Yum! Brands (YUM) 3 May 232023 Q1 Earnings call transcript

Hello, everyone, and welcome to the First Quarter 2023 Yum! Brands Earnings Conference Call. My name is Bruno, and I'll be the operator of today. [Operator Instructions]

I would now like to hand over to your host, Jodi Dyer, Vice President of Investor Relations. Please go ahead.

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

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

be note get and forward-looking includes events forward-looking this we of materially made and conjunction considered All could only in that cause are should Before as results that to the call from to statements. are that in the differ release with SEC. subject included in call date the earnings statements please this started, future uncertainties statements statements the our factors cautionary actual these our with filings and of our risk

sections definitions filings find metrics addition, SEC to reconciliations the and used of our measures In to on and refer please and disclosures, with non-GAAP our of financial earnings call. other today's relevant release

system results currency. and note to note call, growth reporting treatment from operating that our foreign of sales impact related exit growth all Russia. profit Please following the financial today's during the Please also exclude

the of As metrics. as of performance from the XXXX, Russia to beginning a business key of the second we reminder, elected quarter remove

of worldwide impact and our the this from quarter. references growth sales by points. same-store For growth the and negatively first for unit both the This results system impacted sales thus, results business sales the same-store our removed our calculations do units sales quarter growth prior all worldwide purpose were from two percentage and, These system unit not are to Russia adjusted call, remove for growth to year base.

from the include for royalty to include These to full quarter. our and continue the impacts GAAP operations franchise reported primarily for business. operations figures Russia figures support continued G&A of KFC GAAP Russia All revenues

incurred the expenses the of business. to of our relating includes transfer ownership G&A GAAP Additionally,

net subsequent Russia operating segments to profits the which they exit have from our earned result special business, to and are in expense a the item to unallocated profits of and our a conflict As operating reflected as the of within line. corporate we operating those the income decision start re-classed net other and

As to the including business Ltd., the Russian systems, Russia of Service by second exit including the we Russia Rostik KFC KFC and franchise in in revenue no and be longer G&A. selling in the market master results, in reminder, quarter, the Smart restaurants the a all our the rights April, brand. franchise trademark GAAP for business will completed Beginning reported operating Russia

Financial for each section For more of Reports reporting the our visit market, website. our information calendar please on

call We call available and playback. are via be is recorded also broadcasting this conference for This our will website. being

second August on quarter call will X, the be with the ahead, earnings Looking same XXXX, conference released day. our on

Now to Gibbs. over call turn I'd like to David the

everyone. and good Thank morning, you, Jodi,

portfolio results of in global quarter the provide our Our our our first thrive of environment. the to advantages iconic further footprint and brands. power diverse of business Both the enable proof us of model any of nature

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our confidence giving algorithm delivering in Importantly, of in profit grew our core operating on long-term removal first including profits, us from a quarter, the one headwind this the XX% growth point great year. Russia

sale April, and quarter restaurants, the discuss first we franchise Russian the brand. of on rights Russia In systems, an KFC all trademark provide operating Rostik's Ltd., Smart including of Russia. KFC wanted our Service to I update the to master for business completion I results, our announced Before the

As employees in part has of the Russia. sale company retain agreed our agreement, Smart and purchase Service to

completion ceased in presence have our of corporate this transaction, the With we Russia.

discuss our of quarter first development results then Now and Easy of Chris through Unrivaled our about our financial unmatched or talking begin before framework. our I'll I'll & quarter Growth for will short, our and Recipe lens first details our the share operating bold the Culture Relevant, restaurant Distinctive results brands and discussing by capabilities. Talent. for Good R.E.D.

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pleased our to were see year-over-year growth China We KFC strong in business.

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is innovating European base several offerings. our in a to while team at strength points renewed around where seen appeal menu value core price we've many promoting markets to customer broader Additionally, the

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up U.S. to digital X-point approximately its Taco into is year-over-year leaning digital XX%, mix. initiatives with leading improvement customer engagement, an to Bell in digital its sales drive

Bell our Taco for customers launched easier products. recently delivery-as-a-service get access its our craveable through app to to mobile create

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system grew in value proposition development XX% by sales International offerings. the menu continued driven quarter, through momentum innovation Bell Taco core and strong

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XX%, by unit of divisional same-store and growth International, our Pizza profit, led operating system for accounts grew X% X% which sales growth. Hut sales X%

I'd breakthrough successful to this in scale and Canada for the efforts recognize markets Melts Following the additional this several U.S., collaborative of to like team innovation the launch including America. Latin XX in markets, launched global in product team our quickly. pizza winning the U.K., their

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or Culture plans shined for restaurants an to above him, who I is to Talent, to what a loved moment that & Russ and take have knows had Bendel whether want he next privilege moving all Russ' industry through career Before thank to our as by the who all else month. his celebrate in the people. Russ anyone always Unrivaled beside accomplished really passion kitchen to retire has he to Russ, is a knows a on in and work Everyone and friend restaurant values office. is he

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you. to over Chris, that, With

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reflects for at strong includes growth from of of Reported headwind negative our in system performance delivered which the foreign a operating sales results, I'll growth. XX% and translation. includes growth $XX begin quarter fundamental across million driven profit point XX%, with metrics. which We sales one our by Russia operating first came growth X% currency core from profit the Core financial profits. all impact quarter same-store X% removal a unit

We operating profit. $XX expect foreign translation a million to currency million $XX to quarter be headwind to second

across leading three accelerated sales a digital to sales. in digital billion quarter Our nearly record brands, with global $X our

strategies high this We digital a quarter. reached sales XX% exceeding are our are our digital working, in we confident considering mix, new

store flat in ex special, expenses Bell XX%, million, Taco were general line $XXX margins and year-over-year, administrative our with level expectations. were

be expect we higher the will our previously growth As in mentioned, the of year. first year-over-year we half G&A

XX%. tax special for ex was the quarter The rate

EPS, Our the was quarter prior flat roughly $X.XX, over excluding items, first special year.

currency impacted $X.XX. impact First losses quarter was our unrealized translation $X.XX investment to relating EPS by Devyani investment in of foreign and of negatively

franchise G&A. we mentioned, in will the Russia Russia results, last David including second quarter, GAAP month. in Beginning longer and of completed our be As sale the business no the our business reported revenue

the modeling KFC approximately and fee Russia's G&A quarterly have few purposes, $X revenue $XX million, franchisee respectively, million and averaged last For over quarters.

disruptions supply as environment. We to we in the are a pressures, inflationary pleased more U.S. return see operating staffing chain abate challenges normalized and to

markets, our pressures. international franchisees some we've others continue are similar to seen While inflationary in face outsized where there trends

in with health our our to industry-leading restaurant-level and protect trends partner system, well which engine. both of by franchisees our foundation inflation for continue is our as maintain commodity We're strong relative bode We the value availability development the profitability franchise while ensuring to of labor for we customers. encouraged

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XX our in Pakistan anticipated, the had exited stores Hut we As closed we and Pizza all market. partner franchise

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development industry-leading our ability maintain In our summary, to in momentum. confident remain we

unmatched and strategy: our and our Operations the Easy Experiences, Insights. digital discuss of pillars operating Easy I'll Next, capabilities three Easy

choice. Building First, ranked Entrepreneur position unmatched XXXX KFC quarter and our are that America. last ranking recognition, was its mentioned organization and top franchise-first in of We to Entrepreneur Taco fourth North commitment led #X Magazine by three top in week, as our contributing the on franchise a earnings #X the as five, operating global XXX spot. Bell that largest made Franchise this capabilities global announced call our rankings our the Magazine's on brands franchisor in

Moving on enhance continued pillar, we new ordering the strategy. and our digital digital ordering to Easy launched the pillars our to with capabilities Beginning channels. Experiences of

completed to single Tictuk its deployment fact, ordering market quarter. In this largest chat date for

is show with Customers are users to first new the placing after now launch. using Early XX ordering across this South WhatsApp. than in orders able X,XXX the more stores Africa KFC in of order in channel days market results sticky, XX% multiple

the doubled in by Operations pillar, launched reach system, orders and Hut Within count approximately total. over to Hut store X,XXX Easy which Pizza KFC the Pizza X,XXX Dragontail led in across its this U.S. quarter, restaurants

Additionally, on platform. the launched KFC XXX nearly restaurants Canada

arrive as improvements Restaurants dispatch driver satisfaction quality fresh. Dragontail the implement that order customers' see in customer and favorite product algorithm and scores ensure products and capabilities consistently Yum! hot sequencing

managers teams. us will first now Pizza Pizza collaboration Hut Hut milestone platform the XX,XXX application by marked XX scale for centrally managers in product restaurant The Super that under our brands This our our more banner. Bott, supports technology and technology. allows Additionally, AI-based quarter continued in quickly that the mobile-first future powers and an innovation exciting Huts managed technology Yum! and App shift your to pocket digital for ensures across Coach over core Yum! countries enhancement restaurant be

KFC in XXX Easy module live pillar, AI are the each for quantity out manager Insights in week. order over U.S. product Recommended additional restaurant X,XXX recommended an Bell Finally, and we ordering nearly is to stores recommends should of stores ordering and a our rolled that Taco

and we delivering transfers a to waste managers forecast in spend time ordering It reduces have and off-cycle up cross-store frees XX% improves and experiences. Taco reduces reduction store and guest seen transfers. our off-cycle which time-consuming focus managers Bell, great restaurant orders on the orders accuracy At product,

update an provide I'll balance Lastly, position. on liquidity our sheet and

capital balance Our returns. the of use capital sheet, shareholder in to our our competitive invest business, a evaluate remain constantly unchanged: dividend allocation the cash. the resilient optimal revisit optimize and priorities a continuously offer excess of maintain We

Our the at net leverage X.Xx. ratio ended quarter

leverage this year. reminder, modestly we drift our to expect a ratio lower As

gross were Our million net $X $XX in the capital proceeds $XX in expenditures for refranchising quarter million CapEx. and reflecting million,

our million. an $XXX XXX,XXX relates share price it program, repurchased share per average totaling As to approximately of during quarter, approximately at $XX shares the we share, buyback

To to on year, our pleased quarter. long-term for we're growth algorithm With great in we're close, incredibly with our a the start results confident XXXX. delivering the in

Our relevant and positioned create value. consistently are brands in iconic demonstrate any to macro and uniquely shareholder that they lasting thrive environment

to ready operator, that, any take we With are questions.

from question Gregory Our from Guggenheim comes Francfort Securities. first Instructions] [Operator

you I Are would but your the wage globally, U.S. there better your one more I the changes labor first is and can market? The provide had, mostly definitely in Any comments the I'm environment in be getting like U.S. it inflation seeing you details staffing also in curious. markets update on sounds just staffing? Or environment helpful. core and

question around environment. the good Yes, labor

level, only versus our developed step challenges couple of If we restaurant the you back in at macro in some been the not in publicized, labor And have developed that well have over we a this but had sector, markets, years. emerging last sectors think markets. in all about

labor or are which And staffing abating. those we've increase, We're labor back challenges XXXX our seeing at to a increase, in our markets is levels franchisees and abate rates inflation application Those seen from rates levels. helping continue near are to margin retention standpoint.

less pockets position teams that continues. three emerging had markets, our the our brands digital who way our and in of of which but on labor to environment. And easier, we with throughout are years, of last the four inflation running the employment franchisees plus the restaurants in there. markets because there's culture have the some challenges general, are area, to labor seen that, Operations globally, innovations Yum!'s trend all labor make franchisees in haven't focus plus contributing go couple I'm Easy sure really an improving for we big the If our and their those we've led last the during talent, dealing years, that and

Bittner comes Our Brian Oppenheimer. next from question from

As the yet was year. And very profit it it your relates XX%, China. interestingly, actually the very to strong strong doesn't from in core to first quarter, a recovery strong start incorporate it operating really

first least relates line the if core of unpack long-term your year, this your guidance with can your the I'm operating with unfolds you bit results wondering algorithm, it possibly X% at after can maybe and you profit us Or conservatively the whether operating core as tilting in takes puts through a as kind of So year in strong your quarter? profit. to is the for guide

Yes. was Thanks, say, it core results quarter we we if operating step have a strong Brian. a standpoint. as continue. from further And as Obviously, year upside through the profit you China's

the long-term just But As you know, clearly, good we algorithm a our off algorithm have year, long-term years, every revise we've we a to year shaping is start that. It's to and the many and it we strong don't quarter. up. is over -- about how feel gotten

last the off Importantly, algorithm. that investor beating just at the fact I year we started raised conference, the the of we've love that algorithm our components all year and

Tower next Citi. comes from from question Our Jon

was on in you could the hoping your specifically I going offer some franchisee on what's environment, from end the in U.S. insights

what's might a regional think and particularly concern, growing challenges accessing have the capital growing I that perhaps U.S. in banks, happening therefore having there's difficulty franchisees with with

you dive of I are little that competitors, smaller your bit, in differently are hoping brands different than was could you positioned I into a think but kind spot please. and guys a

XX our back development, shared to a think than of Day going the driven driven, you when our And and we where that of start I'm is U.S. at more development our question. about development the of think development step traded publicly Investor global global about is in Good you mind franchisees. by And XX% at XX% that outside Jon. if is keep level. Thanks, Yes.

you franchisees, no average, at cash on the have with financial that of one If less hand factors look largest than you those on turn The on debt. see two go got, they've leverage. significant

;whereas general, strong, at competitive very a is of systems we the XC sort to us franchisee our So development in franchise continue think around globe of be environment gives the strengthen whose financial think, this base competitors a strong in advantage we will as to aren't disadvantage. and health,

U.S., is If the in mind the I the our majority Taco drill into development Bell in U.S. keep that of vast

have strong. Taco be at continued to margins Bell U.S. Our

saw You slight this were our year. a margins versus last improvement restaurant year

drive Those margins. new strong Taco So we strong units. with growth those returns to continue are at Bell strong on

relative feel like position we competitively in that we're issue. very So advantaged a to

haven't getting about We and franchisees concerned anecdotes really of heard accessing stories capital.

Our comes from next John from Ivankoe JPMorgan. question

XXXX desirable a part pretty their a think levels want were enforcing more standards that and the are really maybe are so of than to focusing levels even I desirable consistent bigger, 'XX coming even on of for that back operational emerging many maybe systems back theme so that's brands to as and or well-capitalized, them. be people are 'XX some better and

hard across operational So to grade, any brands? the brands opportunity? can but if about kind big business, it's across you execution of your multiple global talk of you see the always pockets can, you Do

of really a could of is now not of forward the and significant there problems, crisis. some you pockets post needle have Yum! hey, point opportunity this big any obviously from going opportunity see that business part of as the we're that execution just important really And saying, pockets very move you out

that. at results, business. at a sales growth that a general, we the restaurant big Of of like, a our from to brands, -- good our we standpoint great double-digit improve? customer always is all for three growth looking Yes, of Jon, we And in Are experience sales feel very our doing job we're I'd in know global you to critical look providing all system general, say, course. if in

capabilities digital how example as our elevating of to we're operations. one go I

talked we customer easier experience. to restaurants tools we You Operations then of the digital implement that strategy, of about continue make the to operate that go one to and Easy three areas our pillar, and improve

Dragontail customer the to oven, getting faster. delivery pizzas times and got fresher experience. great a of restaurant, drivers pizzas back, we getting a translating and out David Hut example. how of just couple weeks hotter, coming I to better They're Dragontail with the U.K. the that's in were the to see the being Pizza in

just that So that's we how example elevate one of front. on

significant have manage we make to strength But referenced small that one the we was in where to the of We do the move about felt improvement on and room move of talked call. example just a Where we opportunity, we that. Pakistan our it where do situation right pockets those our overall to gave that's franchise operations. of we global our a the base. development The targeted change improve us made situations,

thing few add only The have obviously been years would the challenging is a last I operating environment.

I think career. at around right it made about my the long stronger in world and I better feel point We're quality end the our at though, today of the clearly us I the direction. headed any day of operator, the in an has as ops have than

have the Officer was at as of who Operating the at Chief Sami leaders brands such Sabir KFC. We KFC,

a putting know off. We we're So that emphasis can operations. that, very on pay strong

having positive component because how important payoff a Pizza Hut is change mentioned, a In the largest franchise better a we they're know, other stores in. the of to the The this of our of the Pizza reminder had Hut terms as great ownership is, franchisee, getting big for U.S., as in have it right and that's Chris partners. you very running franchisees of the right us at

from question next Dennis comes UBS. Geiger Our from

momentum eve the and you how that to on wondering if could level I'm could particularly going sales the you off within little pricing for touch in in overall you just And the U.S. the of the the momentum the some to momentum that, across and, brands, the a rest if year, therefore, just about continue. continue bit the Given at expect presumably you you've in sort wondering environment, in think got U.S. and rolling the of talk through more tough business about high that traffic outlook outlook a least

If touch on you could that.

from a Obviously, say Yes. on year what another but normally start Thanks, momentum will strong we change don't to off the we QX. is And we're No start comment Dennis. in with in intra-quarter, to QX. trends significant I QX. strong had

will look puts the takes different. and Of course,

Some businesses little in better are bit QX. doing a than

doing our tougher But have of with Some gives teams things that us all a right laps. it are lot connect to the consumers. confidence

us, they of the is might the talk there weather And as you Value any consumer, Menu, ability was just like so saw is started strength the value environment kind When Grill the particularly offer for -- offerings brands. about healthy soften. Cravings a to for to QX, well offer U.S. some our be from but Cheese this you that innovation environment if Taco kind the with Burrito of positioned to into pullback, their menu trading the had also people in economy under category Bell

momentum off little we about we -- business. where feel will from start pricing good sit, were time, same So the probably that really at bit. you the roll we've referenced seen in the the And actions But to a abate. inflation

sales customer with that consumers. you QX know, those the $X lowest-income strongest you a in segment they were wraps. give I'll QX, saw rolled as another good fun The KFC, out stat. In in

of they Hut under with lifting said Pizza could the low-income business thing did part with offering. a consumers X.XX consumer the base through connecting that of Same -- melts. the because be was sales So from job the part great them

to these know we in in the tools win arsenal have environments. all we our So competitive

from comes Palmer Evercore. next Our David question from

And home if sales could get any details wondering often Wondering I'm pre-COVID you recovery statistics. other patterns on for markets. accelerating? thinking provide don't you're country-level the some shifting multiyear still International how at ongoing to We about up weakness see between Where the is why cropping it's here would be, places, or certain delivering there. it or slowing that that consumer perhaps And perhaps versus maybe recovery. of key levels in KFC if

Yes.

David. trends, of terms in talking Just

we at the You system sales sales in widespread our growth we've got from breakouts saw that numbers report. release the that

businesses digits. In track fact, the up the that we majority vast are of double

contributing the markets. think that emerging markets the we flipped more identified to markets markets been of one pandemic to back were a a emerging And as normal early think our of more than now we're on in recently sort little growth. entering of I then recovered. have leading the bit of developed which charge. developed sort markets better that and in the sort They've doing And cadence phase emerging I we're

good XXX good So a obviously, times of gives in returning us. could the a country about combinations today to about business, pretty talk more have why sense different but talked of brand number we ones, we've what that's you which I we is think lot normal of And already is cadence like. a landscape that a the for

next comes Andrew TD Our Cowen. Charles from question from

fell X.X% Great. XQ bit to perhaps X.X% we it XQ can sequential but season-light growing the in step a bigger Russia. development recognize ongoing net XQ, I a to excluding speak that than guidance, quarter, the certainly of expecting. but was cadence a were XQ restaurant in down that is exceeded X% you growth

So you the robust commitments. spoke about guys development

just expect percentage to XXXX growth going the curious, mean, up as I'm you so of pick And progresses? is year-over-year perhaps do that I

Thanks. Good white around mentioned think development And specifically, got If question. about got there. new QX we strong We've our We've hold. got we've Yes. out in David confidence franchise lots the in the economics. the business. development got partners. trajectory long-term I best that still of talk all space We've factors teams tremendous

our QX, that of year would mind, much. I new the to this go too If investing are build total put gross We read year. towards said in be That's we into up more reflects ever. weighted don't restaurants. But XXX in units. later parts QX, franchisees that keep That our second-highest

pipeline with is on Year, the and yesterday, tied signing they that were the delays call contract to despite were was of view they on heard And China Yum! the talked strength about their delays related you to going New building permitting in Chinese forward. what COVID. dealing their And that which

using new about our in how net in side, franchisee things to we're asset the talked assets is advance base. our strengthen Pakistan base the I to go strength unit development we're our I doing cases, growth situation. one global the to that of certain with the If we, strengthen

stronger, Another a thing opening doing transformation same close we're Pizza when in the we're unit. is Hut one trade unit, continuing that higher-performing we area another asset is the where a

to confident about up, the we this in doing have take that of year we're remain trajectory. and we And look low-volume the few we do I said, that. when But third opportunities cleaned to to similar need long-term as really XXXX. units And expect be general, XXXX thing is to we'll a advantage

I Yes. we have upside. development growth thing numbers. these out to is a think numbers ours. do know we throw how our that's set keep is the focus this big I'll and beat out, mean Any there, trying focus We Obviously, is add how our that only to algorithm. we important on of is we

was the from obviously, a And pretty clear at strong beginning strong it point correlated. really don't And we've been too conclusions quarter. many one quarter. the historically is draw of that not It was a year data

just So happened QX and feel like we're what XXXX proud and about 'XX of good looking in 'XX.

comes Our next Bernstein Barclays. question Jeffrey from from

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Our from from Baird. Tarantino question David comes last

clarifications, Chris, of Just outlook. the a on couple

about your unit few unit on the opening? I gross expect commentary, Are said in to growth unit the you years. lot ex to a this like X% or two guess look close years. talking has last been you net Russia growth past you So growth year First, net the

clarify to wanted that. just I So

secondly, you G&A an wondering I have for if then guidance the update on And your year. was

David. Thanks, Yes.

on First, development.

net confidence And that. our unit said continue into working of call, multiple And type we've new course, future. real that growth ahead to have on the been little the Of as to our we development growth. a X% algorithm net deliver we're in long-term hard new of momentum. We've growth unit continue ability specifies to our times

just G&A, of things. On a couple

note First, our in special. G&A reported as was about of $X QX million classified that

we year-over-year on So had at when weighted special to you would ex our last more beginning year-over-year a year. the then this the increase, that the the increases call look of little said be year,

are that. There drove that two factors really

targeted our G&A investments support we of had in growth business some the make to So parts to coming planned long-term into obviously specific year, in the strategies.

encounter the we cyber did expenses we related year part, had January. in primarily we that that not The event anticipating to to some second were prior the

year at call look and full when to G&A as full for billion, we QX the land provide at year, updates and we further back the still, expect the still $X.XX approximately on we'll step But we plan needed.

into Well, good all raised the we updating strong the the measures I it and on on thanks, about start our call. the that fact everybody. questions. And QX we're our to algorithm and on are our beating progress to have all we've QX that appreciate excited year, continuing you momentum the obviously, forward today. Look

concludes Ladies today's and Thank gentlemen, call. for you joining. this

disconnect lines. You you. may Thank now your