Slow Pizza Hut sales in the U.S. weigh on Yum Brands' revenue

Yum Brands on Wednesday reported third-quarter revenue that fell short of analysts’ expectations, hurt by weak same-store sales growth at Pizza Hut.

But the earnings report from its operator in China on Tuesday evening was more bleak. Yum China CFO Andy Yeung said that sales had softened in late September through October, hurting its fourth-quarter results. China is KFC’s largest market and Pizza Hut’s second largest.

Still, Yum CEO David Gibbs said in a statement that the company expects it will outperform its long-term growth algorithm of 5% unit growth, 7% system sales growth and 8% operating profit growth.

Yum’s stock closed up less than 1%, while Yum China’s tumbled more than 15%.

Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

• Earnings per share: $1.44 adjusted vs. $1.28 expected
• Revenue: $1.71 billion vs. $1.77 billion expected

The restaurant company reported third-quarter net income of $416 million, or $1.46 per share, up from $331 million, or $1.14 per share, a year earlier. Yum said a fair value remeasurement of its investment in its Indian franchisee boosted earnings per share by 5 cents, while foreign currency weighed on its earnings per share by 1 cent.

Excluding refranchising losses, certain tax benefits and other items, Yum earned $1.44 per share.

Net sales rose 4% to $1.71 billion. The company set a record for digital sales growth, Gibbs said.

Yum’s same-store sales grew 6% in the quarter, helped by strong sales at Taco Bell’s U.S. locations and KFC’s international restaurants.

KFC’s overall same-store sales increased 6% in the quarter, beating StreetAccount estimates of 5.6%. The fried chicken chain’s international division reported same-store sales growth of 7%, boosted by strong growth in China, its largest market.

But in the U.S., its second-largest market, KFC saw flat same-store sales growth. The chain has struggled in its home country recently. It has lost market share to chicken leader Chick-fil-A and Restaurant Brands International’s Popeyes, which recently overtook KFC as the No. 2 chicken chain in the U.S.

Taco Bell reported same-store sales growth of 8%, topping StreetAccount estimates of 6.3%. The chain’s strong sales came largely from its U.S. restaurants, which saw solid consumer demand across income levels.

“If we break down the Taco Bell stores in the United States by income demographic, we see really consistent 2% to 3% transaction growth across all income levels,” Gibbs said on the company’s conference call.

Taco Bell’s expanding international division reported same-store sales growth of 1%.

Pizza Hut’s same-store sales rose just 1%, falling short of StreetAccount estimates of 1.7%. The pizza chain reported 2% same-store sales growth for international restaurants and flat same-store sales in the U.S.

Pizza Hut isn’t the only pizza chain that has struggled to win over U.S. consumers. Rival Domino’s Pizza reported a 0.6% drop in same-store sales during its third quarter. Still, Gibbs said that Pizza Hut has been taking market share from its U.S. rivals, thanks to strategies like leaning into late-night orders.

Yum’s total restaurant footprint grew 6% as it opened more than 1,100 locations during the quarter.

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