Q2 2023 Yum Brands Inc Earnings Call
Hello, everyone and welcome to the second quarter 2023, Yum brands incorporated earnings Conference call. My name is M&A and I'll be coordinating Yoko today.
After the presentation, there will be the opportunity to ask a question and we ask that you. Please limit yourself to one question H I will now turn the call over to J D Diet, Vice President of Investor Relations. Please go ahead J D.
Thanks, operator, good morning, everyone and thank you for joining us on our call today are David Gibbs, our CEO , Chris Turner, our CFO and Dave Russell, Our senior Vice President and corporate controller.
Following remarks from David and Chris we'll open the call to questions.
Before we get started please note that this call includes forward looking statements that are subject to future events and uncertainties that could cause our actual results to differ materially from these statements.
All forward looking statements are made only as of the date of this call and should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC.
In addition, please refer to our earnings release and relevant sections of our filings with the SEC to find disclosures definitions and reconciliation of non-GAAP financial measures and other metrics used on today's call.
Please note that during today's call all system sales growth and operating profit growth results exclude the impact of foreign currency.
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 via our website.
<unk> is also being recorded and will be available for playback.
Looking ahead, our third quarter earnings will be released on November one 2023 with the conference call on the same day.
Now I'd like to turn the call over to David Gibbs.
Thank you Jerry and good morning, everyone.
At our Investor Day last December we shared our long term vision for <unk> to deliver accelerated global growth.
Proud to say that our second quarter results are further evidence of our ability to execute against this vision.
<unk> differentiated capabilities, our bold restaurant development engine, including 1025 gross new units in the current quarter.
There are distinctive digital capabilities, which drove record digital sales tool.
Second quarter, 13% growth in system sales.
I'm, especially pleased to report that based on our strong year to date results and the continued momentum we see in our business, we expect to deliver full year 2023 results well above our long term growth algorithm.
I'll start with a few high level thoughts on our second quarter results before sharing some additional details through the lens of the relevant easy and distinctive brands.
<unk> culture and talent pillars of our recipe for good growth framework.
Chris will then provide some additional color on our second quarter results, followed by an update on our bold restaurant development and unmatched operating capabilities growth pillars.
For the second quarter, we delivered same store sales growth of 9% and unit growth of 6% with KFC setting the pace with a remarkable 19% system sales growth on the foundation of our industry, leading development momentum distinctive marketing campaigns and relevant new product.
Here's such as the launch of original recipe hand, breaded chicken Nuggets here in the U S.
And as I'm sure you've all heard Taco Bell in partnership with another global icon Lebaron James.
Desperately liberated Taco Tuesday in a way no other brand could mimic.
As we also discussed in December our recipe for good growth strategy will be powered by digital and technology.
Think of digital capabilities, which enable easier experiences and greater access to our iconic brands continue to unlock incremental sales through higher spend and frequency as well as incremental profitability for our system.
On that note I am pleased to report another quarter of double digit growth, resulting in $7 billion in digital sales representing over 45% of our global system sales.
Turning back to our recipe for good growth and our iconic Red brands, Let me start with the KFC Division, which represents 50% of our divisional operating profit second.
Second quarter system sales growth of 19% was driven by 13% same store sales growth and 7% unit growth.
Widespread transaction growth and a strong recovery in our China market as Yum, China detailed in our results earlier this week Howard our same store sales growth.
However, even outside of China, KFC Global same store sales growth was up an impressive 10% in the quarter KFC represents our largest digital business globally on a dollar basis and showed continued momentum with strong year over year growth in both digital sales and mix.
Among these emerging markets I'd like to highlight our middle East team for the work they did to drive system sales with a focus on their core menu and new snacking product offerings and the South African team for their efforts to grow the breakfast layer through a bold marketing campaign with Trevor Noah.
Thanks to unlocking additional customer use occasions compelling value offerings and continued digital growth both markets posted strong same store sales growth.
Among our developed markets Western Europe led the way with strong results in check and transactions by balancing disruptive value and core menu items.
Turning to KFC U S same store sales grew 5%.
Improving sequentially with the combination of product innovation and an always on value strategy.
Building off first quarter momentum behind wraps KFC U S launched hand, breaded original recipe chicken nuggets to expand its off the bone chicken offerings, leveraging the learnings from our significant off the bone business at KFC International.
This product innovation was met with an immediate positive consumer reaction, resulting in over 100 million Nuggets sold in the first eight weeks after launch.
These boneless offerings appeal to younger and new KFC customers and build upon an already well established sales layer. Following the successful launch of the chicken sandwich in 2021.
Moving on to the Taco Bell Division, which represents 35% of our global divisional operating profit and roughly 75% of our U S divisional operating profit.
Once again I am thrilled to share more external recognition of Taco Bell's brand power and relevance with the brand's inclusion on the time 100 list of the world's most influential companies.
This category of one brand remains ever relevant by pushing boundaries, and introducing and reintroducing exciting and craveable menu items and always being part of the cultural moment in conversation.
Congrats to the entire Taco Bell team and our incredible franchisees for yet another well deserved honor.
For the second quarter Taco Bell's global system sales grew 7% led by 4% same store sales growth and 5% unit growth.
Taco Bell continues to execute its magic growth formula through a balanced set of commercial strategies, including building brand Buzz unparalleled value lost occasions and digital initiatives.
This quarter the team launched a campaign to liberate Taco Tuesday in our first ever Global Taco Tuesday campaign spanning 19 markets in partnership with a true global icon Lebaron James The campaign created massive brand buzz with engagement and mentions in one week for Taco Tuesday deliberation.
Surpassing the entirety of the highly successful Mexican pizza relaunch last year.
Other promotions in the quarter contributing to Taco Bell's winning magic growth Formula include both our $5 cravings Curio and deluxe build your own craving box that helped sustain our strong consumer value proposition and maintain over 25% margin.
In addition, and expansion of trading hours with strong growth at both the breakfast and late night day parts helped Taco bells second quarter results.
Finally, the team continues to create incremental demand for their digital channels in the U S. Digital sales increased almost 35% year over year with kiosks now deployed in 100% of Taco Bell stores.
Taking all of this into account it is no surprise Taco Bell continues to be a leader in value perception, while also delivering amazing unit economics.
For Taco Bell International system sales grew 18% driven by development momentum.
The global Taco Tuesday campaign, which launched in June and will continue through the third quarter Leverages Taco Bell's U S. Cultural leadership building brand equity and consumer awareness with a consistent look and feel around the world. I also want to highlight talk about continued progress against our recipe for good growth strategy that included.
Raising $20 million so far this year through its roundup fundraiser.
Throughout the quarter to the Taco Bell Foundation donated these funds to over 400 nonprofit and nearly 1000 live Mas scholarships.
Next I'll discuss the Pizza Hut division, which accounts for 14% of our divisional operating profit.
System sales grew 7% for the quarter, driven by 4% same store sales growth and 4% unit growth.
Pizza Hut International grew system sales, 11% led by 6% same store sales growth and 5% unit growth.
The individual occasion continues to be a growth driver and largely on incremental transaction growth from the <unk> platform, which in the U S has proven to be a self sustaining layer at an attractive entry price point.
Since launching in the U S. Late last year <unk> has now reached 35 markets up significantly from the 11 markets in the first quarter now in over half of our global store base.
Milk is delivering encouraging early results alongside my box, our other international individual occasion product offering.
Our team is focused on providing distinctive value offerings across markets such as the super limo abundant value deal in the UAE.
And the National Pizza Party promotion in Australia.
Pizza Hut U S grew system sales, 2% driven by 1% same store sales growth in the U S. We introduced new flavor profiles to our melt platform, providing yet another reason for customers to order from Pizza hut.
The habit Burger Grill Division grew system sales, 9% on 7% unit growth.
The habit team continues to lean into its menu strategy of culinary forward limited time offerings, highlighting its craft brand positioning through their elevated craveable offering.
We continue to expand access points for our customers with the rollout of kiosks now in over 60% of stores on average kiosk sales see 10% higher checks compared with front counter sales and excellent profit flow through.
Yet another proof point of the value from converting to digital sales.
Moving to our unrivaled culture and talent growth driver, which continues to be the foundation of our success.
To start I'd like to recognize Taco Bell Division CEO , Mark King who will retire at the end of the year as we celebrate the legacy the Mark will leave at Taco Bell, we are thrilled that Sean <unk> will become the CEO of the Taco Bell Division effective January 2020 for.
We remain committed to our purpose of unlocking opportunity in part through our 100 million dollar commitment over five years that we announced in 2020 to knock down barriers to equity inclusion education and entrepreneurship around the world.
Through our unlocking opportunity initiative, we have funded and activated more than 30, social impact programs in 11 countries, enabling markets to develop localized program to deliver meaningful change in communities, where we operate we.
We also continue to make progress towards achieving vendor parody in leadership roles by 2030 with 43% of global leadership roles held by women in 2022.
These are just two examples of the great progress, we've made and of how young commitment to its people first culture has never been stronger.
In addition, we continue to make progress around sustainable packaging building upon are harmonized Cross brand packaging policy that was introduced last year.
Furthermore, we've had great success as we March toward our climate goals to reduce our greenhouse gas emissions by nearly 50% by 2030 today.
The date, our teams have achieved a 57% reduction in greenhouse gas emissions at corporate restaurants, and offices, coupled with a 28% reduction at franchise restaurant.
Reflecting on the first half of the year our team to put forward an impressive set of results.
And looking forward the picture received for the second half of the year will be similarly strong Ah confidence comes from a recipe for good growth strategy and the fact that category leaders Taco Bell U S and KFC International drive, 80% of Um's divisional operating profit.
Vast majority of our U S. Operating profit is driven by Taco Bell, the leading brand in both cultural relevancy and affordability, while globally KFC his position with unmatched scale advantages and growth minded franchise partners eager to capitalize on opportunities in their markets and widen their competitive mode.
And an uncertain environment, we know that consumers make decisions with value in mind. The good news is that our brands have always stood for tremendous value. In addition to convenience experience and craveable food. This is a winning combination that will continue to differentiate us from our competitors and when coupled with our recipe for good growth straw.
Allergy I am confident that we can continue to deliver on our long term vision for accelerated global growth in 2023 and beyond.
With that Chris over to you.
Thank you David and good morning, everyone today, I'll discuss our second quarter financial results and our bold restaurant development and unmatched operating capability growth drivers before turning to our capital strategy I'll.
I'll begin with our second quarter results.
We delivered 13% system sales growth driven by 9% same store sales growth and 6% unit growth.
Digital sales improved at all four of our brands with total digital sales up nearly 30% year over year.
Core operating profit for the quarter grew 12% Taco Bell store level margins were unimpressive, 25.6%.
We continue to expect full year Taco Bell company operated margins to be similar to margins in 2022.
Alco bells ability to deliver such strong margin performance. Despite mid single digit inflation. Once again demonstrates the power and resilience of their business model and preserves their compelling unique economics, which remain near an all time high.
For habit company operated margins improved to 11%, thanks to better leverage at the arms purchasing scale as well as efforts to improve store level labor productivity.
We're encouraged with the margin improvement progress that habit, and we will continue to invest in the long term growth of the business and as a result, we expect a small operating loss for the division this year.
X special General and administrative expenses were $280 million in line with our expectations.
The X special tax rate for the quarter was 18%.
Finally, our second quarter ETS, excluding special items was one dollar and 41 cents per share <unk>.
Second quarter E. T. S was positively impacted by Unrealised investment gains of nine relating to our investment in Debbie Ani offset by a negative foreign currency translation impact of five.
Given our strong first half results and continuing momentum into the second half of the year.
I'm happy to report that we expect on a full year basis to over deliver on all components of our long term growth algorithm.
We expect full year 2023 core operating profit to grow low double digits, which is the head of our long term guidance of at least 8%.
We expect second half G&A expenses to be modestly higher relative to our initial plan primarily attributable to above target incentive compensation accruals, resulting from our strong performance in which we began recording and Q2 <unk>.
As a reminder, employee incentive compensation is tied to internal performance targets linked to components of our long term growth algorithm.
The accrual we book throughout the year can go up or down depending on our performance <unk>.
Consistent with our prior G&A guidance, we still expect our year over year G&A growth to be lower in the second half of the year balance of year, we expect the third quarter year over year G&A growth rate to look similar to the growth rate in the first half.
<unk> by a year over year decline in the fourth quarter.
Finally, we've faced a 44 million dollar foreign currency headwind year to date and our current forecast is for little to no FX impact to reported operating profit and the balance of the year.
Now moving on to bold restaurant development, we opened 1000 twenty-five gross new units during the quarter contributing to 6% unit growth.
We are encouraged by the excitement among our growth ready franchise partners, who see broad consumer appeal for our brands and enormous white space opportunity in their markets and who are enthusiastic about young unmatched operating capabilities.
We continue to expect that the benefits of our scale and the health of our franchise system will allow us to further widen our development advantage relative to the industry.
As you've heard me say before the young system is made up of World class franchise partners, who are truly three C committed capable and well capitalized.
As a result, we expect 20 twenty-three will be another incredible year of development similar to 2021, and 2022, which were both industry record setting years.
Let me share a few highlights of our unit development in the quarter, beginning with the KFC Division, which opened 600 gross new units.
Young China's development momentum Reaccelerated.
375, gross new units opened this quarter, putting their year to date development ahead of last year's pace.
The remainder of KFC. His unit growth was widespread across markets led by India, The Middle East and Asia.
As for the Pizza Hut Division the team opened up 357 gross new units led by China, India, Spain, Turkey, and the U S with each opening at least 20 units.
In June the plan restaurant group announced its first international expansion with an agreement to acquire Pizza Hut, Australia, which owns approximately 260 pizza hut units.
This is a great example of a three C partner eager to grow within our system for.
For those unfamiliar with the plan restaurant group. They are the largest franchised operator in the U S restaurant industry with roughly 2400 restaurants in.
Including nearly 300, Taco bells, and nearly 1000 pizza huts for.
For some perspective in 2022 women accounted for roughly 20% of the Pizza Hut U S. Newbuilds and their overall same store sales growth significantly outperformed the rest of the U S system.
Taco Bell development remains on track for another record setting year with 63, gross new units, including 27 and international markets across eight countries.
Totalling it all up Yom's first half unit development reflects nearly 1800 gross new units a fantastic result that demonstrates the resilience of Yummy development engine, despite a more challenging macro environment.
Next I'll turn to are unmatched operating capabilities that contribute to our position as the global franchise or a choice.
This includes our distinctive digital strategy to unlock improved customer experiences that lead to faster sales growth and better store level margins with that let me discuss the three pillars of our digital strategy.
Beginning with the easy experienced this pillar this quarter the KFC U S team leveraged the young Commerce platform, which was first launched with KFC U S. In 2021 to enable a diablo for limited time promotion in partnership with Activision Blizzard and offered customers exclude.
In game rewards in exchange for KFC purchases.
By leveraging our in house technology, we were able to build the necessary infrastructure and integrations to support this exciting gaming promotion in a matter of weeks freebie.
Previously the process would have taken months with significant third party expense.
This quarter, we achieved a significant milestone and expanding the Yom commerce platform as Taco Bell you S migrated it's digital traffic onto the platform.
All of Taco Bell's web mobile and delivery is a service digital transactions are now process through this platform.
Additionally, Pizza hut, Peru became the first international market to begin using the young commerce platform this quarter.
We will continue to migrate additional brands and markets to the young commerce platform over the coming quarters, including Pizza Hut U S throughout 2023, and several international markets.
Within the easy operations pillar, we continued to expand adoption of both recommended ordering and are Yom point of sale system.
As you May recall recommended ordering is an AI machine learning module that predicts and recommends the quantity of each product a restaurant general manager should order recommended ordering was deployed and another 800 stores. This quarter and is now live in over 4400, KFC and Taco Bell you.
S stores.
Our young next generation cloud first point of sale system improves operational efficiencies and enhances team member effectiveness.
Taco Bell U S is leading this rollout having deployed this system to 1000 stores this quarter and targeting 5000 stores by year end.
Finally for are easy insights pillar, we are advancing our digital strategy and using a new customer data platform solution to provide a unified view of customers across our U S brands and third party Aggregators.
This will enable us to improve digital experience this for our customers and ultimately increase customer frequency.
Eventually this and other internal programs will provide the infrastructure to unlock personalised marketing joint branding and future automation.
This is the latest step in our vision to one day achieve 100% of sales powered by digital.
Lastly, I'll provide an update on our balance sheet and liquidity position.
As a reminder, our strategy is to enable growth while maximizing shareholder value.
In doing that are capital priorities remain unchanged investing in the business for the long term.
Maintaining a resilient balance sheet.
Paying a competitive dividend and maximizing shareholder value by returning excess capital through debt Paydowns and share repurchases.
Net capital expenditures for the quarter were $34 million, reflecting $60 million in gross capex and $26 million and Refranchising proceeds.
Our net leverage ratio declined to 4.7 times, reflecting our previously stated contention to allow net leverage to drift modestly lower this year.
Keep in mind, we have an upcoming bond maturity of $325 million in November of this year are only maturity until 2026.
Furthermore, our current outstanding debt as a weighted average remaining term of six years and are greater than 90% fixed floating ratio is attractive in the current market environment. We.
We paid down $164 million on a revolver, leaving a minimal balance at the end of the quarter. We continue to evaluate the best use of our excess capital and a current interest rates, we believe funding our upcoming debt maturity before share repurchases best optimize the shareholder value.
To round out our prepared remarks, I'm incredibly pleased with our strong year to date results and continued momentum, giving us confidence we will deliver full year 2000 twenty-three results well above our long term growth algorithm.
Our brand teams and franchise operators remain vigilant in the pursuit to maximize performance and in turn deliver exceptional shareholder value.
With that operator, we are ready to take any questions.
We will now begin the question.
Hi, Sarah My Dad, please limit yourself to one question H.
I'd like to ask a question.
Now by pressing stop followed by the number one on your kind of hang T patch and if you change your mind.
<unk> <unk> <unk>.
First question today comes from the line of Dennis Dennis.
Tennis. Please go ahead, yet I understand.
[noise], great morning, folks and thank you I wanted to ask a.
A question on the the 2023 outlook commentary for growth well ahead of the I'll go at low double digit could you touch may be a bit more on the momentum that you spoke to heading into the second half, including any sort of visibility that you have into the top line, which I think is particularly encouraging in the current environment and then any additional puts and takes.
To profitability beyond the the helpful call out that you mentioned on the call. Thank you.
Yeah, I look as far as the second half of the year. Obviously, we're confident we're well above algorithm and reconfirm that and are prepared remarks, just to give you a little visibility and why we feel that way Taco Bell you S. For example has got a very strong momentum as we come into Q3.
Blanch value.
And if we look at all of our businesses on a two year sales trend, which I think evens out some anomalies, we see basically a continuation of what we saw in the first half of the year.
And then Dennis on the Prophet trends, we mentioned that we now expect full year core operating profit to be low double digits.
And I think we gave a lot of color and my comments earlier on the drivers of that.
Around G&A and expectations in the back part of the year.
Continuing trends from the first half in Q3, and then a year over year decline in queue for we are also pleased to have.
Improving margins in our company operated store base, you saw 200 basis point improvement there.
Our biggest driven by improvements in our biggest.
Store basis, and we're gonna continue to manage that I don't think there's anything else to call out in terms of color on back part of the year.
Our next question comes from the line of Brian .
Hi, Brian . Please go ahead to your line is now any pain.
Thanks, Good morning.
You've consistently said that Yum brands is built to showcase blue chip like resiliency position to win in any environment and that dynamic seems to be proving out with 9% same store sales growth in the second quarter and you seem to be pointing to a continuation of healthy trends.
Can you just help us understand what the drivers currently are for this resiliency and and if you believe the macro has indeed become more challenge recently across your portfolio. Despite obviously continuation of very strong results.
Sure I appreciate the the commentary.
As far as you know why are we able to navigate this kind of environment look I have a lot of confidence in our brand leaders in our marketing teams around the world in so many ways.
We're writing the playbook for how to.
Build brands in this industry we.
We have collider, which is an internal group that provides so much to us in terms of art the insights on consumer behavior and I think that all just shows up in the way we build these brands.
100 brands in the World.
Yeah as far as the macro challenges.
This is an environment that I I would say is a more normal operating environment. We've come out of a series of years, where things have been a little bit.
Different more different than we've ever had in the past, but I wouldn't call it a difficult environment to operate in.
One way to think about it is just a breakdown our markets between developed and emerging.
Developed markets, we saw mid single digit sales growth this quarter, it's a stable positive environment and we're past really inflation peaked in most markets. Obviously in the U S. That's been well documented.
And this is in an environment, where we can succeed value is rising and importance.
But we have solutions and in many ways our leaders with our brands.
KFC for U S. For example in the quarter.
Their most growth was seen in their low income consumers because they had always on value for the quarter as I mentioned in my prepared remarks. So we can win in this environment in developed markets. Similarly, Western Europe has been documented as a challenged environment for a lot for US. We had good results there are France, and German markets did a great job of mixing.
Asian and value and.
And delivering strong growth there so developed markets.
Little bit more of a return to normal more stable.
And our brands are built to win in those markets in emerging markets. You know, it's a little bit of a different story, we're seeing.
Double digit sales growth for the quarter, a little bit more very but in general we're not pass the peak of inflation and a lot of these markets.
So we're still taking.
Taking pricing some of these markets to cover that inflation able to pass it on to consumers, but very importantly, we've got positive transaction growth in those markets. So we're still growing our share in.
And the industry at the same time, we're navigating a little bit more challenging environment than those emerging markets, but when you add it all up as as you said we have proven to.
To demonstrate how resilient our brands are and how we can operate really in any environment Edwin.
Next question comes from the line of John <unk>, John Cleese kind of had to your line is now a pin.
Great. Thanks for taking my question I wanted to zero in on the Commerce platform that you are expanding across a number of the brands, including Taco Bell now and and some of the others.
That across the globe hopping onto the platform.
The company collect any sort of fees from from franchisees hopping onto this platform and if so how should we think about it rolling into the.
P&L overtime.
Yeah, John Byrd.
Excited about the progress that we're making on all aspects of the digital strategy and so you're asking about the E Commerce platform, which is a core part of our easy experiences capability set and we talked about some of the benefits that we derive whenever we platform systems like this we.
It really ultimately drive faster profitable growth for our franchisees and for us.
Ways that you do that we talked about the Diablo for experienced and KFC U S. It allowed us to implement a marketing campaign much faster than we normally would and of course as you get that platform.
Across more markets across more brands, we talked about the big milestone.
Implementing in Taco Bell you then are able to implement campaigns in multiple geographies or multiple brands much more quickly because you don't have to build integrations for each.
Discrete technology platform that we've had previously across the business and.
In addition, you got just robust capabilities.
At the base and you build tailored front in that are relevant to each market and brand on top.
So at the end of the day, we're driving profitable growth for our franchisees and for us through the strategy franchisees, obviously benefit from that and they share in the.
Investments that we make through our digital fees that we have in certain markets, but at the end of the day. If this is an <unk> driving move for both our franchisees and for us.
My next question comes from the line is John J P. Morgan John . Please go ahead, you're lying is not my opinion.
Hi, Thank you I'll, obviously, you know quick service in the U S and in Europe has been driven by a very high amount of average ticket increase.
Over 2019 at least in you know a lot of that has been price, but also the consumer.
Trading up on the menu larger sizes, what have you premiumization, there's been a lot of different factors of that I was wondering if you you know kind of see I don't know, if I Wanna say risk or opportunity for kind of an unwind that you know to some extent, obviously get quick service over time.
Especially the franchise orders of quick service had been very focused on driving incremental transactions, because it's very rare where an incremental transaction doesn't drive incremental profit. So do we have an opportunity I guess over time to kind of think about a higher transaction driven model higher dollar per.
Profit driven model that actually might you know sacrifice you know per cent margin I mean, it's we came off of such an unusual period.
Ticket growth over the next four years I'm wondering you know kind of how you see the future.
Terms of the direction of ticket and transactions.
Yeah. Thanks for the question John Uhm, you are absolutely right. Obviously, one of the first things that got disrupted in the pandemic was sort of transactions and tickets size. The one thing I would add to the list that you mentioned is also party size as we became much more of an off premise delivery business. We did see number of parties for tickets go up.
So that might have been translated to a slight decline in transactions, but not in the number of eaters and our business, but the great news is for this quarter.
We had good transaction growth in our businesses and that's when I. When I was talking about a more returned to normal we are seeing more individual meal occasions, let them party size go back down which.
I think it's just the reality of coming out of the pandemic.
And our business is growing transactions and growing share all around the world. So.
So I I think you're probably right, we're going to get back into that kind of environment and.
Not to sound like a broken record, but I feel like we're winning play.
That game.
The next question comes from David Palmer with ethical ISI.
David. Please go ahead your line is eitan.
Oh, thank you.
Like in the quarter with the unit growth.
K F. C results that 30 per cent digital sales growth too I'm wondering though I know, there's gonna be some curiosity about pizza hut, particularly in the U S and and I, just maybe a comment about whether you see this thing.
This division being an ongoing stable same store sales grower.
Wanted to ask because of what's happened to there's been improved marketing innovation like now it's a third party delivery.
A lot more profitable today, but big competitors now doing business with third party delivery and and cops were slower in the quarter. So.
I'll also and I'm sure there's gonna be some curiosity about how you think the brand will do in a slowing economy. So any sort of thoughts about how you think that brand is positioned well to be an ongoing seems tour sales positive brand. Thanks.
Great. Thanks for the question I'll take the first part and then I'll, let Chris talked about the aggregator landscape.
So first of all on Pizza Big picture seven per cent.
System sales growth in the quarter is an algorithm, they're they're a nice contributor to young overall growth.
And really importantly, they're gaining share in the category through the numbers on relative to some of their peers. So we love what's going on the pizza and a lot of that is the leadership team Aaron Powell and the team that he's built leading that brand are doing a lot of things differently. You are seeing them innovate with things like melt, which is bringing in a lot more individual occasions.
Accessing incremental business for us.
The other thing about the way, they're operating which gives me a lot of confidence in the future is able to run brand like a global brands that hasn't always been the case. So what you saw with milk. For example is there now already in over 50% of the stores around the world that's sort of unprecedented for us to do something you want something.
The U S. It works pretty well, but every market has got their own challenges got supply chain challenges you got different business cases, but they've got the whole world United sharing data sharing best practices and that is only leading to a stronger business for us at pizza. So I think we're pretty happy with where we are pizza, particularly when you're an algorithm and gaining share.
Sure that that's a pretty good starting point I'll, let Chris talk a little bit about that aggregators space and how we're thinking about the competitors are yeah. If you look on the aggregate or front zoom.
Zoom way out at a young level, we're very pleased with our aggregator approach around the globe and the results.
Produced in each of our brands and and.
A large number of markets around.
Around the globe in Pizza hut, and specifically in Pizza Hut U S.
We implemented last year and we've been pleased with the incremental customers that we found on the marketplaces and the incremental delivery capacity that we've.
Been able to utilize when needed of course keep in mind. This was always our strategy I wasn't here in 2018, when the leadership team started this aggregator strategy, but recall that we knew that team knew that aggregators would have an impact on the industry. We wanted to be where the customers wanted to transact with us and we made an investment.
And one of the Aggregators that gave us a front row seat to understanding how this space, but evolve and remember it was our pizza hut C E O who actually sat on the board of that aggregator that experience helped to define our strategy, we always intended to implement and pizza hut and it's gone.
Plan.
And of course going forward, we think we have some differentiating capabilities.
That will help us sustain our competitive advantage and pizza with the Aggregators at one of those is dragging tail, which helps to optimize the delivery operations in our restaurants, including our interface with the Aggregators plus we've got some first mover advantages around.
Marketing expertise and talent in that space that we think will help us continue to drive that business going forward and pizza.
Our next question comes from the line of Brian Holiday with Morgan Stanley .
Please go ahead. Your line is now any pain.
Yeah. Good morning, Thank you uhm.
To ask about some of the kind of course crohn's that your franchisees. We're seeing obviously, we can kind of see your your company store margins be curious if that's also true for a lot of your franchisees on food cost.
Some of that Favre ability, it's starting to show in other markets or do you think that'll be more about 2024 is based on past Deacon places.
Yeah. Good good question our.
Your focus is on ensuring that we're always are providing strong relative value to our customers.
And that our franchisees always have strong unit economics in the long run that second piece of horses.
He driver of our.
Differentiated development capability, if we think about.
Where unit economics are around the globe they are still very strong.
From a market to market standpoint, you've got puts and takes in terms of the timing of when inflation is hitting the market. The nature of it in developed markets. We believe we're past the point of peak year over year inflation.
That's part of what David was mentioning in terms of a return to a more normal operating environment and some emerging markets that those inflationary waves were a bit delayed relative to the.
Developed markets, but in all markets, we are using our scale to all all set.
As much of those inflationary pressures as we can we're optimizing the business model with the franchisees and of course, we use pricing.
As needed to help ensure that you need economics remained strong while still providing a strong relative value.
Think about our development results in the quarter at the house and twenty-five units open.
That's the best evidence that unit economics remained strong are three C. Franchisees continue to put their capital to work.
Upgrade or do we have time for one more question. Please.
And key my final question today comes from the line of <unk> with that.
David. Please go ahead, you know any pain.
Hi, good morning.
My question is.
On the G&A outlook I was wondering if you could I think it gave us an actual dollar number the last time I was just wondering if you could maybe clarify what that number looks like now with the the higher bonus accruals and then.
Secondly, just as you think longer term about G&A. If you could just update us on your thoughts on on where that should set on a long term basis as a percentage of system fails that'd be great. Thanks.
Yeah. Thanks, David overall on G&A, we take a lean philosophy, we've talked about that before and that implies that we will invest in the areas that drive long term growth health in the business and we're gonna be efficient on everything else. We came into the year that was with a plan that was consistent with that philosophy.
Plan is largely in fact, but as we said in the back part of the year, we will see modestly higher G&A relative to that initial plan and the primary driver that is higher incentive comp owing to our strong performance of course as you think about next year that incentive comp resets each year.
But that's been the primary driver on the changing the plan.
We talked earlier about the color on the back part of the year around Q3 looking similar to the first half and then a year over year decline in queue for but.
But net net on the full year, we expect G&A leverage and of course, our long term algorithm implies G&A leverage in the business. So.
I think it's that.
That gives you a pretty good picture of how we're thinking about it and how the results were pulling out.
Thanks, Chris and I'll wrap up I'd Wanna, Thank everybody for being on the call and just reiterate this was another really strong quarter for young with widespread growth all brands contributing system sales at all of our branch, where honor above algorithm and at 19% system sales number at KFC something to be proud of.
And we're doing we're getting those results the right way, it's all about the digital growth the development, our franchisees being profitable and a lot of that comes back to the talent that we haven't you know most pleased to announce this quarter that showing is taking over for mark very few companies have that kind of talent in place to just step in and we.
No we won't Miss a beat and he'll take the business to a higher level at Taco Bell I will share one funds that with you. If you haven't done the math on this just in the last two and a half years, we have added 10000, new growth units to the system.
Nearly 20 per cent of our stores were built in the last two and a half two years. So you think about our brands with 60 plus years operating history, uhm, but they couldn't be more new and fresh to consumers.
And they couldn't really be performing any better if you think about the results for the quarter. So truly astounding I want to thank all of our team members in our franchise partners that helped bring that growth to life every day and thank you all for being on the call.
Thank you everyone for joining us today is complete.
Today's complaint and you may now disconnect.
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