Yum! Brands (YUM) 28 Apr 212021 Q1 Earnings call transcript

Good morning, and welcome to the First Quarter 2021 Yum! Brands, Incorporated Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I'd now like to turn the conference over to Gavin Felder, Chief Strategy Officer and Interim Head of Investor Relations. Please go ahead.

Thanks, operator. thank joining and everyone, morning, you us. for Good David CEO; and Chris our Corporate Russell, call our our are today Controller. and President Officer; On Turner, Gibbs, Chief Senior Vice our Dave Financial

Chris, and David from remarks we'll the questions. call open to Following

would started, this statements. to remind Before conference I you includes call we like get forward-looking that

about the forward-looking results to with will subject filings from result. statements announcement thinking variables as SEC. earnings considered these materially a and in of are light and impact of are do the remarks considered statements our forward-looking statements our differ best impacted the in future Forward-looking that provide uncertainties should that conjunction completely the the factors so included evolving, COVID-XX duration the uncertainty our regarding and We're going the severity be to All the events to only should cause in be our to with this and release date be any this unprecedented risk cautionary as our made pandemic actual and But and business. of of statements. situation the our pandemic of in current on is obviously, the

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about our year-over-year, over access billion, global and the initiatives $X this experienced partnerships during We now the our for and XX% of with XX,XXX a brands of in a and on of system teams acceleration been own brands. key offering over branded continued in has and strength XX% providing channels. same-store new the record significant was is part increase strategy, geared digital had for year. all to we our Delivery and representing the basis focus quarter have great towards driven customers each ways operating aggregator This a expanded our seamless with our QX. delivery, positive a indicator The restaurants recovery. across growth by globe, digital breadth our another and investment over X-year technology continued open a point sales sales increase prior stores of Importantly,

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continue growth we to in at KFC U.S., QX. see same-store with Next, sales, positive XX%

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the same-store XX%, were growth the XX% loyalty which meaningful continued Encouragingly, new digital-led reduced Own drove We Box we quarter. and QX brand, improvement web, includes our app growth a quarter. We Your that Bell pace rooms And of Kvantum Melt, marketing track a dollars channel optimization saw restrictions to decisions bringing that value record the the our to faster overnight proven in and means sales basis, X% two aided the the was of finally, launch Taco and exclusively temporarily than being during over on platform also data-driven our time. dining brands even same-store dine-in government world is return of unit a drive product digital quarter. In introduced brands on Kvantum, Grill, provides talent. at with to understanding with brands. X-year adding the a delivered enabling impact our tech sales with and innovator diverse Build advertising significant a as and of behaving in during and mix restaurants quarter, the of first Technologies. excited grow acquisitions available we future understand introduced close as grew to the Burger steady sales by of every to Growth, stores how that QX cases, Patty in to The an during closed On our the or use sales X% in about on to end ability sales our across for growth $X capture Cravings government above our strengthening XXXX. Recipe consumers corner which and XX,XXX reopened, with with us with enviable in Having throughout strategic Tictuk growth stimulus. in were the X% memberships increases. starting sales our increase and on It's this newest are true mind RED in four Habit and sales a strong more some Inc. to this

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Thank Development To discuss morning, Today, position. Bold our QX. I'll Unmatched quarter Restaurant you, Operating our first results, Capability begin, and and David, everyone. our liquidity strong drivers good and let's balance discuss growth sheet and

excluding of Bell basis, end overall growth XXXX. compared is mentioned, of QX This associated in of growth. Core special same-store QX which markets a increase and impact X% first the $X.XX, of and developed XX%, David combination X-year year-over-year attributable grew the temporarily stellar margin profit performance Taco the in strong a grew a several X%, quarter EPS, XXXX. and being at includes Starting over color same-store negative I'll was of with quarter. of On EPS closed benefit sales additional Yum! at with about year. due XX% to a sales sales franchisee same-store restaurant growth sales for in had we KFC, As system special unit ex reserves COVID to representing margins driven company profitability, where as receivable. a some XX.X%, our accounts of sales operating now stores items, the provide to Taco XX% grew by X% prior X% Bell, on several restaurant impressive representing another items. were growth increase X.X% $X.XX

we check patronage and closer result. mentioned levels staffing to restaurants a expect return we've room later year levels calls, increases previous As we on at as these our this earnings normalize, to dining adjust margins as historical averages

million to a last continued as expense, operating to debt International year-over-year lapped million swings year million XXXX, large ended COVID. with we to we of $XX U.S. representing operating $XX quarter, Hut $X in growth million profit $XX to at we of tailwind These during QX in Pizza and year benefit debt recoveries quarterly see we related KFC expense of XXXX while bad had recoveries due to full profit due resulted the During bad QX, net amounts past a

of lap and such, debt and to $X of respectively. $XX As growth million debt bad operating to we in profit QX as QX continue and million QX, impacted $XX in million be expect year-over-year bad expense we recovery

full debt resulted growth franchisees a we on the ground basis. We Group our caused year our impact importantly, financial point, forecast, largest generally solid family. year-over-year Hut been positioned $XXX anticipate to year the be that slightly to XXXX. accelerate U.S. look and billion we difficult back-end-weighted in Most expenses Hut franchisee still COVID. with as COVID. believe administrative it for year to are that despite uncertainties million. by were than timing Flynn our less $X out bad be well G&A G&A And we Pizza completed of General of profit don't will full our Restaurant the Pizza our joining of recently to restructuring consolidated estimate We at to on XXXX franchisees We has historically. the full operating as us expenses significantly While are expect the partner NPC. this

XXXX, of Our QX driven our one-time costs proceeds, and expect resumes. Interest refranchising XX% G&A utilizes historical unchanged, efficient commitment remains to an associated the as write-offs scale for to an company quarter. expense issuance we of debt compared sustained and leverages and fixed costs that financing historical increase net by refinancing. be costs toward to ratio move was our approximately growth the QX growth expenditures, other our $XXX with were target million million, of back $XX Capital unique

we As opportunities the inherent earnings equity we million least anticipate in last $XXX gross store still the will $XX We needs fund refranchising, roughly invest balances strategic mentioned in million appropriately strategic with and equity on to development CapEx stores. initiatives annual technology annual at which business, in our of of from investments. proceeds the believe call,

as we this may be up be catch the maintenance and gross realized XXXX, proceeds spend amount on strategic which primarily As not owing development higher for for in The year. million CapEx Burger Grill, a U.S., repair, reminder, well slightly delayed remodels to the as $XXX to than COVID Habit selective fully for may refranchising

our much have now on operating channels, teams for enjoyable capability a off-premise customers. laser-focused been going Now growth on our to our delivering through operations unmatched so with sales experience driver, of fast,

XX last compared cars staggering serving fastest quarter average XX in nearly by speed Bell U.S. seconds drive-thru speed over their years, million more same improved drive-thru And Taco year. to U.S. their a the KFC X quarter last while year. in result, delivered a As the

carry optimized of experience. to one-third these an which higher Importantly, value, served cars additional customer orders, digital were not a typically mention check

to on we technology platform. tangible progress in-house make continue built Additionally, scaling our

the we including custom-built ordering of restaurants, platform. as optimize highly scale the the to and ever quarter, this and U.S. KFC across During and deployed we KFC further app. signs solution launch pickup gives our first the confidence look all delivery us are encouraging, Early

X% strength we the following to are trajectory Pizza Most new moving and COVID-related to closed choppiness still during unit resulting work first Now uncertainty franchise many more encouraged in to and XX positive related unit reflecting to pleased Russia will XXX in strong of and growth, on At new estate, markets but Development, there with Hut, were we dislocations KFC and XXX, Thailand. more Restaurant units. year. net continuing transition XXX India, We we of quarter, restaurants the last COVID delivered a resilient and our add the Bold closures opened a in units, modern be China, notably, economics base. to our by do, have and global net

the can are we optimistic annual return of that we unit that later. that, We and Asia rather Malaysia. but entered, in team. by Bell Taco will first are and into at the XXXX, was were we least at also Taco with our Bell the and the Taco a Bell proud was ended, opened unit are quarter early of to market first programs accomplish virtually, to this Not launch growth sooner Overall, international it ever has after X% pleased shortly training our breakthrough the real XXXX, where growth. conducted confidence we XXXX entry increases than market XXst end part amazing X% the we this only all announce In the momentum

our capital an as for latest on on structure priorities Now our for liquidity position well allocation. as and update sheet capital and balance thoughts

QX approximately of target which X Consolidated ended million, First, and leverage times times. excluding was to X.X cash cash with equivalents us returns $XXX cash. net restricted of we our approximately

Second, an $XXX. X.X million share we repurchased of at million per totaling shares price $XXX average

balancing resiliency our and cost. flexibility transactions a liquidity, Third, business while to added series we executed of that

our During refinanced the extended loans. facility quarter, amended and credit we and our term

later to to leverage-neutral carries We of $X.XX we Brands, second April end. intend a All the matures in on going company restricted be quarter. also Proceeds to us interest coupon importantly, transactions allowed extend from of priced repay were due boost new liquidity, X.XX% to quarter billion XXXX, group and Inc. combined, which and this new X, will maturities. bond, which holding forward retire lower in X.XXX% notes XXXX which the and Yum! subsequent used in a bond, closed

on As always, market we for to conditions. business further optimize opportunities will our continue depending look to capital structure, and

capital flows competitive in unchanged; are to our remaining cash take Lastly, shareholders invest remain the to return and we balance With the maintain excess healthy that, via any dividend repurchases. a a business, sheet, pay priorities questions. operator, ready

comes question first go from ISI. David from Please Our Palmer Evercore Instructions] [Operator ahead.

try question. Thanks. two-part squeeze in I will to a

and Just of Pizza they also really Pizza good have brands good I brands front lately, had particularly about like. during Hut, stuff the am the Hut. marketing both a but have curious U.S. KFC about been so those run pretty But the for pretty on new some management and COVID, doing

long are over, wondering lap particularly set coming can as XXXX, lap the those feel brands sort they business? that about way COVID Hut, away And of unit So, feelings flat I concerns regard And of of they Thanks. obviously, any the it’s now health I is think how curious the about for the I a think, comparisons? or am closure people of me these Pizza of post-COVID. this that you to profitability Do long-term health some the with think up of out if system. are franchisee you

Dave. Thanks Yes.

for huge the way of strengthened sets have – that get underperforming the this in of stores over a stores run U.S. financial the brand. up great good Greg underneath has Pizza they with restaurant have, the dine-in them in a Pizza impact navigating operators, much team been the KFC marketing, and successful good are we are up done launch and restaurants that in assets Hut had, to big given very mentioned the Secret those the over Recipe sandwich, that I The I out franchisees importantly, with they rollout are last but very rolled specifically, operations, their a in ability remarks, mentioned, the which quarter. of all taking as prepared great business. well also the it country. They those a moves my and of, mentioned, well have about for for But growth job excited anybody done health themselves And out the a that organization bears a has going That KFC success chunk Hut think as is over a forward. the knows will fixing growing it is category, on comment year. also great as been those Pizza along future part we a job over put. have some together and of him, this product about product. Flynn the A is great great big Pizza success. his close lot the that businessmen NPC, very to in very Hut that, is that A the you their impact you Fries the the stores a excited It we of how the and just setting and last ownership a will of trying up winning about environment really tricky improving repeating. tremendous have right. But taking condition have of Hut he year, have positive to

Stanley. comes Please go Glass ahead. Morgan question next from John from Our

the how that plays out? and One, but drill that It now year, Thanks there you Can on little with within just within are you good good opportunities KFC, other a led range, brand, the path historical to hear just morning. sort unit the to X%. growth is historically, this thought perhaps but other year. also – other Obviously, of opportunity this to be was maybe down think the X% and have led bit? some is to years, years by you brands back maybe been have thinking think with way going forward you for KFC, has X has next the COVID there X growth than of different changed the out balance you historically? – over just is the growth about And the X it X going brands

Yes. so and on development. momentum at Good the by in much. of we as encouraged the And QX. we said, momentum Thanks were end last the question year

Plus, and unit serve that us brands across expectation historically been history franchisees, rebounds basis. on and strong we think Our The an our from Common Pizza formats. to is consumers the we for brand is all of and them as Hut Habit. expectation continued our strong going for economics love COVID, and very strong. to improve our are all off-premise business we you from the integrate Taco them to expectations ability seeing to been will forward. now digital has into be But high it we KFC, be and Bell, growing units, strong, to be continue think, of continue have that’s want

each formats post-COVID, brands. those in so And optimized of

with us very back. we coupled so think supports our with that, on that And development trajectory teams, strong

brands that strength a we see across we so the expectations And standpoint. development going have forward of from all

from The ahead. go UBS. question comes from next Please Geiger Dennis

this some if you key about in bit and could talked some you recent franchisee of strength wondering And in Taco quarter. Bell more the the I most little question. strength strength the for you a that of drivers quarters. the and of thanks talk recent Great, have David, about seen brand think

you looks. of how tailwinds think Just to just talk curious, night some touched as as reopening, if well. pipeline on, dynamics going you that products about Thank we back. Curious new forward, be kind on loyalty And are those guys some excited of digital, the and most maybe competition the whether of forward, drivers late some coming but the headwinds the coming breakfast also may back, about, you could speak you. from the reopening developments it’s about program that of go

is Yes. international The talent I across franchise And the and partners, of the the last we leadership at that story you have for done find. excitement opportunities King’s there. the systems franchise we think Taco great the they everything ever there have terms that board and development have the for Mark bears brand Bell, our in mentioning under over strongest with one is one of will year

better We get when can that We development, a economic marketing market really to dollars starting in start cycle and unlock markets. create to leverage some get to virtuous know to are you always a units play. scale see ourselves about in really a to when XXX we that’s unit

there. We more there. economics the financially our in team our we world, an them. money real the the after are year starting But happen in also a few partners The development them that unit landscape estate see I the The that over in as in the U.S., the make Taco into leaning opportunities to And go excited is are look healthy right the important part markets we progress U.S. to have and opportunities and about are that and of we upside around are for with right think franchise great made picking on now. story. Bell even eager are also last concert the digital

That having loyalty year new lays first increased the as Create the of sales. coming sales. loyalty XXXX – this that did Your us great grow a business more how a great example We was of the a with $X program of members. Box. digital-only increasing That Own forward. going we progress and are of It’s to digital gives out for tools promotion We lot our last foundation success digital made

is brand, they a franchise is stuff for again, is incredibly future got have they development of partners. fries And product the great leadership hitting brand great have growth, pipeline on team, the and really the innovation got I think great accelerating road. cylinders. for all Once Taco with something strengthening out coming down Bell a there. the a So, of The bright quarter,

David go from The Tarantino from comes next question Please Baird. ahead.

X% Hi, kind quarter how XX back your to my guidance not at quarter of XXX X%, would that first would perhaps morning. in your you And rate, achieved that I quarter, I Thanks. outlook driven good to if translates be of there comment to years, wondering unique growth. the to have the strong start wanted come if But helpful? model. least openings to if that am was getting look at that guess, to for the the can to have highest I think but anything run you that I on at least strength. unit is perhaps And I net according

Yes. I board. things Asia, you couple general look driven stand David, of but particular, across key gross think the which good out. QX, in in in openings had a markets We openings if strong at a few question, strength by were,

from in You prepared in we general, remarks, closures a of a had Pizza choppiness in unit still closures. there, there although bit be turn And the and we going still work standpoint is done lot the which of system, said fewer we there system. Hut the Hut a is to reflects as to on U.S., a think saw than in transformation, asset year, last the Pizza be the fewer global in

And of so drove shape what those are the the quarter. in development kind of

we forward. said, still of a As there uncertainty is going lot

have still to is the get to countries situation some X% the there at That’s U.S., COVID situation. the global If at certain number. the got enough unpredictability. X% why outside But of not out we the we will you confidence think given in we that number leads back to fair and are still again, as can uncertainty do to bit this have very least year. that we But a yet be we when exactly dire, say pipeline at commit ready we to look current get the we of

go ahead. question Please John comes next from The from JPMorgan. Ivankoe

it this the in that seen have markets perhaps relative opened you of I as dynamic, by And whole there with some drove the those for been negative you that positive reopened – comps on have have service hugely is ticket a maybe if markets offset for in looking partially the remarks, speaking that Chris, quick you in transactions the category and team of talk any prepared thoughts definition, generally ticket about just of should national on in be in experience – longest least touched environment, the you. by to differences Thank majority comment average? you at briefly ticket I maintaining being ticket longest that being XXXX, for Hi. that terms but is, positive if think your ticket traffic been traffic guess, environment? Thanks. Can and negative. transaction or could returns your we,

into XXX lot Good ability of family of our it that seeing one lot larger varies a as question, country brand to serve down obviously combinations come those. markets John. going serve we varies, general, by thing tickets. the a was with this a ticket and And of are meals this in our Yes. determined bit. each But success reopen, But little

those we KFC better. Pizza to the and that for like go So, had all sharing, that And seeing Hut options, away. brands not do meals are tended buckets,

those think be as about to that of sticky. think, you are going trends, accelerating during I things the which ones COVID, happened

for in I good. will thing I at, stickier going had that could where in to that The be return and think we that’s And we said its same be it’s it’s some business. business, ticket of from have stay old the down come levels. our that’s know digital think going to don’t that expect but the we increases digital,

So seeing, the see even we decline not in Bell’s in dining rooms as digital example, Taco a are we for reopen, business. U.S.,

so are to on And those gains. we holding

probably expect return going But it’s that to don’t know to to I it’s pre-COVID – not ticket yes, levels. moderate. fair to to start So

Wells next The comes go Fargo. from from Please question Jon Tower ahead.

outside that so I had saying the if it. I I Thank U.S. mentioned bit in about can XXX of appreciate investments. you am a couple has recent in you. been was just you markets a Awesome. stores the And guys far. been David, name know us little hoping correctly, I on tell has the tech Tictuk, Kvantum

across on sort into expect what spread am globe. the what how deliver, you curious dig platforms What for these you and are are technologies opportunity order incremental been there And those the seeing that the scale-up hasn’t any to in been deployed stores across in globe? case? investment, where this headcount, see stores you sales, hear and where I to perhaps if perhaps them unlock is of maybe expecting to the So, expect to you versus

Great, great question.

about of both excited are we these acquisitions. So,

strategy, two those If areas, platform. think of our one areas technology to the and our e-commerce they about key of you being technology key tied

we success more stores channels like WhatsApp, had for brands, X,XXX So, Tictuk those for we where expand just with used channel way, our few media, easy and a high markets, have seconds through a a great already really bring one Tictuk, of to access on globe, think brands one social nearly customer customers giving that expectations reorder the really new each it. have within to the and have we around customers. And good team, for to more by it’s us experience, we text continue enhances that easily messaging, to

So, we what about excited platform. are it on the does

that, did marketing key strategy, area think have technology another data our their Kvantum which our If to and the about ability against a of around that drive many in-house globe capability new analytics and of you is squarely then to insights, our used investments. optimize brings markets

our And economies high are acquisitions. capabilities are now is And internally. from the the but continuing competitive the breadth reason their importantly, and businesses our they business. return, acquire to is the more of are advantage. so And think excited on create return apply serve come there they to scaled across of high we more that able these also being are to of that global side, they Both smaller a them decided we we

our profit improve and the provide capabilities a designed line really think the that our units them here income. our want healthier comes growing expand our is can the Yum! which have no where we smaller that just cycle, great services at one franchisees lowest improving franchise know have to these P&L return acquisitions, royalty not initially, to We proprietary to buying And to to are almost goal. we on companies but the in drive impact across development more these do Yum! we They are more to economics, return a to our model from leads are which lowest the really in then growth leads we would number them we We which for franchisees. unique provide capability have. thing top really cost virtuous one at Yes. cost a The piece, for and through on possible comes return our order we is got to sales units, and franchisees and scale world. franchise They all

next comes from Please from ahead. Oppenheimer. Our Brian Bittner go question

morning. Thank you. Good

drive ‘XX you specifically And can your just the versus we in are acceleration a KFC where levels? analyze are to XXXX, combinations see? where positive that portfolio in for you biggest trend store level having understand the in versus maybe underperformance biggest flip what are country you recoveries on the outside are your better you market to further volumes, needed faxing As the for of to regions different so side, U.S., seeing this starting the outperformance

Sure, good question, Brian.

pandemic bit vaccination, little going and intuitive. with, into are is business people capabilities. most on curve our are like I think the UK, virus had had are well and of ourselves the U.S., where is they the under where to all the the developed the fairly digital and developed keeping back in a this we control, of skewed begin ahead is actually seeing Where trading, successful more part tech markets, for for KFC, Australia, off-premise Canada,

that we is is that’s emerging I that with markets is the point all for where trend that in a we ahead going, usually little markets. So, are versus which were continuing are bit something pleased on environment. think developed Well, we market

our the into dine-in conversely, other X have ones, impact maybe in our had the markets more perhaps have the markets, at trade, to are and action some So now, close that where afternoon, we that business. struggling, government have for our stores are in an India, skewed example, to ability o’clock where we obviously pandemic, is we to the limiting going on got that’s in I think, going

is out business I and less even long-term, hopefully international why work that leads So, to we those stronger situations than but will sooner themselves are the returning in mobility to confident sales, still which we less think know later, growth. very rather

question last Bernstein. Please from comes ahead. from Our Senatore Sara go

you. Thank

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more So, tech stuff what a lot the synergies as believe to – start restaurant the team going be to even we in put of greatest create the together. going we is to this industry is

to enables that us way. to leverage clearly, our – the On the even the move are in consumer an really side, loyalty with digital loyalty with seeing consumer base, we bigger

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But will we quite guess, are do. work is QX. question, just as up lot saying all know there by more we to I the a about I excited last wrap

a are better QX lot just of other we grow. foundation saw now know coming of think is quarter. with in Evidenced how getting business, journey. development by in a to side the the what to are we in are out the But that of progress this of this you pandemic a the I stronger made demonstrates the the markets we all resilience

haven’t We the line. reached finish

not are call. and we But very on a time to the to the We excited victory about you doing look are next everybody’s dance. Appreciate today forward future. talking

conference. today’s This concludes

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