Q3 2023 Yum! Brands Inc Earnings Call

Hello, and welcome to Yum Brands, Inc. Third quarter 2023 earnings call My.

My name is Lydia and there'll be offer I should say.

If you'd like to ask questions. During the call you can do so by pressing star followed by the number one on your telephone keypad.

We ask that you limit yourself to one question only.

I'll now hand, you lift your highest Matamoros head of Investor Relations. Please go ahead.

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.

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 should be considered in conjunction with the cautionary statements in our earnings release.

And the risk factors included in our filings with the SEC and.

In addition, please refer to our earnings release and relevant sections of our filings with the SEC to find disclosures definitions and reconciliations 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. This call is also being recorded and will be available for playback.

Looking ahead, our first quarter earnings will be released on February seven with a conference call on the same day.

Now I'd like to turn the call over to David Gibbs. Thank you, Matt and good morning, everyone.

Before I go over our third quarter results I'd like to express our deep concern for those affected by the ongoing violence in Israel in Gaza.

Safety of our people in the region is our utmost priority and in addition to staying in close contact with our local team members and franchisees our franchise restaurants in the region are only open when it is safe for staff and customers.

You almost supporting affected employees and contributing to humanitarian organizations that are providing critical aid our heartfelt wishes for the safety and well being of innocent civilians and families in the region impacted by this conflict.

Turning to our third quarter results, which once again reflect our ability to grow our iconic brands globally through our recipe for good growth I'm proud to share that we delivered 10% system sales growth led by 6% same store sales growth and 6% unit growth.

We set a Q3 record on unit development opening an incredible 1130 gross new units in the quarter. Our digital sales growth remains on fire with sales up more than 20% year over year and digital sales setting a record by exceeding $7 billion, our third quarter core.

Operator: Hello all, and welcome to Yum Brands Inc. 3rd quarter, 2023 Earning School. My name is Lydia and I'll be your operator today. If you'd like to ask questions during the call, you can do so by pressing start, followed by the number one on your telephone keypad. We kindly ask that you limit yourself to one question only.

Operating profit grew an impressive 16% KFC.

Matt Morris: I'll now hand you over to your host, Matt Morris, Head of Investor Relations. Please go ahead. Thanks operator. Good morning everyone and thank you for joining us. On our call today are David Gibbs, our CEO, Chris Turner, our CFL, and Dave Russell, our Senior Vice President and Corporate Controller. Following remarks from David and Chris will open the call to questions.

KFC International and Taco Bell U S, which collectively contribute approximately 80% of our divisional operating profit fueled this quarter's growth together. These twin growth engines delivered a remarkable 13% system sales growth in the quarter KFC International has the most units among quick service restaurants in 60 countries.

And theres been adding more absolute units than any other retail brand in the world since 2021.

Matt Morris: Before we get started, please note that this call includes four looking statements that are subject to future events and uncertainties that could cause our actual results to differ materially on these statements. All four 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 FEC. In addition, please refer to our earnings release in relevant sections or filings with the FEC to find disclosures, definitions and reconciliation of non-gap financial measures and other metrics used on today's call.

Of course, Taco Bell U S is in a class of its own in the domestic <unk> category as a culturally iconic brand and clear leader in value perception with the most crave worthy food in the industry.

Taco Bell has unmatched menu flexibility exceptional pricing power industry, leading unit economics and World Class franchise partners. Both businesses are performing at extremely high levels and to have ambitious plans to accelerate their growth to even greater heights.

Now, let me discuss the quarter's results in greater detail through the lens of two of our growth drivers relevant easy and distinctive or red brands and unrivaled culture and talent Red.

Matt Morris: Please note that during today's call, all system sales growth and offering profit growth results exclude the impact of foreign currency. For more information on a reporting calendar for each market, please visit the financial reports section of our website. We are broadcasting this conference call VR website. This call is also being recorded and will be available for playback.

Bread brands are the cornerstone of our strategy and the way we bring this to life continues to evolve as consumers' behaviors shift and new trends are established over the past quarter. We have made significant progress in three specific initiatives building sales layers through new category entry points, leveraging technology to drive brand loyalty and delivery.

Matt Morris: Looking ahead, our first quarter earnings will be released on February 7th, with the conference call on the same day.

An exciting value offers to broaden appeal.

Matt Morris: Now, I'd like to turn the call over to David Gibbs. Thank you, Madden. Good morning, everyone.

Brand teams or galvanized around these three focus areas and we are highly encouraged by the results of these areas are driving in our divisions, which I will now highlight.

David Gibbs: Before I go over our third quarter results, I'd like to express our deep concern for those affected by the ongoing violence in Israel and Gaza. The safety of our people in the region is our utmost priority. And in addition to staying in close contact with our local team members in franchisees, our franchise restaurants in the region are only open when it is safe for staff and customers. The almost supporting affected employees and contributing to humanitarian organizations that are providing critical aid. Our heartfelt wish is for the safety and well-being of innocent civilians and families in the region impacted by this conflict.

Starting with the KFC Division, which grew system sales, 12% this quarter driven by 8% unit growth at 6% same store sales growth.

While much of Kfc's recent momentum has been led by emerging markets. This quarter, we saw broad based strength across a more diverse group of geographies further proof of our ability to win in any macro environment.

A few markets with standout same store sales growth performance include Africa at 9% growth, Australia, with 9% growth in Latin America, and Caribbean at 8% KFC hand, breaded original recipe Nuggets are a global innovation platform and represent a new category entry point to attract individuals and.

David Gibbs: Turning to our third quarter results, which once again reflect our ability to grow our iconic brands globally through our recipe for good growth, come proud to share that we delivered 10 percent system sales growth led by 6 percent same-store sales growth and 6 percent unit growth. We set a Q3 record on unit development, opening an incredible 1,130 gross new units in the quarter. Our digital sales growth remains on fire with sales up more than 20 percent year over year, and digital sales setting a record by exceeding $7 billion.

Families.

After a successful launch in the U S. We expanded nuggets to our Latin America, and Caribbean market this quarter and saw incredible consumer reception that helps drive significant sales.

<unk> plans to expand the offering to several more places around the world KFC Africa delivered their 11th consecutive quarter of same store sales growth with a combination of abundant value offers strong ecommerce sales and the relaunch of their breakfast campaign driving this quarter's performance.

David Gibbs: Our third quarter core operating profit grew an impressive 16 percent. KFC International in Taco Bell, US, which collectively contribute approximately 80 percent of our divisional operating profit, fueled this quarter's growth. Together, these twin growth engines delivered a remarkable 13 percent system sales growth in the quarter. KFC International has the most units among quick service restaurants in 60 countries and has been adding more absolute units than any other retail brand in the world since 2021.

Finally, I want to highlight our KFC, Australia business as they continue to deliver fantastic performance with kiosk sales growing more than 90% compared to last year and the advent of a highly personalized value campaign that drove significant one channel sales.

KFC Global team is also making great progress in expanding its loyalty program around the world, including in the U S where we soon expect to launch KFC rewards.

David Gibbs: Of course, Taco Bell US is in a class of its own in the domestic QSR category as a culturally iconic brand and clear leader in value perception with the most crave worthy food in the industry. Taco Bell has unmatched menu flexibility, exceptional pricing power, industry leading unit economics, and world class franchise partners. Both businesses are performing at extremely high levels and have ambitious plans to accelerate their growth to even greater heights.

Next I'll discuss our Taco Bell Division, which delivered 11% system sales growth in Q3 led by 8% same store sales growth and 5% unit growth.

Let's talk about U S system sales grew 11% with an impressive 8% same store sales growth and 3% unit growth. The Taco Bell team leverage its magic formula that encompasses a balanced set of commercial strategies, including building brand buzz unparalleled value mass occasions.

David Gibbs: Now let me discuss the quarter's results in greater detail through the lens of two of our growth drivers, relevant easy and distinctive, or red, brands, and unrivaled culture and talent. Red brands are the cornerstone of our strategy and the way we bring this to life continues to evolve as consumers, behaviors, shift, and new trends are established. Over the past quarter, we've made significant progress in three specific initiatives, building sales layers through new category entry points, leveraging technology to drive brand loyalty, and delivering exciting value offers to broaden appeal. Our brand teams are galvanized around these three focus areas, and we are highly encouraged by the results these areas are driving in our divisions, which I will now highlight.

And digital initiatives to grow transactions during the quarter. They delivered unparalleled value with the return of fan favorites like the $5 box, an amazing platform at a compelling price point.

So Taco Bell featured a great value promotion in the quarter value purchases remained within range of the brand's intended 10% mix target.

This combined with exciting innovation and brand Buzz helped the brand maintained its industry leading margins of 24%.

A key component of the Magic Formula is moss occasions, the brand's personal expression of building new category entry points. One. Such example is the growth in chicken offerings, which the team plans to further expand with the launch of its cantina menu.

David Gibbs: Starting with the KFC division, which grew system sales 12% this quarter driven by 8% unit growth and 6% same-store sales growth. While much of KFC's recent momentum has been led by emerging markets, this quarter we saw a broad-based strength across a more diverse group of geographies, further proof of our ability to win in any macro environment. A few markets would stand out same-store sales growth performance include Africa at 9% growth, Australia at 9% growth, and Latin America and Caribbean at 8%.

Excited about the impact these new menu items will have as we rollout these offerings in 2024.

Another component of this brand successes digital which includes loyalty while at Taco Bell loyalty customer already spend 40% more per year than a traditional customer the consumer feedback. We've received indicates that we can do an even better job at creating more obvious in exciting ways to both earn and redeem rewards.

Starting next year Taco Bell will enhance its loyalty program and provide easier access across channels to earn and redeem points.

David Gibbs: KFC's hand-bredded original recipe nuggets are a global innovation platform and represent a new category entry point to attract individuals and families. After successful launch in the US, we expanded nuggets to our Latin America and Caribbean market this quarter and saw incredible consumer reception that helped drive significant sales. The team plans to expand the offering to several more places around the world. KFC Africa delivered their 11th consecutive quarter of the combination of abundant value offers, strong e-commerce sales, and the relaunch of their breakfast campaign driving this quarter's performance.

Additionally, members will enjoy more exclusive experiences, including more digital innovation early access to new products and loyalty enabled experiences.

Eventually the team will integrate its loyalty program with digital menu boards to create an even more personalized experience.

Taco Bell International delivered 16% system sales growth driven by 23% unit growth and 1% same store sales growth a key contributor to Taco Bell's International business has been robust digital sales, which increased nearly 45% year over year. This quarter, the global Taco Tuesday campaign that launch.

David Gibbs: Finally, I want to highlight our KFC Australia business as they continue to deliver fantastic performance with kiosk sales growing more than 90% compared to last year and the advent of a highly personalized value campaign that drove significant own channel sales. The KFC global team is also making great progress in expanding its loyalty program around the world, including in the US, where we soon expect to launch KFC rewards.

In June continued to drive customer engagement around the globe, bringing greater brand awareness and equity with consumers the.

The international markets are focused on amplifying national Taco day, providing consumers with both craveable food and everyday value.

Turning to the Pizza Hut Division, which grew system sales, 4% driven by 4% unit growth and 1% same store sales growth.

David Gibbs: Next, I'll discuss our Taco Bell division, which delivered 11% system sales growth in Q3, led by 8% same-store sales growth and 5% unit growth. At Taco Bell US, system sales grew 11% with an impressive 8% same-store sales growth and 3% unit growth. The Taco Bell team leveraged its magic formula that encompasses a balanced set of commercial strategies, including building brand buzz, unparalleled value, mass occasions, and digital initiatives, to grow transactions during the quarter.

International same store sales grew 2% driven by transaction growth in China continued momentum in Melds and more strategically activating aggregator partnerships and international markets.

Same store sales results in the U S were flat as pizza it leaned into its long term strategy to build new category entry points through individual meal occasions with products like melts and wings.

David Gibbs: They delivered unparalleled value with the return of hand favorites like the $5 box, an amazing platform at a compelling price point. Though Taco Bell featured a great value promotion in the quarter, value purchases remained within range of the brand's intended 10% mixed target. This, combined with exciting innovation and brand buzz, helped the brand maintain its industry leading margins of 24%. A key component of the magic formula is mass occasions. The brand's personal expression of building new category entry points. One such example is the growth in chicken offerings, which the team plans to further expand with the launch of its Cantina menu.

This quarter Pizza Hut U S teamed up with the teenage mutant Ninja turtles to relaunch, our Big New York, a pizza and deliver pizza into the New York City subway stations, leading to over 1 billion media impressions as.

As we head into the fourth quarter, the Pizza Hut U S team launched a late night initiative strategically expanding operating hours and more than 1000 restaurants to give consumers even more ways to access the brand.

To wrap up with the habit Burger Grill system sales grew 4% driven by 8% unit growth. The new habit leadership team is settling in well and has placed a distinct focus on building strong unit level economics to set the brand up for long term success of note. The team is developing a new cost effective packaging range designed for off premise occasions, along with.

The new prototype store to optimize capex of Preopening costs.

Happy to set to launch its first everyday value platform in November called simple crafts. After a successful test this quarter.

David Gibbs: We're excited about the impact these new menu items will have as we roll out these offerings in 2024. Another component of this brand's success is digital, which includes loyalty. While a Taco Bell loyalty customer already spends 40% more per year than a traditional customer, the consumer feedback we've received indicates that we can do an even better job at creating more obvious and exciting ways to both earn and redeem rewards. Starting next year, Taco Bell will enhance its loyalty program and provide easier access across channels to earn and redeem points.

We have tremendous confidence in the long term prospects of this brand are encouraged by the improvements that the team is making to deliver success in the future.

Now I'll turn to our good growth strategy, starting with our people pillar.

We've held powerful forums this quarter supporting our unrivaled culture and talent growth driver, including a leadership development conference for underrepresented talent and a new program aimed at preparing high potential female talent to be part of the next generation of senior leadership.

In addition, we are furthering our culture of collaboration and building capability across our company recently across brand group of leaders gathered for the first Red innovation experience in our innovation lab, where they learned design thinking and real time problem solving through new age innovation techniques, we're also making them.

David Gibbs: Additionally, members will enjoy more exclusive experiences, including more digital innovation, early access to new products, and loyalty-enabled and experiences. Eventually, the team will integrate its loyalty program with digital menu boards to create an even more personalized experience. Taco Bell International delivered 16% system sales growth driven by 23% unit growth and 1% same-store sales growth. A key contributor to Taco Bell's international business has been robust digital sales, which increased nearly 45% year-over-year this quarter.

Meaningful impact in the communities, we serve through our global unlocking opportunity initiative to create more equality for example in the UK KFC partnered with the nonprofit with the goal of having one third of its new hires to be at risk youth and Sri Lanka Pizza is investing in the development of 30 vocational and technical training facilities.

David Gibbs: The Global Taco Tuesday campaign that launched in June continued to drive customer engagement around the globe, bringing greater brand awareness and equity with consumers. The international markets are focused on amplifying national Taco Day and providing consumers with both craveable food and everyday value.

To prepare us for careers in the <unk> industry in terms of our planet pillar and our focus on reducing greenhouse gas emissions, we're educating suppliers through the supplier leadership on climate transition a consortium of multinational companies created to accelerate climate action and the supply chain. Many of Yum is poultry beef and <unk>.

David Gibbs: Turning to the Peetshot division, which grew system sales 4% driven by 4% unit growth and 1% same-store sales growth. International same-store sales grew 2% driven by transaction growth in China, continued momentum in melts, and more strategically activating aggregator partnerships in international markets.

<unk> suppliers in key markets have joined this program or already have emissions reduction goals.

These are just a few of the examples of the great work of our teams, earning us recognition like Newsweek's 2023 America's greenest companies.

David Gibbs: Same-store sales results in the US were flat as Peetshot leaned into its long-term strategy to build new category entry points through individual meal occasions with products like Melt and Wings.

Overall, we're incredibly pleased with our results for the quarter and year to date, our strategy is clear and the emphasis we are placing on building sales layers through new category entry points, leveraging technology to drive brand loyalty and delivering exciting value offers to broaden appeal is going to drive our business forward even faster.

David Gibbs: This quarter Peetshot US teamed up with the teenage mutant Ninja Turtles to relaunch our Big New York Apeatsa and deliver pizzas into the New York City subway stations, leading to over 1 billion media impressions. As we head into the fourth quarter, the Peetshot US team launched the late-night initiative, strategically expanding operating hours in more than 1,000 restaurants to give consumers even more way to access the brand.

As we conclude our internal annual operating plan reviews and look forward to 2020 forward. It's clear we have the very best teams in place and are perfectly set up to capture an even greater share of a growing global <unk> market and deliver compelling shareholder value going forward.

David Gibbs: To wrap up with the Habit Burger Grill, system sales grew 4% driven by 8% unit growth. The new Habit leadership team has settling in well and has placed a distinct focus on building strong unit level economics to set the brand up for long-term success. Of note, the team is developing a new cost-effective packaging range designed for off-premise occasions, along with a new prototype store to optimize CapEx and pre-opening costs.

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 an update on our balance sheet and capital strategy.

David Gibbs: To have it set to launch its first everyday value platform in November called Simple Crafts after a successful test this quarter. You have tremendous confidence in the long term prospects of this brand are encouraged by the improvements that the team is making to deliver success in the future.

I'll begin by discussing our strong results for Q3, we.

We achieved 10% system sales growth driven by 6% same store sales growth and 6% unit growth.

Our digital sales channels continue to grow with digital sales setting another record this quarter exceeding $7 billion.

David Gibbs: Now I'll turn to our good growth strategy, starting with our people pillar. We've held powerful forums this quarter supporting our unrivaled culture and talent growth driver, including a leadership development conference for underrepresented talent and a new program aimed at preparing high potential female talent to be part of the next generation of senior leadership. In addition we're furthering our culture of collaboration and building capability across our company. Recently a cross brand group of leaders gathered for the first red innovation experience in our innovation lab where they learned design thinking and real time problem solving through new age innovation techniques.

An increase of more than 20% year over year.

Core operating profit grew an impressive 16%.

Taco Bell delivered another quarter of exceptional performance, achieving 24% restaurant level margins, while simultaneously driving transaction growth.

Global ex special General and administrative expenses were $263 million lower than expected in part due to timing with some expenses shifting into the fourth quarter.

Our ex special tax rate of 19% was lower year over year.

David Gibbs: We're also making a meaningful impact in the communities we serve through our global unlocking opportunity initiative to create more equality. For example, in the UK, KFC partnered with a nonprofit with the goal of having one third of its new hires the at risk use in Sri Lanka. He said is investing in the development of 30 vocational and technical training facilities to prepare youth for careers in the QSR industry in terms of our planet pillar and our focus on reducing greenhouse gas emissions.

Lastly, our EPS, excluding special items was $1 44 per share.

Ex special EPS was positively impacted by five.

Of unrealized investment gains related to our investment and Debbie Ani.

I'd now like to give a little bit of color on the remainder of the year.

We're proud to say that we continue to expect that our results will land well above our long term growth algorithm for the full year <unk>.

David Gibbs: We're educating suppliers through the supplier leadership and climate transition, a consortium of multinational companies created to accelerate climate action in the supply chain. Many of Yom's poultry beef and dairy suppliers in key markets have joined this program or already have emissions reduction goals. These are just a few of the examples of the great work of our teams earning us recognition like news weeks, 2023, America's greenest companies.

Including achieving low double digit core operating profit growth on.

On the fourth quarter, specifically, we now expect an operating loss at habit of approximately $10 million.

Largely driven by restaurant asset impairment charges, which will be higher than we had initially expected due to anticipated impacts from the California Assembly Bill 228, previously referred to as the Fast Act.

David Gibbs: Overall we're incredibly pleased with our results for the quarter and year to date. Our strategy is clear and the emphasis we are placing on building sales layers through new category entry points leveraging technology to drive brand loyalty and delivering exciting value offers to broaden appeal is going to drive our business forward even faster.

Even with the previously mentioned timing shift of G&A expenses, we still expect fourth quarter G&A to be slightly lower year over year.

Moving to reported operating profit, we now expect foreign currency translation to represent a $45 million to $55 million headwind on a full year basis.

Christopher Turner: As we conclude our internal annual operating plan reviews and look forward to 2024 it's clear we have the very best teams in place and are perfectly set up to capture an even greater share of a growing global QSR market and deliver compelling shareholder value going forward 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 an update on our balance sheet and capital strategy.

Finally, we expect our ex special full year tax rate to land at approximately 20%.

Next I'll cover our bold restaurant development growth driver.

We're on track to finish 2023 with net new unit development similar to the record breaking performances of the last two years.

This quarters, 6% growth in unit count led by a Q3 record of 1130 gross new openings across 65 countries reflects the continued success of our multi year effort to accelerate development across our brands.

Christopher Turner: I'll begin by discussing our strong results for Q3 we achieved 10% system sales growth driven by 6% same store sales growth and 6% unit growth. Our digital sales channels continue to grow with digital sales setting another record this quarter exceeding $7 billion and increase of more than 20% year over year. Co-operating profit grew an impressive 16 percent. Taco Bell delivered another quarter of exceptional performance, achieving 24 percent restaurant-level margins while simultaneously driving transaction growth.

By now you've seen the announcement at Yum, China's recent Investor conference raising their unit growth expectations for our brands in China. This announcement highlights continued strong returns on new restaurant development and our brands in combination with the best in class development capabilities that Yum China's leadership team.

We have built in the market.

More broadly we continue to see excitement for our brands all around the world.

As an example in Vietnam, a market with a high population, but relatively low Yum restaurant penetration our unit count increased by over 40 units versus last year, reflecting 16% growth.

Christopher Turner: Global, ex-special, general and administrative expenses were $263 million, lower than expected in part due to timing, with some expenses shifting into the fourth quarter. Our ex-special tax rate of 19 percent was lower year-over-year. Lastly, our EPS excluding special items was $1.44 per share. Ex-special EPS was positively impacted by 5 cents of unrealized investment gains related to our investment in Debianie. I'd now like to give a little bit of color on the remainder of the year we're proud to say that we continue to expect that our results will land well above our long-term growth algorithm for the full year, including achieving low double-digit core operating profit growth.

In total this quarter KFC achieved 8% unit growth, including 664 gross new units a Q3 record for the brand.

This was led by Yum, China, along with our franchisees in India, Sapphire, and Debbie Ani Nif's Holdings and Turkey.

Pizza Hut, we opened 383 gross new units with more than 30 markets contributing to this growth our Taco Bell Division opened 74 gross new units led by the U S, China and India.

In the midst of a higher interest rate environment, our world class three C franchise partners are stepping up and investing to grow share.

Christopher Turner: On the fourth quarter specifically, we now expect an operating law set habit of approximately $10 million, largely driven by restaurant asset impairment charges, which will be higher than we had initially expected due to anticipated impacts from the California Assembly Bill 1228, previously referred to as the Fast Act. Even with the previously mentioned timing shift of GNA expenses, we still expect fourth quarter GNA to be slightly lower year-over-year. Moving to reported operating profit, we now expect foreign currency translation to represent a $45 to $55 million headwind on a full year basis. Finally, we expect our ex-special full year tax rate to land at approximately 20 percent.

One of those exceptional franchisees as the Serrano group our partner for KFC in multiple countries in Latin America.

In just the past three years. The Serrano group has opened over 100 net new units quadrupling their store count from the past 10 years and building World class assets that reflect how dynamic and tech forward. Our brand is in this region.

Building a network of growth minded franchise partners is no easy task.

It requires persistent effort to identify and engage with like minded partners to consistently deliver on brand standards growth ambitions and mutually shared financial objectives, all of which add up to long term profitable growth for all parties and a competitive advantage for our brands.

While we focus on having the right partners. We also work to ensure we have the right restaurant formats and economic models in place.

Christopher Turner: Next, I'll cover our bold restaurant development growth driver. We are on track to finish 2023 with net new unit development similar to the record-breaking performances of the last two years. This quarter's 6 percent growth in unit count led by a Q3 record of 1130 gross new openings across 65 countries reflects the continued success of our multi-year effort to accelerate development across our brands. By now, you've seen the announcement at Yum China's recent investor conference raising their unit growth expectations for our brands in China.

All of our brands are laser focused on delivering industry, leading franchisee returns by continuously optimizing new store capex as well as maintaining a flexible portfolio of formats that meet the unique needs of each trade zone in which we operate.

Taco Bell's newest small box design go mobile two data now opened in El Paso, Texas builds on the original go mobile concept. This new design Leverages digital capabilities to create more touch points for consumers to order and pick up in a seamless manner moves.

Christopher Turner: This announcement highlights continued strong returns on new restaurant development in our brands, in combination with the best in-class development capabilities that Yum China's leadership team have built in the market. More broadly, we continue to see excitement for our brands all around the world. As an example, in Vietnam, a market with a high population, the relatively low Yom restaurant penetration, our unit count increased by over 40 units versus last year, reflecting 16 percent growth.

Moving on to our unmatched operating capability growth driver, we continue to focus on delivering a seamless digital experience for our consumers, enabling easier operations for our team members and harnessing our expansive data to make fast and informed decisions. We frame up this approach through three lenses easy.

Experiences easy operations and easy insights.

Within EG experiences, we successfully rolled out the young commerce platform to the Taco Bell system last quarter.

In the process of rolling the platform out to the Pizza Hut U S system transitioning our brands onto young owned platforms allows us to scale new capabilities at a rapid pace and build out an ecosystem of proprietary platforms that are designed to work together in a secure and seamless fashion.

Christopher Turner: In total, this quarter, KFC achieved 8% unit growth, including 664 gross new units, a Q3 record for the brand. This was led by YumChina along with our franchisees in India, Sapphire and Debiani, and IS Holdings in Turkey. At Pizza Hut, we opened 383 gross new units with more than 30 markets contributing to this growth. Our Taco Bell Division opened 74 gross new units led by the US, China, and India. In the midst of a higher interest rate environment, our world-class 3C franchise partners are stepping up and investing to grow share.

Our primary focus is to deliver leading edge capabilities to our franchisees with advantaged economics, and our franchisees continue to co invest with us as we develop and rollout our solutions.

One exciting area of growth is the implementation of in store kiosks, we now have kiosks in nearly 40% of KFC stores outside of China.

Christopher Turner: One of those exceptional franchisees is the Serrano Group, our partner for KFC in multiple countries in Latin America. In just the past three years, the Serrano Group has opened over 100 net new units, quadrupling their store count from the past 10 years and building world-class assets that reflect how dynamic and tech-forward our brand is in this region. Building a network of growth-minded franchise partners is no easy task. It requires persistent effort to identify and engage with like-minded partners to consistently deliver on brand standards, growth ambitions, and mutually shared financial objectives, all of which add up to long-term profitable growth for all parties and a competitive advantage for our brand.

All of our Taco Bell U S locations, excluding license stores and almost 70% of our habit locations looking forward for our KFC stores outside of China, We expect to drive a 20 point increase in our kiosk penetration next year on the way to reaching the vast majority of stores by the end of 2026.

Kiosks, not only drive a higher check compared to our traditional front counter but also drive higher margins through operational efficiencies and generate new opportunities to leverage customer data and create personalized ordering experiences.

Within easy operations were on track to have our recommended ordering technology, which we're calling aim or automated inventory management rolled out across our KFC U S system by year end as a reminder, this is an in house developed AI module that predicts and suggest the quantity of each.

Christopher Turner: While we focus on having the right partners, we also work to ensure we have the right restaurant formats and economic models in place. All of our brands are laser-focused on delivering industry-leading franchise returns by continuously optimizing new store capex as well as maintaining a flexible portfolio of formats that meet the unique needs of each trade zone in which we operate. Taco Bell's newest small box design, GoMobile2.0, now open in El Paso, Texas, builds on the original GoMobile concept. This new design leverages digital capabilities to create more touch points for consumers to order and pick up in a seamless manner.

Each product a restaurant general manager should order.

We now have aim in place at over 7000 U S restaurants, including 2700, KFC U S restaurants added over the past quarter.

There is also a great momentum behind the Dragon tail rollout, we have deployed dragon tail and AI driven production and delivery sequencing platform to nearly 1400 Pizza hut U S stores as of the end of the quarter and are on track to have dragon tailed deployed to around 8000 restaurants globally by year end.

Further proof of our unique ability to scale Yum owned technologies around the world.

Christopher Turner: Moving on to our unmatched operating capability growth driver, we continue to focus on delivering a seamless digital experience for our consumers, enabling easier operations for our team members and harnessing our expansive data to make fast and informed decisions. We frame up this approach through three lenses, easy experiences, easy operations, and easy insights. Within easy experiences, we successfully rolled out the Yum Commerce platform to the Taco Bell system last quarter and are in the process of rolling the platform out to the Pizza Hut U.S, system.

We have made significant progress in 2023 building testing and refining our proprietary technology platforms. In 2024, we will further scale. These platforms and continue to realize the value of our owned tech ecosystem.

Finally, we are excited about the new technologies are red innovation team is in the early stages of piloting and restaurants to support our franchisees and free up team member time to allow them to focus even more on delivering world class customer experiences.

First we are testing a voice enabled AI drive through platform and a couple of our restaurants in California that elevate the drive through experience increases speed productivity inefficiencies and generates automated upsell recommendations.

Christopher Turner: Transitioning our brands onto Yum Own platforms allows us to scale new capabilities at a rapid pace and build out an ecosystem of proprietary platforms that are designed to work together in a secure and seamless fashion. Our primary focus is to deliver leading edge capabilities to our franchisees with advantaged economics and our franchisees continue to co-invest with us as we develop and roll out our solutions.

Second we have developed a proprietary automated drinks fulfillment system that frees up team member time and increases drive thru speed and accuracy.

We've designed these technologies to integrate seamlessly with our proprietary deciding point of sale platform and we look forward to continuing to test refine and pilot these capabilities.

Christopher Turner: One exciting area of growth is the implementation of in-store kiosks. We now have kiosks in nearly 40% of KFC stores outside of China. All of our Taco Bell US locations, excluding license stores, and almost 70% of our habit locations. Looking forward for our KFC stores outside of China, we expect to drive a 20-point increase in our kiosk penetration next year on the way to reaching the vast majority of stores by the end of 2026. Kiosks not only drive a higher check compared to our traditional front counter, but also drive higher margins through operational efficiencies and generate new opportunities to leverage customer data and create personalized ordering experiences.

Wrapping up with our easy insights pillar I am very excited by the progress we have made in building the infrastructure and engineering capabilities required to harness the power of our global data assets.

We continue to expand the young global data hub, which captures the vast majority of global transaction level sales data and other key operational and customer metrics.

We believe this centralized hub is a key asset and differentiator for Yum as we develop leading AI capabilities in.

In 2024 hour easy insights team will develop and test new AI driven capabilities that pull from the global data hub and integrate into our owned technology platforms.

Christopher Turner: Within easy operations, we're on track to have our recommended ordering technology, which we're calling AIM, or automated inventory management, rolled out across our KFC US system by year end. As a reminder, this is an in-house developed AI module that predicts and suggests the quantity of each product a restaurant general manager should order. We now have AIM in place at over 7,000 US restaurants, including 2700 KFC US restaurants added over the past quarter.

Some examples of these AI driven capabilities include personalized upsell recommendations for customers ordering on our digital platforms.

Intelligent menu pricing recommendations and dynamic restaurant routines for restaurant general managers.

Finally, we will begin activating our U S Cross brand customer data platform in Q4 and throughout 2024. This cross brand platform gives us unprecedented visibility into the ordering behaviors of millions of customers across our four brands and we will also be a breakthrough source of learnings for collider.

Christopher Turner: There's also great momentum behind the dragon tail roll out. We have deployed dragon tail and AI driven production and delivery sequence in platform to nearly 1,400 pizza hut US stores as of the end of the quarter and are on track to have dragon tail deployed to around 8,000 restaurants globally by year end. Further proof of our unique ability to scale young owned technologies around the world. We have made significant progress in 2023, building, testing, and refining our proprietary technology platforms. In 2024, we will further scale these platforms. And continue to realize the value of our own tech ecosystem.

The high impact boutique insights consultancy that we acquired in 2015, lastly, I'll provide an update on our balance sheet and capital strategy. As a reminder, our capital priorities remain unchanged invest in the business for the long term maintain a resilient balance sheet pay a competitive dividend and <unk>.

<unk> shareholder value by returning excess capital through debt Paydowns and share repurchases.

Net capital expenditures for the quarter were $31 million, reflecting $57 million in gross capex and $26 million and Refranchising proceeds.

Christopher Turner: Finally, we are excited about the new technologies. Our red innovation team is in the early stages of piloting in restaurants to support our franchisees and free up team member time to allow them to focus even more on delivering world class customer experiences. First, we are testing a voice enabled AI drive through platform in a couple of our restaurants in California that elevates the drive through experience, increases speed productivity and efficiencies and generates automated upsell recommendations.

Our net leverage ratio ended the quarter at four four times.

Furthermore, our current outstanding debt has a weighted average maturity of six years and our greater than 90% fixed debt ratio remains highly attractive in the current market environment.

To wrap up we're very proud of the results in this quarter. We are on a clear path to achieving double digit core operating profit growth for the full year.

We continue to strengthen our position as the global franchise or of choice a testament to the success of our business strategies and industry, leading talent. We're proud of our incredible continued momentum on unit development and are excited as we further accelerate our tech deployment and AI initiatives to meet the demands of consumers both today and tomorrow.

Christopher Turner: Second, we have developed a proprietary automated drinks fulfillment system that frees up team member time and increases drive through speed and accuracy. We've designed these technologies to integrate seamlessly with our proprietary deciding point of fail platform and we look forward to continuing to test, refine, and pilot these capabilities. Wrapping up with our easy insights filler, I'm very excited by the progress we've made in building the infrastructure and engineering capabilities required to harness the power of our global data assets.

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

Thank you. Please press star followed by the number one if you'd like to ask a question and also thanks Julia devices on mute you likely by nature with anticipation.

Have you changed your mind on your question has already been on you can Mitchell by pressing star followed by the number Jay as a gentle reminder, please limit yourself to one question only.

Christopher Turner: We continue to expand the young global data hub which captures the vast majority of global transaction level sales data and other key operational and customer metrics. We believe this centralized hub is a key asset and differentiator for Yum as we develop leading AI capabilities. In 2024, our easy insights team will develop and test new AI-driven capabilities that pull from the global data hub and integrate into our own technology platforms. Some examples of these AI-driven capabilities include personalized upsell recommendations for customers ordering on our digital platforms.

Our first question today comes from David Tarantino of Baird.

Your line is open.

Hi, good morning.

David Mike My question's on the broader consumer spending backdrop that you are seeing and I'm. Just wondering if you could maybe comment.

Christopher Turner: Intelligent menu pricing recommendations and dynamic restaurant routines for restaurant general managers. Finally, we will begin activating our U.S. Cross Brand customer data platform in Q4 and throughout 2024. This Cross Brand platform gives us unprecedented visibility into the ordering behaviors of millions of customers across our four brands and will also be a breakthrough source of learning for collider, the high impact, boutique insights consultancy that we acquired in 2015.

On some of your major markets.

What youre seeing I guess exiting the third quarter.

<unk> seen some some signs that the environment is getting a bit more challenging in places like the U S.

China. So just wondering if you could opine on what's happening with the consumer and also talk about what if anything you are changing in your and your strategy to address that.

Yes, Thanks, David I guess I would start by saying if you haven't picked up on it. This is our fifth consecutive quarter of double digit system sales growth globally.

When you think about the consumer and what we're seeing in our business obviously.

Pretty good trading environment for us.

That momentum continued into Q3 and I'll also share that that momentum is continuing into Q4. So it's now part of that is.

Christopher Turner: Lastly, I'll provide an update on our balance sheet and capital strategy. As a reminder, our capital priorities remain unchanged, invest in the business for the long term, maintain a resilient balance sheet, pay a competitive dividend, and maximize shareholder value by returning excess capital through debt pay downs and share repurchases. Net capital expenditures for the quarter were $31 million, reflecting $57 million in gross capex and $26 million in refranchising proceeds. Our net leverage ratio ended the quarter at 4.4 times. Furthermore, our current outstanding debt has a weighted average maturity of six years, and our greater than 90% fixed debt ratio remains highly attractive in the current market environment.

The way that we're managing through some of the consumer pressures around the world.

And certainly you talked about China, having their challenges.

But theres challenges in every market.

The U K for example, we've got a lot of consumers faced with variable rate mortgages thats pressuring them. So our local U K team has put in place a program to have a twister of the day for a pound 98, which is really resonating with consumers and they are having in the midst of a good strong year in the U K.

In Latin America, and Caribbean I was just down in that market with our great franchise, they won't call as Serrano visiting our stores in Colombia, and Chile looking at a new model that they've developed using a commissary.

Christopher Turner: To wrap up, we're very proud of the results in this quarter. We are on a clear path through achieving double-digit core operating profit growth for the full year. We continue to strengthen our position as the global franchise or of choice, a testament to the success of our business strategies and industry leading talent. We're proud of our incredible continued momentum on unit development and are excited as we further accelerate our tech deployments and AI initiatives to meet the demands of consumers both today.

Which really improves the efficiency of our stores and the quality of product to allow us to provide even more value to customers in a pressured consumer environment.

Certainly there are pressures out there, but our franchisees I think do a better job than most.

By far of navigating those pressures I know, what's on a lot of People's minds is what's going on in the U S. It's well documented that.

There is more pressure on the U S consumers student loan payments coming due.

Operator: With that operator, we are ready to take any questions. Thank you. Please press star followed by the number one if you'd like to ask a question and also ensure your device is only to locally when it's your time to speak. If you change your mind or your question is already been answered, you can withdraw by pressing star followed by the number two. As a gentle reminder, please limit yourself to one question only.

And certainly our industry has softened a little bit that the industry is doing better than most industries. If you look at any of the industry specific data for us, though the U S is a much more favorable situation. If you could talk about was the majority of our sales and profits in the U S.

Saw the great results, we put up for Taco Bell in the U S. This quarter on a one and two year basis sales accelerated in Q3.

David Gibbs: Our first question today comes from David Tarantino of bed. Your line is open. Hi, good morning. David, my questions on the broader consumer spending backdrop that you're seeing. I'm just wondering if you could maybe comment on some of your major markets and what you're seeing.

But really importantly, and this wasn't in the prepared remarks, I know youll find that of interest if we breakdown the Taco Bell stores in the United States by income demographic, we see really consistent 2% to 3% transaction growth across all income levels, So our stores and lower income.

Trade areas are performing well with good transaction growth just like our stores and high income trade areas I think that speaks to the way Taco Bell can play value with things like the $5 box and how also in a pressured consumer environment, we're probably benefiting a little bit for some trade down in those higher income trade areas. So our lens on the consumers obviously biased.

David Gibbs: I guess exiting the third quarter as we've seen some signs of the environment, is getting a bit more challenging in places like the U.S, and China, so we're just wondering if you could opine on what's happening with the consumer and also talk about what if anything you're changing in your strategy to address that thing. Yeah, thanks David. I guess I would start by saying if you haven't picked up on it, this is our fifth consecutive quarter of double digit system sales growth globally.

But we're putting up strong results, we are seeing plenty of demand.

Once again I think are demonstrating we can thrive in any environment.

Our next question comes from John <unk> of Jpmorgan.

Yeah.

David Gibbs: So when you think about the consumer and what we're seeing in our business, obviously it's a pretty good trading environment for us and that momentum continued into Q3 and I'll also share that that momentum is continuing into Q4. So part of that is the way that we're managing through some of the consumer pressures around the world and certainly you talked about China having their challenges. But there's challenges in every market. The UK, for example, we've got a lot of consumers faced with variable rate mortgages that's pressuring them so our local UK team has put in place a program to have a twister of the day for pound 98, which is really resonating with consumers and they're having in the midst of a good strong year in the UK in Latin American Caribbean.

Hi, Thank you very much obviously.

Continue to talk about the owned proprietary technology platforms, which really are geared for making it easier for franchisees to run stores and of course more profitable as well.

Over years, certainly you're doing much more of that not less than the rollouts are continuing and I imagine new programs will be developed in the future.

Can you kind of talk about maybe the context of beyond that is a technology services provider and should.

Should we in our models longer term start to think something like percentage of franchise system sales that you can actually earn on ads.

As this technology service provider for your franchisees.

Yeah, Hey, John look our young technology strategy, which we re engineered and 2018 and launched in 2019.

David Gibbs: I was just down in that market with our great franchise, even called us Serrano, visiting our stores in Colombian chili, looking at a new model that they've developed using a commissary, which really improves the efficiency of our stores and the quality of product to allow it to provide even more value to customers and a pressured consumer environment. So certainly there are pressures out there, but our franchisees, I think, do a better job than most by far of navigating those pressures.

Has driven tremendous results in the system, we were at roughly $12 billion in digital sales.

In 2019, we will be close to 30 billion. This year, just tremendous growth and we like everything about those digital sales dollars customers. They they have higher checks higher frequency whenever we transition sales to digital plus we get all of the benefits in terms of more efficient operations, which.

David Gibbs: I know what's on a lot of people's minds is what's going on in the US as well documented that there is more pressure on the US consumer student loan payments coming due. And certainly our industry has softened a little bit, but the industry is doing better than most industries if you look at any of the industry specific data. For us though, the US is a much more favorable situation because Taco Bell is the majority of ourselves and profits in the US. You saw the great results we put up for Taco Bell in the US this quarter on a one and two year basis sales accelerated in Q3.

To help our franchisees sustained strong unit economics.

The primary focus of all of that is to drive profitable growth for Yum, and our franchisees and of course, our top priority. There is to give our franchisees leading edge capabilities with advantaged economics. That's what we're focused on doing that we have invested ahead of that I think we shared at the Investor day in December that over the last three year.

Years, we've shifted an incremental 10 points of G&A toward digital and technology. So we've made investments we've continued to do that.

David Gibbs: But really importantly, and this wasn't in the prepared remarks, I know you'll find it adventurous. If we break down the Taco Bell stores in the United States by income demographic, we see really consistent two to three percent transaction growth across all income levels. So our stores and lower income trade areas are performing well with good transaction growth just like our stores and high income trade areas. I think that speaks to the way Taco Bell can play value with things like the $5 box and how also in a pressured consumer environment we're probably benefiting a little bit from some trade down in those higher income trade areas.

But as we implement and you see this fast pace of implementations continuing to accelerate franchisees do share in those investments in the form of fees tied to those technologies of course, they do that because they see benefits flow to their bottom line. The business case on these technologies are strong as we collect more.

More and more of those fees that will alleviate some of the P&L burden of the technology investments, we're not going to provide forecasts on how we see that playing out but that will be one dynamic in the P&L.

Yeah.

David Gibbs: So our lens on the consumer is obviously biased but we're putting up strong results. We're seeing plenty of demand and we once again, I think we're demonstrating we can thrive in any environment.

The next question today comes from David Palmer of Evercore ISI. Please go ahead.

Thanks.

Maybe a follow up to that and then have a primary question, maybe you could give a feeling of what from here you think will be the biggest lifts from perhaps a technology hub that you've talked about.

John Ivankoe: And next question comes from John Ivan coat of JP Morgan. Hi, thank you very much. You know, obviously, you know, you continue to talk about the young owned proprietary technology platforms which really are geared for making it easier for franchise Easter on stores and of course more profitable as well. And you know, over years, I mean, certainly you're doing much more of that, not less than the rollout, you know, or continuing and I imagine new programs will be developed in the future.

<unk>, perhaps some areas, where you think in 2024 and beyond we will see the biggest help too.

<unk> comps franchisee margins and I just wonder also on Taco Bell you mentioned, a new loyalty relaunch I think that that brand a lot of people would think we'd be in a great position to gain share and perhaps an accelerating degree in 'twenty four.

David Gibbs: Can you kind of talk about maybe the context of young as a technology services provider and should we and our models longer term start to think something like percentage of franchise system sales that you can actually earn as this technology service provider for your franchise, at these. Yeah, hey, John. Look, our young technology strategy, which we re-engineered in 2018, launched in 2019, has driven tremendous results in the system. You know, we were at roughly 12 billion in digital sales in 2019.

Do you agree with that and then if that were to happen what would be the biggest reasons for that you mentioned loyalty but.

Perhaps there is some other things.

The hopper or are you in the past you talked about lunch being an area that you wanted to win and so I just wanted to discuss a little bit of our Taco Bell. Thanks.

Yes, let me share some thoughts on technology.

To start and then we'll shift over to two Taco Bell so on the broader technology program.

As I mentioned, we like everything about those digital sales dollars as we continue to grow the digital business. We've made tremendous progress, but as we've also said I still feel like we're in the early innings of getting maximum impact out of the broader digital strategy of course, it goes across easy experiences easy operations easy insights.

David Gibbs: We'll be close to 30 billion this year, just tremendous growth. And we like everything about those digital sales dollars. You know, our customers, they have higher checks, higher frequency whenever we transition sales to digital. Plus we get all of the benefits in terms of more efficient operations, which help our franchisees sustain strong unity economics. So the primary focus of all that is to drive profitable growth for young and our franchisees. And of course our top priority there is to give our franchisees leading edge tech capabilities with advantage economics.

And we're still in the early days of bringing all of those elements together in common stores and we really think there'll be a multiplicative effect as we implement more and more of these technologies together. If I just took for example, the labor productivity benefits, helping our team members.

Make their jobs easier and the stores focus more of their time on customers and help our franchisees drive productivity as you bring more of these elements together you are able to take advantage of more of those productivity benefits. So as we start to layer the <unk>.

David Gibbs: That's what we're focused on doing. Now, we have invested ahead of that. You know, I think we shared it the investor day in December that over the last three years, we've shifted an incremental 10 points of GNA toward digital and technology. So we've made investments, we've continued to do that. But as we implement and you see this fast pace of implementations continuing to accelerate, franchise these do share in those investments in the form of fees tied to those technologies.

<unk>, Pos which makes running the front end easier as we continued to take digital sales higher which reduces the workload burden on taking orders and taking payments you get higher accuracy on order, taking which reduces some of the rework and back of house and then you bring on things that we mentioned earlier voice AI at the drive thru.

David Gibbs: Of course they do that because they see benefits loaded at their bottom line. The business case on these technologies are strong. As we collect more and more of those fees, that will alleviate some of the P&L burden of the technology investments.

There's automation in terms of automated drink fulfillment, which works with the <unk>. POS you really start to see a vision for the future where you've got a really great customer experience that you're delivering with high productivity for the franchisees. So we expect this to continue to build and build if we go to Taco Bell you mentioned the.

David Gibbs: We're not going to, you know, provide forecasts on how we see that playing out. But that will be one dynamic in the P&L.

David Palmer: The next question today comes from David Palmer of Evercore ISI. Please go ahead. Thanks. As maybe a follow-up to that and I have a primary question.

<unk> program loyalty more broadly across our brands is a key focus area, we've been at north of 50% of all of our stores around the globe.

As part of our loyalty program and that is continuing to grow we've now implemented in the middle East.

David Gibbs: Maybe you could give a feeling of what from here you think will be the biggest lifts from perhaps a technology hub that you talked about. You know, quantify perhaps some areas where you think in 2024 and beyond will see the biggest help to comps or franchisee margins. And I just wonder also on Taco Bell, you mentioned a new loyalty relaunch. I think that that brand a lot of people would think would be in a great position to gain share in perhaps an accelerating degree in 24.

KFC U S is coming on later this year and we continue to refine the way our loyalty programs work you mentioned Taco Bell. They are now starting to really leverage the insights generated from the early days of that program to refine the program over time, and we've implemented the Reds and $3 60, which is the first time, we're bringing together.

Insights across our brands in the U S. So that will be a driver of Taco Bell growth more broadly on the strategy as you mentioned category entry points or use occasions is a big focus we think there is a massive opportunity at launch we continue to focus on breakfast you probably have seen the ads recently during sporting <unk>.

David Gibbs: Do you agree with that? And if that were to happen, we'll be the biggest reasons for that. You mentioned loyalty, but perhaps there's some other things go on in the hopper. You in the past you talked about lunch being an area that you wanted to win in.

<unk>.

So all of those are part of the bright future ahead for Taco Bell.

David Gibbs: So I just wanted to discuss a little bit about Taco Bell, thanks.

Our next question comes from Andrew Charles of TD Cowen. Please go ahead. Your line is now open.

David Gibbs: Yeah, let me share some thoughts on technology to start and then we'll shift over to Taco Bell. So on the broader technology program, you know, as I mentioned, we like everything about those digital sales dollars as we continue to grow the digital business. We've made tremendous progress, but as we've also said, I still feel like we're in the early innings of getting maximum impact out of the broader digital strategy. Of course, it goes across easy experiences, easy operations, easy insights, and we're still in the early days of bringing all of those elements together in common stores.

Great. Thanks.

Talk about question, obviously, very encouraging <unk> performance and commentary about the startup for Q I was hoping you could elaborate on the cantina menu coming in 2024 I recall this menu item driving success in 2012, but with more upscale compared to U S. Consumer that you guys noted is increasingly seeking value today. So can you help just us.

Better understand the difference between the upcoming menu versus the one launched a decade ago.

Sure.

I think one thing Taco Bell does incredibly well in the industry is constantly change and evolve to consumer space.

David Gibbs: And we really think there'll be a multiplicative effect as we implement more and more of these technologies together. But if I just took, for example, the labor productivity benefits, helping our team members make their jobs easier in the stores, focus more of their time on customers and help our franchise these drive productivity. As you bring more of these elements together, you're able to take advantage of more of those productivity benefits. So as we start to layer the Poseidon POS, which makes running the front end easier.

I wouldn't draw an exact parallel to the past container menu. This is more about the chicken cantina menu, where it maintain a ticket in <unk>.

Terms of what that protein can do for us in launching a different version of our chicken.

So I think the team excited about the impact it can have but there's lots of reasons to be excited about what Taco Bell is doing in 2024 as Chris mentioned all of the impact that the tech can have the insights we're going to glean from data Taco Tuesday, now that we've established that in the way that we can leverage that going forward. The momentum we're getting in breakfast, what we can do.

David Gibbs: As we continue to take digital sales higher, which reduces the workload burden on taking orders and taking payments, you get higher accuracy on order taking, which reduces some of the rework and back of house. And then you bring on things that we mentioned earlier, voice AI at the drive through. Fizz automation in terms of automated drink fulfillment, which works with the Poseidon POS. You really start to see a vision for the future where you've got a really great customer experience that you're delivering with high productivity for the franchisees. So we expect on this to continue to build and build.

With loyalty the businesses, obviously somewhat on a role if you look at the results from the last quarter as I mentioned that those trends are continuing.

So much of that gets right back to the great talent that we have a taco Bell, Sean <unk> is taking over and.

And he's got a great team in place.

<unk> seen the actual detailed plans for next year you'd be as excited as I am obviously not going to share a lot of it.

Proprietary step, but things line up well for a strong 2024.

David Gibbs: If we go to Taco Bell, you know, you mentioned the loyalty program. Loyalty more broadly across our brand is a key focus area. We've been at north of 50% of all of our stores around the globe as part of the loyalty program, and that is continuing to grow. We've now implemented in the Middle East KFC US is coming on later this year. And we continue to refine the way our loyalty programs work.

Okay.

The next question comes from Brian Mullan of Piper Sandler.

David Gibbs: You mentioned Taco Bell. They are now starting to really leverage the insights that you've generated from the early days of that program to refine the program over time. And we've implemented the Red 360, which is the first time we're bringing together insights across our brands in the US. So that will be a driver of Taco Bell growth. More broadly on the strategy, as you mentioned, category entry points or use occasions is a big focus. We think there's a massive opportunity at launch. We continue to focus on breakfast. You probably see in the ads recently during sporting events. So all of those are part of the bright future at Taco Bell.

Andrew Charles: Our next question comes from Andrew Charles of PD Cowlin. Please go ahead, your line is now open. Great, thanks.

David Gibbs: No, another talk about question. Obviously, very encouraging 3Q performance and commentary about the start of 4Q, which hopefully you could elaborate on the Cantina menu coming in 2024. I recall this menu item dropping success in 2012 but was more upscale compared to US consumer that you guys noted is increasingly seeking value today. So, he'll just better understand the difference between the upcoming menu versus the one launched a decade ago. Sure, look, I think one thing Taco Bell does incredibly well in the industry is constantly changing of all the consumer space.

Like a moat around the business and creating.

Differentiated brand much like in the U S and now they're reaping the benefits from that and have a very aggressive expansion, but but when anytime you are taking a brand global that's been traditionally a U S brand you're gonna, it's not gonna be an even path all the way to the top there's gonna be you know ups and down some markets take off other markets.

I would take a pause.

So yeah, I I I think an aggregate we're very excited about the opportunity for Taco Bell around the world. We think it can be a meaningful growth river and our equation longterm, but we're gonna you know make sure that everywhere. We go we're helping our franchisees build the brand the right way take whatever time that takes cause like we did in Spain and in the U K.

David Gibbs: I wouldn't draw an exact parallel to the path Cantina menu. This is more about the Chicken Cantina menu or a Cantina chicken in terms of what that protein can do for us and I'm launching a different version of our chicken. So, I think the team's excited about the impact it can have, but there's lots of reasons to be excited about what Taco Bell's doing in 2024. As Chris mentioned, all the impact that the tech can have, the insights we're going to glean from data.

To establish the brand in a way that.

Insurers, it's long term success.

Next question comes from John Tawa, all sticky.

David Gibbs: Taco Tuesday, now that we've established that and the way that we can leverage that going forward, the momentum we're getting in breakfast, what we can do with loyalty. The business is obviously somewhat on a roll if you look at the results from the last quarter and I mentioned that those trends are continuing and so much of that gets right back to the great town that we have at Taco Bell. Sean Trezmont is taking over and he's got a great team in place and if you've seen the actual detailed plans for next year, you'd be as excited as I am. Obviously, they're not going to share a lot of the proprietary stuff, but things line up well for strong 2024 for Taco Bell.

Alright, Thanks for taking the question just curious either David or Chris perhaps you could shed some light on what you think could happen with the NLRB recent joint employer ruling.

Go into effect on 12 26 of this year and curious to know what your thoughts are whether or not it does go into effect and how it might impact the relationship between franchisee franchise door in the U S overtime and potential impacts on your own P&L.

Yeah sure Yeah look I'd start big picture, we've been navigating regulatory environments, and 160 countries around the world and they're always constantly changing and.

Brian Mullan: The next question comes from Brian Mullin of HyperFoundler. Please go ahead, your line is open. Okay, thank you.

Certainly.

The N L. R. B recent ruling and whether or not that goes into effect. It will have an impact on us, but it's nothing that I don't I don't think we can we want will have trouble navigating in the long term.

David Gibbs: Another one I want to talk about, but this one's just specific to the international business. You know, at the investor name last year, you shared a goal to get to 2,500 locations as quickly as you can. Now, related to that, as we look at over the next few years, you know, what kind of annual case do you think you can get to from a gross openings perspective? And then if you could just chime in on the opportunity for Taco Bell and China specifically, maybe your level of optimism there, that would be great to hear your current thinking.

Yeah, I spoke I've seen our business grow around this United States I've known a lot of our franchisees are good friends of mine for decades, I've seen them start you know as team members and grow to become successful small business people and I I do think the franchising model is one that's great for our country living.

David Gibbs: Yeah, obviously Taco Bell international is an exciting part of the growth equation for you. We don't provide brand by brand development targets and so we're not going to waver from that, but you know our overall development goals are incredibly ambitious, opening up a new unit every other hour around the world. And as you can see from this quarter that we sent a record on development this quarter. As far as Taco Bell and the various markets around the world, yeah, I just got back from a trip to Spain where I spent some time with our great franchisee in Spain, one of the early adopters of Taco Bell that got to scale quicker than other markets.

The American Dream, it's good for the communities that we serve and I I, yeah, we oppose anything that threatens that model and I know that there there is opposition to.

That ruling in terms of whether it will actually take effect at the end of the year, but it's really less of an issue for you. If you think about the landscape that we operate in our franchisees tend to be much larger we tend to run more of a decentralized model globally and even in the U S. Because our franchisees have a lot more capability. So I I have no doubt that.

David Gibbs: And you can see, you know, he's done an amazing job of building a moat around the business and creating a differentiated brand much like in the US and now they're reaping the benefits from that and have very aggressive expansions. But when any time you're taking a brand global that's been traditionally a US brand, you're going to, it's not going to be an even path all the way to the top. There's going to be ups and downs, some markets take off, other markets, you know, take a pause. So I think in aggregate, we're very excited about the opportunity for Taco Bell around the world. We think it can be a meaningful growth driver in our equation, long-term.

Whatever the rules are that we have to operate Fi will we will be able to as we've proven all around the world over many many decades, but this one obviously in the short term is something we oppose and we'll have to see how it plays out.

David Gibbs: But we're going to, you know, make sure that everywhere we go, we're, you know, helping our franchisees build the brand the right way, take whatever time that takes to it like we did in Spain and the UK to establish the brand in a way that ensures it's long-term.

And next question is from <unk>.

[laughter].

Great. Thank you wondering if you could comment a little bit more on both KFC and pizza hut in the U S solid games in general over the years from the work the teams have done but wondering if you could just frame I had to think about how the brands are positioned in the U S right now within their respective categories and where they can go.

So given somebody opportunities that you piloting thank you.

Oh sure, Yeah, obviously, where I'm really pleased with the progress we're making on both of those businesses Pizza U S. For example, it's been taking chair in the category now for I think.

John Tower: And next question comes from John Tower of Sticky, so you go ahead. Great, thanks for taking the question.

Or consecutive quarter and it's from all of the things that we've talked about on these calls and that you are all seeing in the marketplace. You know the way that they played aggregators versus our competition the way, they're launching new products and new forms like melt, which brings in a new consumer more recently you probably saw the announcement about late night and how we are one.

David Gibbs: Just curious, either David or Chris, perhaps you could shed some light on what you think could happen with the NLRB recent joint employer ruling. It's a set to go into effect on 1226 this year and curious to know what your thoughts are whether or not it does go into effect. And how it might impact the relationship between Franchisee, Franchisee or in the US over time and potential impacts on your own P&L. Yeah, sure.

During that part of the the category, So Aaron Powell and David Graves. Their teams are really leaning in and they were on their front foot with pizza. It's a tough category of course, but one where we are really pleased with the progress we're making similarly KFC you've seen us do things like launched a nugget and leaning more.

David Gibbs: Yeah, look, I start big picture. We've been navigating regulatory environments in 160 countries around the world. And they're always constantly changing and certainly the NLRB recent ruling and whether or not that goes into effect will have an impact on us. But it's nothing that I don't I don't think we can we will have trouble navigating in the long term. Yeah, look, I've seen our business grow around the United States. I've known a lot of our Franchisees are good friends of mine for decades.

More on the boneless, that's a huge opportunity it's no secret that chicken is a growing category. We've got the world's greatest chicken brand were set up for success there as we evolve our business you know and the theme that we've got in place there.

Also a relatively new team I think is doing an amazing job of rolling out those kinds of programs that will.

Liza incremental sales incremental category entry points as we talked about earlier on the call. So both businesses I think poised for lots of growth.

David Gibbs: I've seen them start, you know, as team members and grow to become successful small business people. And I do think the franchising model is one that's great for a country living the American dream. It's good for the communities that we serve. And we oppose anything that threatens that model. And I know that there is opposition to that ruling in terms of whether it will actually take effect at the end of the year.

<unk>, we have time for one more question.

Thank you.

Final question today comes from buying hop out of milk and family.

Fine.

Yes, it thinking good morning, I'm, just gonna ask about pizza hut as well and if you could provide any common sudden kind of delivery first carry outperformance also how you know if if.

David Gibbs: But it's really less of an issue for young if you think about the landscape that we operate in our franchisees tend to be much larger. We tend to run more of a decentralized model globally and even in the US because our franchisees have a lot more capability. So I've no doubt that, you know, whatever the rules are that we have to operate by will we will be able to as we've proven all around the world over many, many decades. But this one obviously in the short term is something we oppose and we'll have to see how it plays out.

If third party is still kind of growing channel for you and then you know I know there's disparities by market.

Which is growing faster than what explain some of that and do you think that in the U S. I think it's fair to say that you know competition is quite significant right now and will be into next year, but do you think that you know the U S can grow on the same store basis next year.

Yeah, obviously, we believe.

Pizza.

Can and will grow cells in terms of delivery.

Aspect of this maybe it's under appreciated is the fact that we now have delivery is a service where we can outsource some of our deliveries through our aggregator partners of that actually was one of the unlocked for us to go after late night when it when it may have been a little bit harder for us to staff with drivers being able to and off.

David Gibbs: And that's question today is from Dennis Geiger of UBS, please go ahead. Great, thank you. One thing if you could comment a little bit more on both KFC and Pizza Hut in the US solid games in general over the years from the work the teams have done. But one thing if you could just frame up how to think about how the brands are positioned in the US right now within their respective categories. And where they can go given some of the opportunities that you piloted. Thank you.

Those deliveries to our aggregator partners allowed us to extend our hours I think it's just another proof point in what a nice job. The team is doing and thinking through the strategic benefits. We can get from the various relationships we have in the category.

David Gibbs: So sure, yeah, obviously we're really pleased with the progress we're making on both of those businesses. You know, Pizza US for example, it's been taking share in the category now for I think, you know, her consecutive quarter. And that it's from all the things that we've talked about on these goals and that you're all seeing in the marketplace, you know, the way that they played aggregators versus their competition, the way they're launching new products and new forms like melts which brings in a new consumer.

But you know.

In a world where it consumed the consumer it might be a little bit more pressured obviously carry out is playing a bigger role and I've been a lower price points will play a big role in the pizza category and that's one of the reasons why you know melts I think has landed so well and will be a big part of the growth for pizza going forward.

I appreciate the everybody's time today, obviously this is a quarter that were incredibly proud of him much like the last few quarters and you know never gets all keep continuing to put up a double digit top line growth and strong bottom line growth I'll just end with you know a few comments about what we saw as we went through our internal annual.

David Gibbs: More recently you probably saw the announcement about late night and how we're owning that part of the category. So Aaron Powell and David Graves, their teams, you know, are really leaning in and they're on their front foot with Pizza Hut. It's a tough category, of course, but one where we're really pleased with the progress we're making. Similarly, KFC, you've seen us do things like launch nuggets and lean in more on the boneless.

Operating plan reviews, the last few weeks.

It's something that you guys don't get a glimpse into but I can tell you the spirit and the rooms that when we met with the teams the talent in the room, that's displayed and the way that everybody sort of on their front foot now we've got the all this work that we've done on technology over the last few years firmly planted so that we now have something that we can <unk>.

David Gibbs: That's a huge opportunity. It's no secret that chicken is a growing category. We've got the world's greatest chicken brand. We're set up for success there as we evolve our business, you know, and the team that we've got in place there. Also a relatively new team, I think assuming an amazing job of rolling out those kinds of programs that will, you know, lead to incremental sales, incremental category entry points as we talked about earlier on the call.

David Gibbs: So both businesses, I think, poised for lots of growth.

Average in a much bigger way to grow sales I think our franchisee partnerships have never been better and all of that adds up to what I thought were incredibly inspiring plans going forward to take market share grow our business is the right way for the long term and continue to put up results like you saw this quarter. So we're incredibly excited about the future we look for.

David Gibbs: We have time for one more question. Thank you. I'll find a question today comes from Brian Harbour of Morgan Stanley. Please go ahead, Brian. Yes, thank you. Good morning. I was going to ask about Pizza Hut as well. And if you could provide any comments on kind of delivery versus carry out performance. Also how, you know, if third party is still kind of a growing channel for you. And then, you know, I know there's disparities by market, you know, which is growing faster.

To talk to you on the next call about a little bit more detail about the plans for 2024, thanks, everybody for your time today.

That concludes today's call. Thank you for joining you may now disconnect your lines.

[music] [noise].

David Gibbs: And what explains some of that? And do you think that in the US, I think it's fair to say that, you know, competition is quite significant right now. And we'll be into next year. But do you think that, you know, the US can grow on the same store basis next year?

David Gibbs: Yeah, obviously we believe, you know, Pizza Hut can and will grow sales in terms of delivery, you know, one aspect of this, maybe it's underappreciated is the fact that we now have delivery as a service where we can outsource some of our deliveries through our aggregator partners. That actually was one of the unlocks for us to go after late night. You know, when it may have been a little bit harder for us to staff with drivers, being able to hand off those deliveries to our aggregator partners allowed us to extend our hours.

David Gibbs: I think it's just another proof point in what a nice job the team is doing in thinking through the strategic benefits we can get from the various relationships we have in the category. But you know, in a world where the consumer might be a little bit more pressured, obviously carry out is playing a bigger role. And a lower price point will play a bigger role in the pizza category. That's one of the reasons why, you know, melt I think it's landed so well and will be a big part of the growth for pizza going forward.

David Gibbs: I appreciate everybody's time today. Obviously this is a quarter that we're incredibly proud of, much like the last few quarters. And you know, never gets all keep continuing to put up double digit top line growth and strong bottom line growth.

David Gibbs: I'll just end with you know, a few comments about what we saw as we went through our internal annual operating plan reviews the last few weeks. You know, it's something that you guys don't get a glimpse into, but I can tell you the spirit in the rooms that when we met with the teams, the talent in the room that's displayed. And the way that everybody's sort of on their front foot now, we've got the all this work we've done on technology over the last few years firmly planted so that we now have something that we can leverage in a much bigger way to grow sales.

David Gibbs: I think our franchisee partnerships have never been better and all of that adds up to what I thought were incredibly inspiring plans going forward to take market share, grow our businesses the right way for the long term and continue to put up results like you saw this quarter. So we're incredibly excited about the future. We look forward to talking to you on the next call about a little bit more detail about plans for 2024.

Operator: Thanks everybody for your time today.

Operator: This concludes today's call. Thank you for joining. You may now disconnect your line.