Disappointing second-quarter earnings in the United States dampened the effects of strong sales in China and other international markets for Yum! Brands Inc.
However, the Louisville, Ky.-based parent of more than 33,000 restaurants still is raising earnings expectations for the full year.
Second-quarter net income for Yum — which operates or franchises Pizza Hut, KFC and Taco Bell and is looking to sell its A&W and Long John Silver’s chains — rose 10 percent to $316 million, or 65 cents per share, up from $286 million, or 59 cents per share, a year earlier.
Total revenues for the period ended June 11 were $2.82 billion, reflecting same-store sales gains of 18 percent in Yum’s China division and 2 percent for Yum Restaurants International, or YRI.
Comparable sales in the United States fell 4 percent, comprising same-store sales losses of 5 percent at both KFC and Taco Bell and 2 percent at Pizza Hut.
Continued strength in Yum’s international markets, where the company expects to open 1,400 restaurants this year, has encouraged the quick-service conglomerate to raise its guidance for 2011’s annual earnings per-share growth to at least 12 percent, from a previous low of 10 percent, said chairman and chief executive David Novak.
“Our China business continues to be the leading growth story in the restaurant industry, as our category-leading brands are performing stronger than ever,” Novak said.
Robust unit growth and increases in sales and traffic drove the China division’s results in the second quarter, Yum reported. Same-store transactions rose 21 percent for the period. Comparable sales rose 17 percent at KFC in China, which grew its system 13 percent to 3,378 units. Same-store sales rose 22 percent at Pizza Hut Casual Dining, which increased its number of locations 16 percent to 544 units. There also are 121 Pizza Hut Home Service restaurants in China.
Yum opened 99 restaurants in China in the second quarter.
YRI also reported sales and unit growth in the period, led by emerging markets like Thailand, France and India. Of the 142 new units YRI opened in the second quarter in 37 countries, 72 locations debuted in emerging markets. Thailand’s system grew total sales by 21 percent, while France’s increased 33 percent and India’s rose 44 percent.
However, Novak said, a 28-percent decline in operating profit in the United States offset much of the sales strength achieved in international markets, driven mostly by higher commodity costs and the 4-percent slide in same-store sales.
“We anticipated weak second-quarter sales and profits, driven largely by the negative impact of a meritless lawsuit and resulting negative publicity at Taco Bell,” he said. “We expect to improve on these very disappointing results by the fourth quarter.”
Yum anticipates commodity cost inflation of 7 percent for the year, the company reported.
The refranchising initiative in the United States Yum began in 2007 continues, with Pizza Hut’s portion of the program essentially completed. KFC will now be the principal refranchising focus, with the goal of getting that brand and Pizza Hut down to 5-percent corporate ownership. Yum has sold 94 restaurants, including 82 KFC units, back to franchisees year to date.