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Yum! Brands’ weak quarterly results

KFC,YUM BrandsYum! Brands, owner of KFC and Pizza Hut, has experienced weak sales for the quarter, with a total revenue that shrank three per cent over the prior year.

The company’s China division has put in an anemic performance for total system sales declining by three per cent compared to the previous corresponding period. Revenue at both Pizza Hut and KFC fell on a same restaurant basis.

Neil Saunders, CEO of Conlumino, said figures show that in the year to date, in real terms the China operation has posted no real sales growth. Fortunately, he said, changes to value-added tax in the country allowed Yum! to ease up operating profits across the quarter.

“The position of China as a business which has huge potential once it gets through the current patch of slow growth, largely justifies its imminent spin-off into a completely separate operation. The divorce from the rest of the Yum! operation will allow both sides to focus more on their respective priorities and opportunities,” Saunders said.

In terms of the core business, Saunders said the main focus needs to be Pizza Hut which has become something of a problem child for Yum!

Over the quarter system sales shrank by two per cent in real terms, underpinned by a one per cent decline in same restaurant sales.

“While there are some markets in which the brand is performing well, these continues to be overshadowed by the US which accounts for the majority of Pizza Hut’s revenue,” Saunders stated.

The company’s Taco Bell division has experienced a better quarter, with a five per cent system sales growth and three per cent same restaurant growth.

“While Taco Bell has benefitted from challenges at Chipotle, in our view most of the success is down to a change in marketing which is now more relevant to the younger millennial audience. Menu simplification and focus on popular lines has also helped to drive growth. We think these steps should be seen as part of a longer term upswing in the brand’s fortune,” Saunders said.

He said KFC had a much better quarter than last, especially in the US but added they still harbor concerns about the brand’s longer term growth prospects as younger upstarts like Chick-Fil-A or Popeyes Louisiana Kitchen continue to gain traction.

“As such, we see KFC’s latest upswing as part of a more turbulent longer term picture.”

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