Q3 2022 Yum! Brands Inc Earnings Call
Hello, everybody and welcome to today's Yum Yum Brands, Inc. 2022 third quarter earnings call. My name is Jay and I'll be coordinating your call today, if you would like to ask a question. During the presentation. You may do so by pressing star one on your telephone keypad, if you change.
Your mind. Please press star followed by Jamie We all see you I may ask one question on today's call.
I'm now going to hand over to Gavin failed that chief strategy Officer, and interim head of Investor Relations to begin. Please go ahead.
Thanks, operator, good morning, everyone and thank you for joining us as a reminder, the company while she is out of necessity.
On our call today.
Chris <unk>, CFO and Dave Russell.
Good luck.
Corporate controller.
While in remarks from David and Chris We'll open the call to questions before we get started I would like to remind you that this conference call includes forward looking statements that are subject to future events.
That could cause actual results to differ materially from these statements. All forward looking statements only as of the date of this announced and should be considered in conjunction with the cautionary statements.
And the risk factors included in our filing.
With the SEC.
Please proceed thanks releases and relevant sections of our filings with the SEC to find disclosures and definitions of non-GAAP financial measures and other metrics that may be used on today's call as well as reconciliation of non-GAAP financial measures.
Please note that during today's call all system sales.
Operating profit growth results exclude the impact.
Foreign currency.
Next I'll provide an update on the financial reporting treatment related exit from Russia.
As a reminder, as of the beginning of the second quarter, we elected to remove the rest of the business from key performance metrics.
Negatively impacted our third quarter unit growth by two percentage points and all system sales growth by three percentage points. Additionally, these units were removed from our same store sales calculation and thus do not impact same store sales results for the third quarter.
This call all references to system sales growth and unit growth results for the quarter, our adjusted to remove our Russia business from the prior year base.
<unk> seen good Russia.
Measure for KFC.
Royalty revenue and expenses to support the rest of the business and expenses.
Relating to the transfer of ownership of the business.
As a result of our decision to exit our Russia business, we haven't re class net operating profits from the operating statements subsequent to the start of the conflicts to corporate.
Hasnt reflected that as a special item within other income and expense line.
For more information on our reporting calendar for each market. Please visit the financial reports section of our website.
We are broadcasting this conference call buyout website. This call is also being recorded and will be available labor.
Please be advised if you ask a question.
Okay.
And in any future use of the recording.
We would like to make you aware.
<unk> young investor events and following.
Disclosures pertaining to outstanding debt in our restricted group capital structure will be provided at the time of our Form 10-Q filings.
We'll be hosting an investor day on <unk>.
Tuesday December 13, 2022 at the New York Stock Exchange.
The event will also be webcast via our website at investors <unk> com.
Quarterly earnings will be released on February eight 2023.
With the conference call on the same date now I'd like to turn the call over to David Gibbs. Thanks.
Thank you Gavin and good morning, everyone. Our strong top line momentum this quarter highlight clear demand for our iconic brands, we delivered 10% system sales growth underpinned by 5% same store sales growth and 6% unit growth.
While the broader macro environment evolve our brands continue to thrive by being distinctive creating excitement for consumers by delivering exceptional value and convenience.
The investments we have made in areas such as consumer insights marketing analytics, and new technology platforms allow us to act with pace and confidence to meet the needs of consumers around the world.
I'm, particularly thrilled about the performance of the KFC and Taco Bell Division that were both standout performers. This quarter KFC did an excellent job in driving transaction growth with Omnichannel approach, leading to a sequential improvement in comps from the prior quarter Taco Bell is winning thanks to its ability to generate and amplify standout Wilmington culture and translate the result.
Being top line growth into impressive restaurant level margin.
I'm also excited to share that we opened a total of 979 gross units across 74 countries proof.
Proof that our development engine is powerful and diversified.
As these results show our committed well capitalized franchise partners are seizing opportunities to invest in the growth of our brands for the long term.
Next I wanted to provide an update on our Russian business.
As Gavin mentioned, we Havent signed purchase agreement to transfer ownership of our Russian KFC restaurants operating system and Master franchise rights to an existing KFC, Russia a franchisee.
Following the completion of the transaction, we will have ceased our corporate presence in Russia.
I wanted to say that I'm incredibly proud of how our local teams have managed through this extremely difficult time and prioritize the safety of our people in the region.
Number one priority is our people and they will always be at the center of every decision we make.
Now I will talk about two of our growth drivers relevant easy and distinctive brands or red for short and our unrivaled culture and talent.
Then I'll provide an update on our recipe for good Chris will share the details of our third quarter financial results before discussing our bold restaurant development and unmatched operating capabilities growth drivers.
First I'll discuss our red brands.
Again, with the KFC division, which accounts for 51% of our operating costs.
System sales grew 12% underpinned by a 7% same store sales growth and 7% unit growth.
These results prove this business can perform well in a multitude of environments, even in certain pockets of the loan portfolio experienced heightened macro pressures.
Our KFC international business, which represents 46% of our operating profit our system sales grew 14% driven by an 8% increase in same store sales.
This represents a significant acceleration from the 1% same store sales growth in the second quarter.
We saw a notable strength in the Middle East, India and Africa, Thanks to momentum across our digital channels and our focus on operations and value.
Middle East market is truly on fire, where system sales grew an impressive 46% with strength across all channels, including the ramp up and the use of kiosks and click and collect.
Our India markets saw system sales grow 45% during the quarter with customers enjoying the convenience driven seven minute express takeaway guarantee.
In Africa, where system sales grew 31%. The team is focused on providing an easy and convenient digital experience for consumers they've done an outstanding job rebranding their click and collect channel as well as rolling out kiosks across the market to drive sales underpinned by compelling sharing offers like the all in one piece.
At KFC U S. We brought back our payments $5 Mac and cheese, both as a value oriented items this quarter.
The rebooted this much loved products helps drive a positive 2% same store sales comp.
Additionally for a limited time, we launched a $6 two piece drove this bad combo, which has driven positive results in a meaningful sequential improvement in transactions.
Moving onto our Taco Bell Division, which represents 34% of our operating profit.
We saw extremely strong momentum.
<unk> growing 9% led by a 6% same store sales growth and 5% unit growth.
And Taco Bell U S system sales grew 8% for the quarter underpinned by a 7% same store sales growth and 2% unit growth.
The brand is bringing to life is one of a kind mentioned through creative innovation in a way that only Taco Bell Canada.
This was most evident with the team adding product to its $2 cravings menu such as the cheesy there'll be burrito, while innovating with premium offers like the grilled cheese burrito.
Taco Bell is a brand that is truly relevant easy and distinctive with a unique ability to stand for value of the current economic environment.
Broad enough range to appeal to consumers across every demographic.
We ended the fourth quarter, we're even more excited about the momentum and Taco Bell U S with the relaunch of the Mexican pizza, which occurred in mid September .
And talk about the international system sales grew 26% driven by 30% unit growth and 5% same store sales growth.
In the third quarter five markets delivered double digit system sales growth, marking another milestone in Taco Bell International expansion journey.
Year to date, we've opened 111 net new units almost double the number opened at this point last year.
We're driving scale in key markets, helping our franchisees leveraged their size to optimize marketing spend expand development capabilities and gained local sourcing efficiency.
Next at the Pizza Hut Division, which accounts for 15% of our operating profit our system sales grew 5% led by 5% unit growth and 1% same store sales growth at Pizza Hut International which accounts for 8% of our operating profit system sales grew 6% underpinned by 8%.
Unit growth and 2% same store sales growth.
Across our markets, we are focused on finding ways to expand our reach to become a more everyday brand. For example is a leading everyday value offering the pizza team launched a fun flavor pizza costing roughly one dollar.
More broadly the my box value platform is proving to be a key traffic driver through innovation and giving customers the option to customize with new entrees inside of it.
The platform helped us lean in on the individual meal lunch occasions and is now live in over 50 countries.
I'm also pleased to say that our emerging markets, we're seeing a recovery in traffic and demand as we lap the impact of Covid.
Pizza U S, which accounts for 7% of our operating profit saw system sales grew 2% driven by 1% same store sales growth are.
A key focus for this business has been to provide our customers with the ability to access our brands wherever they are.
As part of this initiative, we continue to partner with third party Aggregators and integrate them into our Pos systems with 90% of our system using at least one third party marketplace.
In addition, we're working to ensure we have the right value offerings to meet consumer demand and maintain franchisee profitability.
This effort led to the introduction of items such as the $6 99 medium one topping pairs deal and the return to the big dinner box as an abundant family value offer.
Lastly, at the habit Burger Grill same store sales trends on a three year basis had sequentially improved since the second quarter. Additionally, we continue to see consumers download our mobile app, leading to a 10% increase in app downloads since last quarter Digi.
Digital sales at the habit now account for 33% of mix.
The team is making good progress growing new sales channels and forming direct relationship with our customers.
Moving onto our unrivaled culture and talent growth driver.
As we've mentioned on previous calls we've been celebrating our <unk> anniversary as a publicly traded company in various forums throughout this year.
I'd like to acknowledge the important role our unique people first culture and World class talent have played in our success over the last 25 years.
Our culture, which is focused on recognition and collaboration is a key differentiator across our portfolio of iconic brands.
To drive retention and recruitment of amazing leaders, who are developing others grow in their careers and ensuring the continued strong performance and success of our brand.
I'm proud of the deep bench of outstanding leaders and how our commitment to growing our people from within is driven a healthy increase in promotions and new opportunities for our team.
Our culture continues to attract top external talent as well. We've recently welcomed former Mars, Inc. Executive Alison Park to our global leadership team is young Chief Corporate Affairs officer, overseeing communications and public policy as well as our ESG strategy an area of increased importance as we continue driving our recipe for good.
At Pizza Hut, we welcome former Starbucks executives Shannon Garcia as the brand's global Chief operating and transformation officer, a role that will evolve the ways in which the brand works with its markets to add value and operate with a digital first mindset.
These are just two examples of the incredible talent that our culture that enables us to attract from outside and within our industry.
When it comes to our recipe for good we continue to invest in critical work that is focused on our three priority areas of people food and flat.
All of our commitments and the progress we're making on the execution of our ESG agenda.
For example, when it comes to our climate efforts, we've moved Gm's U S offices as well as all of our company owned restaurant to renewable electricity.
We're now conducting a global study on renewable energy market to identify low carbon solutions at our restaurants worldwide.
And in August Pizza U S announced an exciting partnership with dairy farmers of America on an innovative farm level of sustainability project to provide participating farmers with the technology and data needed to help reduce greenhouse gas emissions.
Iconic brands is unmatched scale I truly believe that we're in a unique position to make a significant impact in the areas.
Archives.
To wrap up I'm excited about the momentum in the business there'll be demonstrated this quarter.
How're and resilience of our brands was clear as we continued to prove we can perform well in any environment.
Our diversified global scale World class franchise partners and unmatched operating capabilities I am more confident than ever in the future success of our business.
With that Chris over to you.
Thank you David and good morning, everyone today, I'll discuss our financial results, our bold restaurant development and unmatched operating capability growth drivers followed by our capital strategy.
I'll begin with our third quarter financial results system sales grew 10% with broad based strength evident across our portfolio sale.
Same store sales grew 5% while units grew 6%.
Core operating profit grew 8%, which includes a three point headwind from the removal of Russia profits this year.
Special General and administrative expenses came in at $259 million tracking in line with our expectations for $1 $1 billion of G&A expense for fiscal 2020 to improve.
Impressively, our Taco Bell store level margins were 24% trending above third quarter last year and above pre COVID-19 levels.
With respect to reported operating profit.
<unk> had a negative $39 million impact and we now expect a full year FX headwind of approximately $100 million.
Third quarter EPS, excluding special items was $1 nine and.
And 11% decrease versus the prior year.
In addition to a three percentage point impact from foregone operating profits in Russia.
Growth was also negatively impacted by nine percentage points from the aforementioned FX nine percentage points, owing to a higher tax rate and six percentage points from lower year over year unrealized gains associated with our investment in Debbie on.
Our ex special tax rate this quarter was higher than usual at just under 27%.
Largely due to adjustments recorded in the quarter associated with prior year taxes.
These adjustments, we now expect our full year tax rate to land between 23% and 24%.
Overall, given the sustained strength of our global business. We continue to expect to grow core operating profit in the mid single digit range for the full year as.
As we mentioned on the past two quarterly calls.
Not for the loss of Russian profits, we would expect core operating profit growth to be high single digit this year in line with our long term growth algorithm.
Now, let me share some more detail on unit growth and our bold restaurant development growth driver.
This quarter, we opened 979 gross new units with encouraging momentum across our brand portfolio.
At KFC, we opened 485 gross new units with China, India, the middle East and Thailand, leading the charge.
Our Pizza Hut International Division saw incredible development progress this quarter opening 344, gross new units setting a third quarter development record.
This puts pizza hut International's year to date gross opening at 879 million.
Which is 280 units ahead of this time last year.
India, and Turkey, led pizza hut development with each market, adding more than 30 gross new year.
The Taco Bell Division opened 98 gross new units this quarter led by strong international development, achieving a Q3 record of over 50 gross new units.
For Taco Bell International I'm excited to share that this quarter, both the India and U K markets joined Spain in the ranks of countries that now exceed 100 units.
While Taco Bell U S development remains robust, we expect international development the lead Taco Bell's unit growth this year.
Despite the uneven macro pressures across our markets our development remains strong as our franchisees use market disruptions as opportunities to grow.
Were partnering closely with our franchisees to navigate challenges in the supply chain and higher construction costs.
We are leveraging both our sourcing expertise and scale to secure equipment and realize favorable pricing on key items. Our teams are highly focused on balancing long term profitability for our franchisees and offering value for our customers.
With the power of our well capitalized and committed franchise system.
<unk> unique global scale, we havent, yet we remain confident in our ability to grow in any economic environment.
Next I'll discuss our unmatched operating capabilities and the three pillars of our digital strategy.
Experiences easy operations and easy insight.
I'll start with an update on our easy experience. This pillar, which focuses on delivering exceptional customer experiences through technology and dedicated operational programs Q.
<unk> magazine ranked Taco Bell and KFC in the top three for fastest drive thru times in the U S and in fact, Taco Bell drive thru times, where nine seconds faster year over year KFC Division kiosk sales also stood out this quarter with a more than 40 person.
<unk> increase in sales year over year, and 6% system sales mix and impressive results considering that only 15% of KFC restaurants currently have kiosks.
We are also encouraged that the <unk>.
Platform is expanding beyond check ordering with its e-commerce engine with a front and backend web site and mobile App that is serving some of our smaller international countries.
We recently went live with.
E Commerce engine and KFC, Mexico and saw an increase in conversion rates post launch we expect <unk> E. Commerce engine will be live in 18 countries by year end.
Moving onto our easy operations pillar that centers on the team member and franchise partner experience.
We completed the integration of our second delivery Aggregators entered the Pizza Hut U S system this quarter builds.
Building on our initiative to partner with third party Aggregators and provide our customers with more options to access our brands.
Further adoption of third party Aggregators for delivery as a service has also helped ensure that we can meet customer expectations during peak delivery hours and say valuable time for our team members, who can then spend more time elevating the customer experience.
Additionally, the global rollout of Dragon Tales, Smart kitchen management and driver tracking system continues to progress at an impressive rate.
Lastly, I'll cover our easy insights pillar, which leverages the power of data and analytics to allow our teams to make smarter decisions.
The marketing analytics company, we acquired last year.
Can you just throw out to markets around the world. We are now leveraging bottoms media optimization platform across nearly 60 brand country combinations covering more than 60% of our system sales.
Notably Pizza Hut, Australia has seen a double digit increase in return on media spend after deploying quantum's advanced media mix analytics platform. Our brand teams are also using quantum has expanded suite of tools and areas such as customer analytics pricing optimization and market intelligence.
Next I'll provide an update on our balance sheet and liquidity position, our net leverage ratio ended the quarter at five times, despite the exclusion of our Russia business.
So capital markets continue to adjust the higher interest rates. We are proud of the work our treasury team has done to put us in the enviable position of having no significant maturities over the next three years and approximately 94% of our debt fixed.
As we've said before our capital priorities remain consistent invest in the business maintained a healthy balance sheet pay a competitive dividend and returning the remaining excess cash to shareholders via share repurchases.
Our capital expenditures for the quarter.
Net of Refranchising proceeds were $51 million, our full year expectation for net capital expenditures is now approximately $200 million.
I think $50 million and Refranchising proceeds and roughly $250 million in gross capex.
With regard to our share buyback program, we repurchased one 4 million shares in the quarter at an average share price of $116 per share totaling approximately $157 million.
<unk> during September the board of directors approved a new share repurchase authorization of up to $2 billion through June 32024 that will take effect upon exhaustion of the current authorization.
To close I'm excited about the continued growth we saw this quarter and the momentum in our diversified development across the portfolio.
This once again shows that our iconic brands and World class franchise partners are well positioned to navigate any economic environment.
Before wrapping up I'd like to remind everyone that our investor day is taking place in person at the New York Stock Exchange on December 13.
Look forward to seeing you bet with that operator, we are ready to take any questions.
Yes.
Thank you we will now start today's Q&A session. If you would like to ask a question. Please press star followed by one on your telephone keypad now if you change your mind. Please press star followed by.
I'm just trying to ask your question. Please ensure you're fine as Amit had lately. Please ask one question during today's call.
Our first question today comes from Dennis Geiger from UBS. Your line is now open.
Great. Thanks for the question wanted to ask about the strength in the U S business, and maybe David or Chris could you talk a little bit more about what youre seeing across the brands in the U S. What you're seeing from a consumer behavior standpoint, and I guess really how that.
Guys, how youre thinking about the resiliency of the brands in the U S going forward. Thank you.
Yes from a consumer standpoint.
Obviously, you saw the topline results we reported this quarter, we're very pleased with them. They are very strong so generally around the world.
We're not seeing any concern from a consumer standpoint.
Yes.
Dig deeper into what's going on in the U S.
It has.
It's been well documented that there's a little bit of a case shaped recovery.
We're seeing a little bit of that were higher than consumers, having a little bit more demand, but the great thing about our business is our brands are so well positioned to succeed in any environment and in particular, our businesses, 80% globally based on Taco Bell U S. KFC international those two businesses make up 83.
Some of our profit they are incredibly well positioned to deliver value to consumers.
<unk> brands so in the U S. This case shape recovery, there's a little bit of case shape demand for value on the high and the demand is more for premium value. That's why you're seeing us do things like the double steaks grilled cheese burrito, a taco bell, which is at a higher price point than normal, but still at a great value and a big part of ours.
The Taco Bell and then on the low end.
Q3 saw KFC go back to the Mac and cheese bowls.
With some success that moves the needle.
Yeah.
Value offering.
Price point, that's appealing to a low end consumer, but still not just discounting our core products something interesting that.
Consumers are talking.
Talking to.
Cravings menu with Taco Bell the same thing, where we're offering readers for $2. So far.
Part of the consumer environment for us in our industry and for our brands, which are particularly well suited to navigate it.
It looks it looks good now I know in other industries like.
In other parts of retail if you bought some furniture at a couple of years ago, you probably pulled demand forward.
We're not going to at the same demand today, we don't have that issue in our industry.
Because if you bought <unk> two years ago.
Thats influencing your decision today.
Your decision today is more determined by how we stack up versus your options. We know that we're really attractive option versus growth grocery which is experiencing a lot of inflation.
This is a good environment for us.
Our next question today comes from John Glass from Morgan Stanley . Please go ahead.
Hey, Good morning quick question David.
Percent.
<unk> five I guess I'm thinking about durability of that growth rate as you think out and just remind us one when you think about sort of targets for growth rate. What's the time horizon ultimately the base effect of law of large numbers catches up with such a large system. So is it a three year target five year, how do you sort of frame that internally.
Chris can you also just talk about cost of capital cost of debt has gone up is that a worrisome impediment to growth over the intermediate term as you said.
The rate environment changes.
Thanks, John I'll take the first part of that and then let Chris talk about some of the.
Capital issues out there.
Look I don't think the law of large numbers.
Anything close to catching up on that in our business. We continue to put up impressive development numbers you saw the numbers this quarter and our year to date numbers today are roughly in line with what we had last year at this time showing.
Which was a record for us and for the industry, we believe showing the strength of our development and it is broad based the amount of development thats occurring outside of China continues decline nearly 60% now.
Thats in 74 countries last quarter. So this is broad based.
We think we have tons of opportunities around the world for all of the foundational reasons you would want the returns that our franchisees are getting are strong Taco bell.
Being voted the best franchise opportunity out of the 500 that are ranked in the U S. And then on China I think last night on their earnings call talked about the great two year KFC paybacks of three year Pizza hut payback, so with those kinds of returns. We know we're going to continue to development, we have visibility into the pipeline that we feel good about it.
Despite all the challenges in the environment as far as the pace of development.
We're pleased with the strength that we have.
Even in the face of losing the development that we have in Russia. So the development story is good.
We know it's a big part of your EMS growth equation going forward I will turn it over to Chris just for a few comments on the capital challenges.
John on the capital side.
It in two buckets, one just following up on David's comments around franchisees in unit development.
Just a couple of additional thoughts there as it relates to capital.
As David mentioned in many of our markets around the globe. We have very strong returns that are significantly higher than.
Interest rates are even with the small.
Small moves in interest rates these are still highly attractive investments.
For our franchisees to make and keep in mind that our franchisees on average compared to many other systems are larger more sophisticated more well capitalized and more growth minded. They are able to look through near term noise in the market and actually take advantage of these types of disruptions in the marketplace to accelerate.
Their growth and so we're very pleased with.
The state of our franchisee base and our partnership with our franchisees plus we have the strongest development team in the business.
So we're working with them to navigate through that but we feel good in terms of cost of capital for our balance sheet.
Our balance sheet at young remained strong and very resilient.
That as we've navigated the last few years, we're proud of the cash that we've returned to our shareholders and we're set up well right now in this higher interest rate environment, and we have no maturities as we mentioned earlier through 2026, 94% of our debt is fixed we've also over the last few years created more.
City, and some of the lower cost areas of our capital structure that we could access if needed but right now we're at five times leverage.
To be clear going forward, we're not wedded to five times leverage we're going to do what Optimizes returns for our shareholders. We review our strategy regularly with the board. So when it comes time to the next time that we would consider issuing debt. We'll look at where rates are at that time, we will look at a set of other factors and we'll make a decision on whether.
Issue or whether to grow into a slightly lower leverage ratio, but just know we're going to do what optimizes returns for our shareholders.
Our next question is from John <unk> from JP Morgan. Please go ahead.
Hi, Thank you also a capital question if I may.
There's a lot of focus on new unit development as there should be clearly the same store sales around the world, particularly KFC International really does support our underlying franchise system that should and I'm sure is doing very well, but the question is on the existing base of assets, especially the existing.
Base of assets that might be 10, plus years old I mean, just how the overall system is from a capital perspective are there any major projects that are happening in some major countries around the world that may be we just haven't heard about and does it make sense would it make sense for yum to Cowen.
<unk> with its franchise system around the world, obviously, we all see the U S. But you have a lot of big countries around the world.
Maybe putting some capital in the existing base of assets it could be something that could.
Drive longer term brand value and shareholder value as well thanks.
Yes.
Good question on the existing asset base as.
As we just discussed.
Tremendous unit grower, but we also want to make sure that our current asset base remains.
Fresh and relevant provides a great experience for our customers of course wonder if youre growing at 6% units.
That's a new chunk of new stores that are being added to the system plus we have.
Programs with our franchisees where they've got.
Requirements around remodeling and keeping the asset base for us.
In terms of the responsibility for that that lives with our franchisees.
And it's part of their approach to being in our business investing in stores. They know they've got to make investments over time to continue to keep the asset base refresh and our brands are working hard with the franchisees to do that.
Our next question comes from Jon Tower from Yang Your line is now open.
Hey, This is John how does it go on just a quick question, we heard from one of your larger global competitors.
The need potentially offer franchisee relief to some of their partners in Europe over the next 12 months or so in the pictures kind of reminiscent of what we heard during COVID-19 guidance due to inflationary pressures in that market. So.
I am curious.
Yes.
What you are hearing from your operators in that market and what theyre doing to brace for the potential volatility ahead, and frankly, maybe if you could even frame your own operating profit exposure to that region that would be helpful as well.
Yes, so obviously in <unk>.
Europe right.
Right now there are some challenges, particularly on energy inflation that are facing our franchisees Europe as an important growth market for us in the long run.
Meaningful, but moderate exposure in the context of our global portfolio.
Europe as a geography is about mid teens percentage of our sales and our operating profit.
The business continues to be strong from a top line perspective there.
If you look at KFC Europe , we had 25% system sales growth in Q3 now the U K was a little bit of a different story, where those energy.
Inflation is a bit more pronounced and you got to that holiday overlaps.
<unk> throughout the year, So we had.
Slightly negative sales there same thing in the pizza business.
Strong in other parts of the U K a bit more impacted but we are working closely with our franchisees. We know this is going to be.
The challenge for them to navigate and we manage the business on a franchisee by franchisee basis. So our teams in Europe are partnering with them.
Setting the commercial plans for the business to help navigate those inflationary challenges.
Our next question is from David Tan G&A. Some barge. Please go ahead.
Hi, Good morning. My question really is about the sales strength you saw for both KFC and Pizza hut.
When you when you factor out China.
We saw a pretty material acceleration in the comp relative to pre COVID-19 levels. So I guess on a three year comp basis.
Pretty big step up and I Wonder if you could just talk about what you think drove that step up from from the second quarter and how sustainable that trend might be.
Yes, Thanks, David.
Just comment on a couple of things.
Of course in the speech I already mentioned the foundational things that are driving our business. It will continue to drive it this quarter and in future quarters.
The progress that we're making on technology and digital.
But beyond that I guess, what I would highlight is outside the U S. While we had.
Good growth in both developed and emerging markets. Our emerging markets are really starting to perform strongly we were plus 20 in emerging markets outside of the U S. Ex China. So that was a big driver and that was expected we've talked about this on previous calls that as these markets recover from Covid, we expected outside.
Really encouraging thing about that is that's actually plus 16 versus 2019, so not just the recovery, but real growth versus 2019 baseline and then in the U S. Obviously Taco Bell has been a steadying high performer, but KFC I think did a better job on value with the Mac and cheese Bowl.
This quarter Pizza hut as we've talked about in previous quarters.
Is that a.
Progress on embracing third party aggregators to solve some of that delivery challenge. So we saw a meaningful improvement in their trends on delivered sales.
That all added up to.
As you mentioned good strong growth around the world.
Our next question is from Andrew Charles from Cowen. Please go ahead.
Great. Thanks, Dave across the U S portfolio, you guys, obviously, leading to value across all three brands and I am curious how you see the industry evolving as we look to the end of 2022 and get early 2023 do you expect the domestic quick service industry is focused on value to further intensifying the difficult traffic backdrop or do you think.
Value activities can be challenged by the by just the high Cogs and <unk>.
Robust labor backdrop.
Yes.
Hard to predict.
Anything over the last few years.
This environment. The one thing that I can predict though is our brands are incredibly well positioned to navigate in any environment. We've demonstrated that over the last few years and I feel confident as we move forward value.
It does seem to be more of a factor today than it might have been six or nine months ago.
It's just more of a return to normal for the industry rather than it is.
Exaggerated emphasis on value, but as I mentioned in my earlier comments.
The scale that we have are purchasing abilities. The appeal of our brands. The fact that the vast majority of our businesses that talk about U S. In case the international piece.
That are so strong and so successful at navigating that would give us great confidence that we will be able to.
Continue to thrive in any environment and there is a little bit more of an emphasis this premium value, which is good for the industry.
Products that arent.
Absolute lowest price.
Can still be very appealing to consumers as long as the overall equation the experience the convenience the credibility of the food is all there.
Operator, we have time for one more question.
Our last question today will be from David Palmer from Evercore. Please go ahead.
Hi, Thanks question on Pizza Hut U S.
What have been the learnings with regard to third party delivery marketplaces and drivers as a service the contribution to growth from that but also what concerns did you have going into it with your franchisees and how has it played out versus your plan and then related to the unit growth thing I am wondering.
You highlighted to Pizza hut international having a strong unit open opening quarter, but I'm wondering about the us stabilizing and how youre feeling about that being a driver to your net openings as we go into 'twenty three thank you.
Yes, Thanks, David.
On Pizza Hut U S first.
As David mentioned.
Yes.
Addition of Aggregators has been one part of solving the delivery capacity challenge that we mentioned earlier in the year.
We've talked about how at the beginning of the year, we view this more as a capacity challenge.
The demand challenge and we've used our relationships the aggregators, both being on their platforms and working with them on delivery as a service as one mode to solve that plus I think we've mentioned that we have also adjusted some of our hiring practices and our HR practices are franchisees.
To attract more drivers into their jobs things like reducing the time it takes to apply for a job at pizza hut. Both of those have contributed to us having significantly more delivery capacity in the market. If you look at Q2, we had a 23 point gap between our carryout growth in our delivery growth.
In Q3, we actually.
Our carry outgrowth, but the gap narrowed to $17. So that means delivery was significantly higher and I think thats just attributable to both of those leavers, giving us more delivery capacity into the into the system. There was one other benefit from the aggregator platforms, which is we get an incremental customer who sees us on those markets.
And so that's probably been a bit of an impact there as well and we've mentioned earlier that we've seen franchisees who adopted these faster run a little bit ahead of the system. So I think that is part of what's what's driving growth in the U S system.
On the unit growth question, obviously, we had strong unit growth and Taco Bell U S Pizza Hut U S and KFC U S has stabilized and.
In the long run.
Expect to all of our markets around the globe to be focused on on driving units.
And so the teams are working on strategies to do that but right now those businesses are in a stable place from a from a unit standpoint as you see in the results this year.
Yes.
Wrap up obviously, a very strong quarter for Yum, we're pleased with the results.
Led by our great teams in the field.
We've got an Investor conference coming up.
It's actually the first Investor conference that we've had in four years given the delays from Covid. So we're really eager to get to spend some time with all of you in New York on December 13 in particular, we've got some new leaders in the business that you'll get to hear from live in person for the first time I'm very excited about letting them sell the great growth stories that we have going on.
All around the world.
Great quarter. Thanks for your time today.
That concludes today's conference call.