Yum Brands is grappling with a troubling decline in sales for its flagship chains, KFC and Pizza Hut. According to recent financial reports, both brands have experienced a significant drop in same-store sales in the second quarter of 2024. While this downturn has cast a shadow over Yum Brands’ financial performance, not all is bleak. Taco Bell, another key player in the Yum portfolio, has shown impressive resilience and growth in the quarter, providing a glimmer of hope amid the broader sales decline. Read on to discover the reasons behind KFC and Pizza Hut’s sales slump and how Taco Bell is proving to be a crucial pillar for the company.
Yum Brands Posts Mixed Results as KFC and Pizza Hut Struggle
Yum Brands’ overall same-store sales declined by 1% in the second quarter of 2024, an improvement from the 3% dip in the first quarter but below analysts’ expectations of a 0.2% decrease. However, Yum Brands reported a 10% increase in core operating profit and reaffirmed its forecast of an 8% increase in full-year core operating profit.
Net income for the quarter stood at $367 million, or $1.28 per share, down from $418 million or $1.46 per share in the same period last year. Excluding one-time items, the company posted a profit of $1.35 per share, slightly above analysts’ estimates of $1.33 per share.
Net sales rose 4% to $1.76 billion, driven by new restaurant openings. However, the company’s same-store sales fell 1% as both KFC and Pizza Hut reported declines of 3%. KFC’s U.S. restaurants continued to struggle, with domestic same-store sales shrinking 5%, while the chicken chain’s overall international same-store sales fell 3%. Pizza Hut also faced challenges, with U.S. same-store sales decreasing by 1% and international same-store sales declining by 4%.
Behind KFC and Pizza Hut’s Sales Slump
KFC and Pizza Hut’s decline in sales is part of a broader trend affecting the fast-food industry, which is primarily driven by a combination of economic factors and changing consumer preferences.
Persistent inflation has discouraged lower-income Americans from dining out, leading to a decrease in sales for both chains. Concerns about a potential recession have also led to increased caution among consumers, with many opting to cook at home rather than eat out.
In a bid to capture the attention of budget-conscious consumers, Yum Brands is actively enhancing its loyalty programs and updating its menus. For instance, KFC introduced a value menu in April that will last through the year. The Meal for One, priced at $4.99, offers two pieces of chicken, mashed potatoes, gravy, and a biscuit, while the $20 Family Meal includes six pieces of chicken, four sides, and four biscuits. However, these value offerings have not been enough to offset the impact of competition from other fast-food chains.
Moreover, a growing emphasis on healthier eating habits has impacted demand for fried chicken and pizza, contributing to the sales decline of KFC and Pizza Hut.
Yum CEO David Gibbs also admitted that the sales of KFC and Pizza Hut have been dented in the Middle East by boycotts. “The impacts from the Middle East conflict, in addition to a more cost-conscious consumer, have presented headwinds to same-store sales,” told analysts on the company’s conference call on August 6.
Despite all these hurdles, Gibbs said he’s “incredibly pleased with how well” the Yum Brands teams have managed through a challenging operating environment.
Taco Bell Drives Yum Brands’ Growth
Taco Bell has emerged as a crucial asset for Yum Brands, reporting a robust 5% growth in same-store sales, surpassing LSEG analysts’ expectations of 3.6%. The chain’s strong presence in the U.S. market, coupled with its reputation for delivering value, has enabled it to navigate the recent downturn in consumer spending effectively. According to CEO David Gibbs, Taco Bell’s sales growth has been consistent across all income demographics.
Gibbs credited this success to “unmatched, crave-worthy innovation,” particularly highlighting the popularity of the new Cantina Chicken menu and the Taco Tuesday promotion. Available for a few weeks in April and June, the Taco Tuesday promotion featured a limited-time $5 Taco Discovery Box, which included a Crunchy Taco, a Doritos Locos Taco, a Cantina Chicken Crispy Taco, and a medium drink.
Despite these positive developments, Taco Bell faces stiff competition within the fast-food landscape, but its strategic focus on value and innovative menu offerings has positioned it as a leader in the market.