Taco Bell and KFC pulled out a strong third quarter performance thanks to clever Colonel Sanders campaigns and menu innovation at Taco Bell parent company Yum! Brands Inc. said Tuesday.
But another sluggish performance from Pizza Hut continued to drag down results for the the Louisville, Ky.- based company.
Systemwide same-store sales for all brands rose 2 percent, led by a 5 percent gain at Irvine, Calif.-based Taco Bell, followed by a 3 percent same-store sales increase at KFC. Pizza Hut’s same-store sales declined 1 percent, including a 3 percent decline at international restaurants and a 1 percent gain in the U.S.
“We were disappointed,” CEO Greg Creed said of Pizza Hut’s global results. “We recognize that we still have work to do.”
International markets were especially hurt by lackluster dine-in sales, which represent 50 percent of total sales. By contrast, dine-in sales in the U.S. account for about 10 percent of sales.
Pizza Hut has a heavy mix of dine-in units in the U.S. and abroad, which is hurting same-store sales and masking “relative health” in the division’s delivery and carryout business, CFO David Gibbs said.
“Dine-in is waning in relevance in a lot of markets and importantly complicates pricing decisions in our ability to offer disruptive delivery value, especially in international markets with a high percentage of dine-in sales,” Gibbs said.
Specifically, there are a lot of legacy “red roof” restaurants in the U.S. that need to go away, Gibbs said.
Creed said same-store sales growth of 1 percent at domestic Pizza Hut stores was driven by an “emphasis on value,” including a $7.99 large two-topping pizza promotion.
Value and operational improvements have made the brand more relevant, but the “messaging has not been distinctive enough to attract new customers,” Creed said.
Going forward, he is encouraged by the new $5 lineup introduced earlier this month.
When you order two or more, the following food items are $5: a medium, one-topping pizza, stuffed garlic knots, Cinnabon Mini Rolls, eight bone-out Wingstreet wings, Tuscani Pasta, a double order of breadsticks and a Hershey’s Cookie.
Expect more items to land on the menu before the end of the year.
“New items in the future are designed to sustain the $5 price points,” Creed said.
For the quarter ended Sept. 30, global sales grew 5 percent at Yum Brands with sales rising 8 percent at Taco Bell and 7 percent at KFC. Pizza Hut sales were flat.
Creed credited Taco Bell for Yum’s systemwide sales lift. He said the Mexican quick-service chain pulled out a “tremendous” quarter, where sales were driven by $5 Box value meals, steak nachos and Nacho Fries.
“I think Taco Bell is doing everything really well,” Creed said during a Wednesday morning conference call. “I think this brand is set up for continued success.”
KFC also had a solid quarter, where systemwide sales growth of 7 percent was driven by strong sales in Africa, Europe, India, the Middle East and Australia. Comparable store sales in the U.S. increased 1 percent for the quarter. International same-store sales grew 3 percent at KFC.
Sales in the U.S. were lifted by KFC’s “bold” marketing, which centered on innovative products supported by clever Colonel Sanders campaigns, Creed said.
Yum’s net income for the quarter increased 9 percent to $454 million, or $1.40 per share, from $418 million, or $1.18 per share, for the same quarter last year. Excluding one-time items, earnings per share was $1.04, beating various Wall Street projections.
Total revenue decreased 3 percent to $1.39 billion, from $1.44 billion a year earlier, but still beat predictions by Wall Street.
Contact Nancy Luna at [email protected]
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