth expected in Q2 due to one-time expenses (Global Franchise Convention).

    Mitigation: Taco Bell's value leadership, KFC International's recovery, diversified portfolio across 155+ countries, and well-capitalized 3C partners allow managing country-specific challenges and investing through uncertainty.

    Pizza Hut U.S. competitive environmentQ1 FY25, ongoing

    Pizza Hut system sales declined 3% in Q1, primarily due to U.S. performance.

    Mitigation: Focus on 3D strategy (distinctive offerings, dependable everyday value, disruptive innovation) to gain share. Leaning into group occasions with promotions like Stuffed Crust and Wings, and Ultimate Hot Bundle.

    Labor headwinds in CaliforniaQ1 FY25, ongoing

    Habit Burger & Grill faced meaningful labor headwinds in California.

    Mitigation: Habit Burger achieved an impressive 310 basis point improvement in restaurant-level margin year-over-year despite these headwinds, indicating effective management.

    Unfavorable tax impactQ1 FY25 (one-time)

    Reported EPS was $0.90, including an unfavorable tax impact of $0.33 relating to a tax reserve in a foreign jurisdiction.

    Mitigation: This was a discrete, one-time impact relating to a tax reserve, not an ongoing operational headwind.

    Ramadan timing impact on KFC InternationalQ1 FY25 (timing impact)

    Ramadan timing negatively impacted KFC International same-store sales growth, which was 3% reported but 5% excluding China.

    Mitigation: This was a timing issue, and the underlying growth ex-China was stronger, indicating a recovery from Middle East issues in most of the world.

    What to watch in Q2 FY25

    5

    KFC International same-store sales growth

    Q2 FY25
    Current3% (5% ex-China)
    TargetContinued recovery and acceleration

    Why it matters

    KFC International is a key growth engine, and its sustained recovery from geopolitical issues is critical for overall company performance.

    If you backed out China, our sales internationally were up 5% same-store sales. So -- and that growth is actually quite widespread. If you look at the table in our earnings release, you can see system sales was up in all 10 markets that we measure. So we are sort of putting the issues from the Middle East behind us in most of the world and feel good about the recovery there.

    Q&A highlights

    7

    Is KFC International's improved trend sustainable given geopolitical dynamics and potential anti-American sentiment?

    David Gibbs confirmed strong and widespread performance for KFC International, with 5% same-store sales growth excluding China, and no observed anti-American sentiment. He highlighted successful value initiatives and innovation driving share gains.

    “If you backed out China, our sales internationally were up 5% same-store sales. So -- and that growth is actually quite widespread. If you look at the table in our earnings release, you can see system sales was up in all 10 markets that we measure. So we are sort of putting the issues from the Middle East behind us in most of the world and feel good about the recovery there. And we have not seen -- and we are -- we obviously monitor this and any other kind of consumer change behavior. We have not seen any anti-American sentiment impacting our stores.”

    asked by Brian Bittner · answered by David Gibbs

    2 min read6 chapters

    Detailed Narrative

    01

    Twin Growth Engines Drive Performance

    Taco Bell U.S. and KFC International were the primary drivers of Q1 success, with Taco Bell U.S. achieving 9% same-store sales growth and 16% operating profit growth. KFC International saw 5% system sales growth and 9% operating profit growth, with 5% same-store sales growth excluding China. These segments represent 37% and 51% of divisional operating profit, respectively, showcasing their significant impact on overall company performance.

    02

    Digital Transformation and AI Integration

    Yum! Brands continues to advance its digital strategy with Byte by Yum!, an AI-powered SaaS platform. Digital sales increased 12% year-over-year, and Taco Bell's digital mix reached 42%. A new partnership with NVIDIA aims to accelerate AI development in areas like voice-automated drive-thrus, computer vision for back-of-house efficiency, and advanced restaurant intelligence, with 40 AI initiatives currently underway.

    03

    Strategic Unit Development and Portfolio Optimization

    The company opened 751 new stores in Q1 across 68 countries, targeting 5% unit growth for FY25 (excluding Turkey). Strategic closures, including 537 units in Turkey and others in Pizza Hut markets, are part of an effort to strengthen the system and transfer over 200 stores to more capable franchise partners, such as the Serrano Group's joint venture in Brazil, which is expected to accelerate unit growth.

    04

    Value Proposition in a Challenging Macro

    Yum! Brands is emphasizing value offerings across its brands to navigate a complex consumer environment. Taco Bell's Luxe Cravings boxes ($5, $7, $9) have been particularly successful, especially with low-income consumers, contributing to low single-digit traffic increases across all income cohorts. KFC International reset core value across several markets, improving its net value score by 7 points against its largest competitor.

    05

    Innovation in Beverage Concepts

    New beverage concepts like Taco Bell's Live Mas Cafe and KFC's KWENCH are showing promising early results. Live Mas Cafe test locations experienced a 40% sales lift and sold over 300 specialty beverages daily, with rapid expansion planned this year. KWENCH pilots in the U.K. and Australia are exceeding forecasts, driving incremental traffic and beverage sales, with plans to scale to additional markets.

    06

    Leadership Transition and Organizational Changes

    CEO David Gibbs announced his intention to retire next year after a 37-year career, initiating a thoughtful and seamless succession planning process. The company also announced new leadership for Taco Bell North America (Meg Farren) and KFC U.S. (Catherine Tan-Gillespie), reflecting internal talent development and strategic positioning for future growth.

    AI-generated summary of the company’s earnings call. Not investment advice.