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Yum says soft sales to continue in 4Q

LOUISVILLE Ky. Yum! Brands Inc., fresh on reporting an 18-percent, year-to-year jump in third-quarter profit on the strength of its overseas operations, said the current fourth quarter will be particularly hard for its U.S. business as sales will remain soft and benefits from lower commodities will trail off.

The U.S. business at Yum Brands, which franchises KFC, Taco Bell, Pizza Hut and the Long John Silver’s brands, reported an operating profit jump of 18 percent for the third quarter on cost savings and commodity deflation. U.S. same-store sales, blended between KFC, Taco Bell and Pizza Hut, fell 6 percent. In a conference call with investors Wednesday, Yum said same-store sales at KFC and Taco Bell each fell 2 percent and at Pizza Hut fell 13 percent. Executives said those trends have continued into the fourth quarter.

“We expect weak fourth-quarter profits in the U.S.,” chairman and chief executive David Novak said on the conference call. “The sales trends have not gotten better and we anticipate less benefit from pricing and commodities than we experienced in the third quarter. These items all put downward pressure on our margins and we don’t anticipate the improvements we have seen in the past four quarters to continue.”

To help spark sales, Yum is looking to a renewed breakfast program at Taco Bell, as well as more items offered in the chain’s value-positioned “Why Pay More” menu. Next year, Taco Bell also will debut its first national advertising campaign for the Fresco line of products, which includes nine products with 9 grams of fat or less.

At KFC, Yum plans to continue promoting its grilled chicken, which it deemed an unqualified success, and currently represents a menu mix of more than 30 percent.

At the struggling Pizza Hut, Yum said it planned to focus more on value pricing and continued emphasis of its pasta and chicken wing offerings. Company officials said its well-received Tuscani Pasta line represents about 10 percent of menu mix and is ordered in 30 percent of transactions, which leaves room for growth.

Still, Yum attributed the chain’s 13-percent same-store sales decline to the chain’s pricing and today’s need to provide value for consumers.

“Frankly we haven’t been value competitive at Pizza Hut and I think that we are paying the price for it,” Novak said.

For the third quarter ended Sept. 5, Yum posted net income of $334 million, or 69 cents per share, compared with earnings of $282 million, or 58 cents per share, in the same quarter a year ago.

Total corporate revenues for the company that operates or franchises 12,895 restaurants worldwide fell 2 percent to $2.78 billion.

Quarterly systemwide sales, which includes franchised sales, grew 11 percent in mainland China and 4 percent in Yum’s international division. System sales fell 5 percent in the United States, the company said.

Same-store sales were unchanged year-over-year in China and in Yum’s international division.

Contact Sarah E. Lockyer at [email protected].

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