YUM
Earnings call · Dec 2024 (Q4 FY24)

YUM BRANDS Q4 FY24 earnings call YUM

Feb 6, 2025 Source

Executive summary

Yum! Brands Q4 FY24 — Strong Core Operating Profit Growth and Digital Acceleration

Yum! Brands demonstrated strong resilience in Q4 FY24, achieving 8% full-year core operating profit growth despite global headwinds. The company is accelerating its digital transformation with the introduction of 'Byte by Yum!', a proprietary SaaS platform aimed at enhancing consumer experience and operational efficiency. While facing some unit count adjustments and competitive pressures in Pizza Hut U.S., Yum! remains confident in its twin growth engines, KFC International and Taco Bell U.S., to drive continued momentum into 2025.

Highlights

5

  • Full year core operating profit grew 8%, reflecting the resilience of the business model.

  • Digital sales grew approximately 15% in 2024 to over $30 billion, driven by targeted initiatives and tech deployment.

  • Taco Bell U.S. delivered exceptional performance, with Q4 same-store sales rising 5% year-over-year, outpacing the U.S. industry by 5 percentage points.

  • KFC International saw same-store sales improve to +1% in Q4, with strong recoveries in the Middle East where transactions largely rebounded to pre-conflict levels by December.

  • The company achieved 5% net new unit growth for the full year, opening over 4,500 new units globally.

Concerns

3

  • Full year same-store sales declined 1%, impacted by broader global consumer sentiment and the Middle East conflict.

  • Pizza Hut U.S. sales remained under pressure due to increased value competition across the QSR industry and pizza category.

  • Q1 2025 unit count will reflect the removal of 538 KFC and Pizza Hut units from Turkey due to franchise termination, plus an incremental 200 Pizza Hut closures in other markets.

Guidance & targets

CategoryTargetConfidence
Full year unit growth
at least 4%
medium materiality
High
G&A increase (excluding incentive compensation reset)
low single-digit percentage
low materiality
High
G&A increase (including incentive compensation reset)
mid-single-digit percentage
low materiality
High
Core operating profit growth
8%
high materiality
High
Interest expense
$500M-$520M
low materiality
High
Effective tax rate
22%-24%
low materiality
High
Net leverage ratio
approximately 4x
high materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
KFC
KFC International showed sequential momentum building throughout Q4, with strong recoveries in the Middle East and robust performance in Africa, Latin America, and Canada. Full year system sales growth was driven by unit expansion despite same-store sales decline.
Full year same-store sales: -2%Q4 same-store sales: flat YoYInternational Q4 same-store sales: +1%Africa Q4 comps: +9%Latin America Q4 comps: +6%Asia (ex-China) Q4 comps: 5-point improvementFull year unit growth: +7%
—+3%—49% of divisional operating profit
Taco Bell
Taco Bell continued its strong momentum, with full year system sales up 6% and exceptional Q4 same-store sales growth in the U.S. The brand achieved over $1 billion in core operating profit for the first time.
Full year core operating profit: >$1BQ4 same-store sales: +5% YoYQ4 U.S. industry outperformance: 5 percentage pointsInternational Q4 same-store sales: +3%
—+6%—37% of divisional operating profit
Pizza Hut
Full year system sales declined, but Q4 same-store sales showed sequential improvement. The U.S. market remains under pressure from value competition.
Full year net new unit growth: +2%Q4 same-store sales: improved 300 bps sequentially
—-1%—13% of divisional operating profit
Habit Burger & Grill
Full year system sales grew, driven by unit growth. Operational efficiencies led to significant improvement in restaurant-level margins and reduced labor costs despite higher California labor rates.
Q4 same-store sales: improved2024 restaurant-level margins: 10%2024 restaurant-level margins improvement: +150 bps YoY2024 labor expense as % of sales: decreased 150 bps YoY
—+1%——

Operational metrics

Digital sales
$30B+ approx. 15% growth
FY24

Surpassed $30 billion in system sales through digital channels.

KFC (ex-China) digital sales growth
>20%
FY24

Driven by expanded kiosk adoption.

KFC (ex-China) stores with kiosks
>50%
year-end 2024

Teams are focused on reaching 70% penetration by 2026.

KFC loyalty program markets
14
current

Early data shows loyalty members have a 12% increase in visit frequency after joining.

Byte restaurant coach mobile app users
>20,000 more than doubled
2024

Simplifies routine audits and operations, used across KFC and Pizza Hut locations.

Byte kitchen and delivery system (Dragontail) live restaurants
>8,000
current

Full implementation planned for KFC U.S. and Pizza Hut U.S. in 2025.

Taco Bell U.S. Byte back-of-house technology (Tracks) restaurants
>1,500
2024

Plans to scale across the entire system in 2025.

G&A expenses (ex-special)
$319M 7% year-over-year decline
Q4 FY24

Reported G&A included a $27 million special expense related to resource optimization and acquisition/termination costs.

G&A expenses (ex-special)
$1.1B 6% year-over-year decline
FY24

Full year G&A expenses, excluding special items.

Resource optimization program savings
$25M
FY24

Savings realized in 2024, with $50 million on an annual basis.

Restaurant-level margins
17.6% +20 bps year-over-year
Q4 FY24

Reflecting strong gains at both Habit and Taco Bell.

Taco Bell restaurant-level margins
24.3%
FY24

Second highest full year margin rate behind 2020.

Habit Burger restaurant-level margins
10% +150 bps year-over-year
FY24

Improved by 150 basis points year-over-year and over 500 basis points relative to 2022.

Habit Burger labor costs as % of company sales
decreased 150 bps year-over-year
FY24

Despite higher labor rates in California, due to strategic labor model enhancements and process optimization.

Effective tax rate
23.5%
FY24

Outside of the previously communicated range of 21% to 23% due to higher tax expense on the gain realized from selling investment in Devyani.

EPS (ex-special, ex-53rd week)
$1.52
Q4 FY24

Excluding special items and the 53rd week impact.

EPS (ex-special, ex-53rd week)
$5.39 +4% increase
FY24

Including a higher year-over-year tax rate impact of $0.19 and an additional $0.18 headwind from Devyani net investment losses and foreign currency translation.

New units opened
>1,800
Q4 FY24

Part of the over 4,500 new units opened for the year.

New units opened
>4,500
FY24

Reinforcing strong investment appeal of brands.

KFC new units opened
~2,900
FY24

Highest ever store openings for the brand, with record builds in China, South Africa, Japan, Philippines, Italy, and Chile.

Pizza Hut new units opened
512
Q4 FY24

Part of 1,280 units opened for the year.

Pizza Hut new units opened
1,280
FY24

Driven by expansion in China, India, Saudi Arabia, and Canada.

Taco Bell new units opened
347
FY24

Including 234 in the U.S. and 113 internationally.

Middle East new units opened (KFC/Pizza Hut, ex-Turkey)
171
FY24

Opened across KFC and Pizza Hut brands, excluding Turkey, primarily by partner Americana.

Net capital expenditures
$208M
FY24

Reflecting $49 million in refranchising proceeds and $257 million in gross capital expenditures.

Quarterly dividend
$0.71 increased
Q1 FY25

Announced an increase in quarterly dividend.

Shares repurchased
~3.3M
FY24

Total value of repurchases was $440 million.

Capital returned to shareholders
$1.2B
FY24

Combining dividends and share buybacks.

Net leverage ratio
4.0x
year-end 2024

Debt balance remained largely unchanged.

Turkey business sales (terminated)
$200M
aggregate

The entire Turkey business in aggregate was a $200 million sales business with nonmaterial royalty income, minimizing financial impact from termination.

Pizza Hut U.K. Byte digital transaction growth (app channel)
>50%
2024

Facilitated by the Byte digital ordering platform, also drove faster processing times.

AI-driven marketing email promotions engagement
doubling compared to traditional approaches
early tests

Early tests on email promotions resulted in a doubling of consumer engagement compared to traditional approaches.

Industry KPIs

MetricValueDetails
Comparable sales comps+1% %
Global system wide sales+5% %
Net unit growth development pipeline5% %

Product announcements

ProductTypeDetails
Byte by Yum!launch
Saucy by KFClaunch
Live Más Cafelaunch

Deals & partnerships

Franchisees in Turkey Termination of franchise agreements for KFC and Pizza Hut units.

The company terminated franchise agreements in Turkey and reacquired master franchise rights for Germany. This will result in the removal of 538 units (284 KFC, 254 Pizza Hut) from the unit count in Q1 2025. The company is actively searching for a new franchise partner for Turkey.

Germany master franchisee Reacquisition of master franchise rights for Germany.

The company reacquired the master franchise rights for Germany as part of its unit optimization strategy.

Risks & headwinds

Industry-wide challenges and global consumer sentiment FY24

Full year same-store sales declined 1%

Mitigation:Resilience of business model, power of brands, and world-class talent.

Impact of Middle East conflict FY24

Impacted full year same-store sales; system sales down 12% in affected markets for full year

Mitigation:Strong recovery in Q4, with transactions largely rebounding to pre-conflict levels by December; easier laps and momentum expected in 2025.

Value competition in QSR and pizza category Q4 FY24 and ongoing

Pizza Hut U.S. sales remained under pressure

Mitigation:Focus on striking the right balance between everyday value and disruptive campaigns, enhancing digital experience for Pizza Hut.

Higher labor rates in California FY24 and ongoing

Not quantified directly, but mentioned as a challenge for Habit Burger

Mitigation:Strategic labor model enhancements and process optimization at Habit Burger, leading to 150 bps decrease in labor costs as % of sales.

Ongoing increases in foreign income tax rates FY25

Forecasted tax rate increased to 22%-24% for FY25

Headwind from reset of below target incentive compensation FY25

$35M year-over-year lap

Mitigation:Included in mid-single-digit G&A increase guidance for 2025, assuming on-target bonus expense.

Devyani net investment losses and foreign currency translation headwinds FY24

$0.18 EPS headwind

What to watch in Q1 FY25

KFC International same-store sales recovery

next quarter
Current Q4 SSS +1% (International), Middle East transactions largely rebounded by December
Target Continued improvement and sustained momentum in affected markets

Why it matters

KFC International is one of the company's twin growth engines, and its sustained recovery is crucial for overall performance.

Looking ahead to 2025, we remain focused on deepening market penetration by expanding relevant product offerings, including tenders, nuggets, twisters and sandwiches while enhancing our value perception.

Q&A highlights

Asked for more detail on the health of international franchisees and the characterization of improving or stabilizing international market conditions, particularly regarding KFC International's recovery.

Management confirmed improving international conditions, especially in markets impacted by the Middle East conflict, with transactions largely rebounding. They highlighted strong performance in unaffected markets and expressed confidence in overall franchisee health, citing gross unit trajectory as a key indicator.

“The #1 indicator of global franchise health is the gross unit trajectory that we have, 4,500 units this year even when we lost a little bit of the gross unit upside from the Middle East situation, that's the ultimate test.”

asked by Dennis Geiger · answered by Christopher Turner

2 min read 6 chapters

Detailed narrative

Digital Transformation with Byte by Yum!

Yum! Brands introduced 'Byte by Yum!', a comprehensive collection of proprietary Software-as-a-Service products designed to streamline restaurant operations and enhance consumer experiences. This initiative unifies previously disparate solutions, with 25,000 Yum! restaurants globally already utilizing at least one Byte product. The platform aims to accelerate digital adoption, which drove approximately 15% digital sales growth in 2024 to over $30 billion.

KFC International Recovery and Strategic Focus

KFC International demonstrated significant recovery in Q4, with same-store sales improving to +1% year-over-year, particularly in the Middle East where transactions largely rebounded to pre-conflict levels by December. Strong performance was also noted in Africa (+9% comps) and Latin America (+6% comps). The strategy for 2025 focuses on expanding relevant product offerings, refining pricing strategies, and enhancing value perception to deepen market penetration.

Taco Bell U.S. Outperformance and Innovation

Taco Bell U.S. continued its strong momentum, achieving 5% same-store sales growth in Q4, outperforming the U.S. industry by 5 percentage points. This success was attributed to its 'magic formula,' including the 'Decades platform' which brought back nostalgic menu items, and value leadership with offerings like the '$7 Luxe box.' Taco Bell also surpassed $1 billion in core operating profit for the first time ever in 2024.

Pizza Hut Challenges and Future Strategy

Pizza Hut's full-year system sales declined 1%, with U.S. sales facing pressure from value competition. However, Q4 same-store sales improved 300 basis points sequentially. The brand's 2025 strategy will focus on balancing everyday value with disruptive promotions to attract a broader consumer base and enhancing the digital experience through app improvements to elevate engagement and value perception.

Habit Burger & Grill Profitability Improvement

Habit Burger & Grill saw full-year system sales grow 1% and achieved notable operational efficiencies. Restaurant-level margins improved by 150 basis points year-over-year to 10% in 2024, despite higher labor rates in California. This was driven by labor productivity initiatives that reduced labor expense as a percentage of sales by 150 basis points, positioning the brand for sustained growth.

Unit Optimization and Franchisee Standards

The company is undertaking unit optimization efforts, including the termination of franchise agreements in Turkey, resulting in the removal of 538 KFC and Pizza Hut units in Q1 2025. An additional 200 Pizza Hut closures are planned. These actions are aimed at maintaining high brand standards and creating long-term growth opportunities with new partners, with minimal financial impact due to the low royalty income of these units.

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