Yum Brands Inc. (YUM, Financial) released its second-quarter financial results before the market opened on July 30. The company’s top and bottom lines surpassed analysts’ expectations despite weak same-store sales results.
Earnings highlights
The restaurant operator, which owns the Taco Bell, KFC and Pizza Hut brands, reported second-quarter adjusted earnings of 82 cents per share, which exceeded analysts' estimates of 54 cents. Revenue stood at $1.2 billion, which was down 8.4% year over year but marginally surpassed expectations of $1.19 billion.
In a statement, CEO David Gibbs commented on how digital sales made up for the losses from physical stores:
“Digital sales were a big driver of the dramatic improvement in sales from the initial impact of COVID-19, reaching an all-time high of $3.5 billion for the quarter, an increase of more than $1 billion over the prior year. World-class operations, including rapid implementation of contactless options, supported a steady pace of store reopening through the quarter, with approximately 95% of our global system restaurants now at least partially open.”
Comps
On the global front, the company recorded a comps decline of 15% as it had to shut down many of its restaurants due to the coronavirus pandemic. Gibbs, however, said:
“Same-store sales trends for open stores stabilized in June just a few points short of flat, despite the majority of our dining rooms still remaining closed, and these trends have continued into July.”
Segment details
KFC, the company’s largest brand, experienced a 21% decline in same-store sales from the year-ago quarter. Given the weak comps, the division’s operating margin plunged 7.3 percentage points to 37.4%. The given metric was also hampered by mounting bad debt expenses as well as lower margins on account of the coronavirus.
The segment posted 8% growth in systemwide sales in the U.S. In China, however, systemwide sales were down 6%, barring currency translations.
Pizza Hut’s quarterly comparable store sales fell 8%. Likewise, the operating margin dipped 1.9 percentage points to 36.8%, which was attributable to lower comps, but was partly negated by U.S. franchise bad debt recoveries. The segment saw systemwide sales growth of 1% in the U.S., while in China, the metric plummeted 12%.
Taco Bell reported an 8% drop in same-store sales worldwide. However, the sector’s operating profit increased 1.2 percentage points to 34.4%, driven by lower general and administrative and franchise and property expenses.
Shares dipped 2% in premarket trading following the earnings announcement.
Disclosure: I do not hold any positions in the stocks mentioned.
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