Q4 2024 Yum! Brands Inc Earnings Call
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Speaker Change: [noise] welcome everyone to the Yum brands 'twenty 'twenty four fourth quarter earnings call.
Lauren: My name is Lauren and I'll be co would make your call today.
Lauren: There'll be an opportunity for questions at the end of the presentation.
Lauren: If you'd like to ask a question. Please press star one on your telephone keypad.
Lauren: We call it the ask that you limit yourself to one question only.
Speaker Change: I will now hand, you over to Mike Morris head of Investor Relations to begin. Please go ahead.
Speaker Change: Good morning, everyone and thank you for joining us today on our call 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.
Speaker Change: 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.
Speaker Change: 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 risk factors discussed in our SEC filings.
Speaker Change: Please refer to today's release and filings with the SEC to find disclosures definitions and reconciliations of non-GAAP financial measures.
Speaker Change: Please note that during today's call system sales and operating profit growth will exclude the impact of foreign currency.
Speaker Change: Our fourth quarter results included an extra week for business units reporting on a period calendar basis. However, all figures stated on this call will exclude the extra week for more information on our reporting calendar for each market. Please visit the financial reports section of the IR website.
Speaker Change: Finally, our in person to talk about consumer day has been rescheduled for Tuesday March 4th in New York City talk about consumer day will take place in the morning and will proceed to talk about with iconic live Mas live event due to the limited capacity of tenants for both events will be by invitation only.
Speaker Change: Direct requests have been made by contacting Investor relations team now.
Speaker Change: Now I'll turn it over to David Thank you, Matt and good morning, everyone I'm incredibly proud of what Yum brands accomplished this past year. Despite industry wide challenges, we continued to deliver strong results underscoring the resilience of our business model the power of our iconic brands and the strength of our World class franchise partners.
Speaker Change: Our momentum is clear we achieved remarkable milestones generating over 50% of our system sales through digital channels, surpassing 60000 total units globally with more than 30000 at KFC alone and generating more than $1 billion in core operating profit from the Taco Bell Division for the first time ever.
Speaker Change: Taco Bell U S delivered an incredibly strong year and one that significantly outperformed the industry showing clearly that Taco Bell is a category of one brand.
Speaker Change: Our financial results reflect the strength of our business with full year core operating profit growth of 8% reinforcing the power of our growth strategy and the durability of our business.
Speaker Change: One of the biggest drivers of our success and a major unlock for our future is our proprietary technology platform.
Speaker Change: In 2024, we accelerated our technology transformation by integrating our digital and technology teams into a unified global team.
Speaker Change: Additionally, we're thrilled today towards introduce bite by or comprehensive collection of proprietary software as a service product that enables our restaurant deliver faster more seamless experiences for consumers, while streamlining operations and empowering teams.
Speaker Change: Integrating our best in class you had previously disparate solutions into a comprehensive easy to deploy solution will help accelerate platform adoption.
Speaker Change: KFC Pizza hut, and Taco Bell U S.
Speaker Change: All currently operate on our buyer digital ordering platform and 25000 Yum restaurants across the world are using at least one bite by your own product.
Speaker Change: As we continue to raise the bar in digital convenience and engagement. We are seeing clear results. Our digital sales grew approximately 15% in 2024, and we're just getting started with the strength of our brands the power of our technology and the dedication of our franchisees and teams we are well positioned for another year of strong growth ahead.
Speaker Change: I'll now discuss the strategic drivers that underline our commitment to being the most loved deeply connected and always trusted brands for consumers around the world.
Speaker Change: Afterwards, Chris will provide a deep dive on our fourth quarter results balance sheet position and capital strategy, followed by our outlook for 2025.
Speaker Change: Starting with our love to pillar and our brands are champion consumer experiences. We're pleased to report that our twin growth engines talk about U S and KFC International delivered 7% system sales growth and 14% core operating profit growth in the fourth quarter. These.
Speaker Change: These two businesses, which represent approximately 80% of our divisional operating profit continued to be powerful drivers of our long term success.
Speaker Change: At KFC, which accounts for 49% of our divisional operating profit units grew 7% driving system sales growth of 3% for the full year. Despite a 2% decline in same store sales in the fourth quarter same store sales were flat year over year with international same store sales improving to plus 1%.
Speaker Change: And sequential momentum building throughout the quarter.
Speaker Change: We're especially encouraged by strong recoveries in the middle East where same store sales experienced significant growth and robust performance in Africa, Latin America, and Canada, all of which saw mid to high single digit same store sales growth.
Speaker Change: In Africa comps rose, 9%, driven primarily by increased traffic as the team successfully executed a multi pronged marketing approach emphasizing boneless and core abundant value offerings, while also expanding beverage sales.
Speaker Change: Latin America's strategy leaning into everyday value and disruptive promotions.
Speaker Change: Broadens its consumer reach and increase frequency driving a 6% year over year same store sales increase in Q4.
Speaker Change: We also saw notable quarter over quarter momentum in several key markets, including a five point improvement across our Asia business, excluding China.
Speaker Change: Looking ahead to 2025, we remain focused on deepening market penetration by expanding relevant product offerings, including tenders Nuggets twisters in sandwiches, while enhancing our value perception. This will involve refining pricing strategies and identifying key category pricing thresholds to ensure we remain at.
Speaker Change: At the top of the consumer's consideration.
Speaker Change: Turning to Taco Bell, which accounts for 37% of our divisional operating profit. The brand continued its strong momentum in 2024 with full year system sales up 6%.
Speaker Change: Fueled by exceptional same store sales growth talk about not only gained dollar share of total industry spend but also increased consumer frequency across all income segments reinforcing its broad consumer appeal.
Speaker Change: This momentum carried into the fourth quarter with same store sales rising 5% year over year outpacing the U S industry by five percentage points driven by the successful execution of Taco Bell's Magic Formula.
Speaker Change: With decades platform, which brought back five of the brand's most in demand nostalgic menu items generated strong product innovation brand excitement and exclusive merchandise for loyalty members.
Speaker Change: Team also underscored value leadership with the $7 Lux box one of the most compelling value offerings in the industry.
Speaker Change: Let's talk about international same store sales grew 3% in Q4, marking the strongest quarter of the year.
Speaker Change: Key markets, including the UK, Spain, and India saw a notable sales lifts after successfully refocusing on brand buzz and disruptive value promotions to drive transactions.
Speaker Change: Taco Bell is consistent market outperformance innovative product pipeline and strategic value positioning set the stage for continued strong growth in 2025.
Speaker Change: Turning to Pizza hut, which represents 13% of our divisional operating profit full year system sales declined 1%, including 2% net new unit growth in the fourth quarter same store sales growth improved 300 basis points sequentially.
Speaker Change: The standout performance in India from successfully driving brand Buzz and consumer engagement with innovative limited time offerings like the <unk> pizza, while also leveraging aggressive value deals to boost frequency and trial in the U S sales remained under pressure due to more value competition across both the <unk> industry and the pizza category.
Speaker Change: We've seen that everyday value offerings, such as a $7 deal lovers.
Speaker Change: Affectively drive repeat visits from existing consumers.
Speaker Change: However to attract lighter lapsed consumers, we must lean further into disruptive and distinctive value promotions.
Speaker Change: Going ahead to 2025, our focus will be on striking the right balance between everyday value and disruptive campaigns to engage a broader consumer base.
Speaker Change: Additionally, we are committed to enhancing the digital experience with improvements to our app platform that will elevate engagement and bring value to the forefront of the consumer journey with Pizza hut.
Speaker Change: With the right mix of innovation value and digital improvements we are confident in our ability to strengthen pizza is relative brand positioning and reinvigorate topline momentum.
Speaker Change: And habit Burger and grill full year system sales grew 1% driven by unit growth Encouragingly same store sales trends improved in the fourth quarter fueled by a successful marketing campaign highlighting habits recognition as the number one Burger in America by USA today readers choice.
Speaker Change: The team will continue to leverage this momentum emphasizing its suite of award winning menu items, including the double Char Burger a number one ranked side tempura green beans.
Speaker Change: Beyond topline growth, we were pleased to see operational efficiencies translating into improved profitability.
Speaker Change: The ongoing labor productivity initiatives launched in 2024 have driven notable improvements in labor throughput, allowing us to reduce restaurant labor expense as a percentage of sales by 150 basis points, despite higher labor rates in California.
Speaker Change: As a result restaurant level margins reached 10% in 2020 for 150 basis points higher year over year. This progress underscores our commitment to enhancing operational efficiency.
Speaker Change: <unk> brand equity.
Speaker Change: And positioning habit Burger for sustained growth in the year ahead.
As we embrace a bolder more creative approach to innovation, we are taking decisive steps to elevate the consumer experience and meet the evolving preferences of the next generation consumer.
Speaker Change: At KFC in December we opened saucy by KFC flavor forward test concept restaurant in Orlando designed for the next generation of Boneless chicken lovers.
Speaker Change: The menu features tenders and sandwiches paired with 11 irresistible sources complemented by a diverse 11 beverage lineup, including Tees freezes and refreshes.
Speaker Change: Early engagement has been promising reinforcing our belief in <unk> potential to drive sales and enhance brand relevance.
Speaker Change: <unk>, we are testing live Mas cafe and in store beverage focused cafe, featuring specialty drinks like Chillers, Agua Fresca as coffees and more.
Speaker Change: Consumer response has been strong with the cafe concept driving meaningful incremental sales.
Speaker Change: These innovations reflect our commitment to staying ahead of consumer trends enhancing brand differentiation and creating new avenues for growth.
Speaker Change: These are only one unit pilots today, we plan to expand both test concepts this year to better understand their long term growth potential enroll in our portfolio.
Speaker Change: Moving to our connected pillar, we're advancing our ability to serve every consumer everywhere at any time.
Speaker Change: The strong momentum in digital sales in 2024 is a testament to targeted brand initiatives loyalty conversion strategies and continued deployment of our proprietary tech platform.
Speaker Change: Digital sales grew approximately 15% to over $30 billion underscoring the impact of our digital first approach.
Speaker Change: KFC, excluding China digital sales surged more than 20% driven by expanded kiosk adoption.
Speaker Change: With more than 50% of stores outside China equipped with kiosks at year end 2024, our teams are focused on reaching 70% penetration by 2026.
Speaker Change: As digital engagement grows so does our loyalty opportunity.
Speaker Change: KFC, we are scaling our global loyalty program now live in 14 markets and early data as promising loyalty members show a 12% increase in visit frequency after joining loyalty remains of high potential growth area and in 2025, we will sharpen our focus on optimizing program effectiveness.
Speaker Change: This includes expanding the adoption of loyalty technology across our portfolio, ensuring we continue to deepen consumer engagement and drive repeat visits through personalized data driven experiences.
Speaker Change: At <unk>, we take great pride in our unrivaled culture and talent, including our deep bench of amazing leaders I'd like to start by congratulating, Scott Mezvinsky, who will assume the role of KFC Division CEO on March one.
Speaker Change: Scott started 20 years ago as an analyst at KFC U S and has had multiple positions at both KFC and Yum, including key market leadership roles with KFC around the globe and is currently the president of Taco Bell Scott innovative approach and strategic vision have significantly contributed to the success of Taco Bell and I have full confidence.
Speaker Change: That his leadership will drive KFC to new Heights.
Speaker Change: I would also like to recognize and thank sabra Sammy for his years of service and the tremendous impact he made at KFC cyber exemplifies what it means to lead with heart smart encourage and how these qualities can drive performance under his leadership KFC experienced remarkable growth.
Speaker Change: As part of our commitment to fostering trust with consumers communities and partners. We continue to look for new ways to make our packaging reusable recyclable or compostable.
Speaker Change: KFC U S Taco Bell and habit recently participated in the Petaluma Reusable Cup pilot, which was a strategic opportunity for you to better understand the feasibility of reusable.
Speaker Change: In addition, pizza completed the first two of three phases of its initiatives to increase pizza box recycling.
Speaker Change: This project aims to educate consumers about recycling pizza boxes and encourage positive changes in their behavior although.
Speaker Change: Although the pilot is currently limited to one market, we hope that proactive communication.
Speaker Change: Recycling will inspire positive consumer action.
Chris Turner: Before handing it over to Chris I want to emphasize that delivering 8% core operating profit growth in a challenging year for the <unk> industry, while navigating discrete sales headwinds and select global markets is a testament to the resilience of our business model the power of our brands in the World class talent, we have leading our businesses around the <unk>.
Speaker Change: <unk>.
Speaker Change: Looking ahead to 2025 and beyond we are more confident than ever in our ability to create long term value leveraging these core competencies. We are taking bold decisive actions to evolve our organization positioning ourselves to capitalize on next generation growth opportunities at.
Speaker Change: At the same time, our investments in 2024 involving technology innovation and operational effectiveness will make us more agile and resilient to ensure we emerge even stronger in the next phase of our journey.
Speaker Change: Everything we do at Yamana is anchored in our mission to grow iconic restaurant brands loved by consumers connected through teamwork technology, and our global scale and trusted everywhere we operate.
We are privileged to steward a portfolio of world class globally recognized brands backed by a high margin recurring free cash flow business model operated by best in class franchisees that fuels long term growth and delivers compounding shareholder value.
Speaker Change: With that Chris Thank you David and.
Speaker Change: And good morning, everyone today, I'll discuss our 2024 financial results, our balance sheet and capital strategy and our outlook for the upcoming year.
Speaker Change: Starting with the fourth quarter system wide sales grew 5% driven by 5% net new unit growth and 1% same store sales growth our.
Speaker Change: Our topline trends strengthened in the fourth quarter.
Speaker Change: <unk> by our twin growth engines, as well as improvements in Taco Bell International and Pizza Hut International.
Speaker Change: <unk> very impressive performance in the U S outpaced the market significantly.
Speaker Change: At KFC International a sharper focus on digital engagement everyday value platforms and disruptive value offers led to a two point sequential acceleration in same store sales growth in markets outside of the Middle East, Indonesia and Malaysia.
Speaker Change: In the Middle East KFC saw a strong recovery in transactions with traffic showing strong growth and same store sales increasing by a notable percentage by December transactions had largely rebounded to pre conflict levels in China KFC continued to expand its market share with these gains firm.
Speaker Change: They're accelerating in the fourth quarter, we remain highly confident in our long term potential in China supported by our strong partnership with Yum, China, the largest and most capable restaurant operator in the world.
Speaker Change: Turning to our cost line items ex special G&A expenses were $319 million, reflecting a 7% year over year decline.
Speaker Change: We reported G&A included a $27 million special expense related to our resource optimization project and costs for our German acquisition and Turkey termination.
Speaker Change: Restaurant level margins improved by 20 basis points year over year to 17, 6%, reflecting strong gains at both habit and Taco Bell.
Speaker Change: As a result core operating profit grew 12% due to higher restaurant level margins and lower G&A spend.
Speaker Change: <unk> special EPS for the fourth quarter was $1 52.
Moving to our full year results, we achieved 5% net new unit growth in line with our long term aspirations.
Speaker Change: Same store sales declined 1% for the year impacted by broader global consumer sentiment, particularly in markets affected by the middle East conflict.
Speaker Change: Ex special G&A was $1 1 billion.
Speaker Change: Down 6% year over year.
Speaker Change: Through our resource optimization program, we aim to drive greater efficiencies enhanced collaboration across the organization and eliminate duplicative work across brands as a result, we removed approximately $25 million in G&A expenditures in 2024 translating to $50 million on an annual basis some.
Speaker Change: Of which we flowed to the bottom line and some we reinvested into organizational capabilities that drive future growth.
Speaker Change: As we transition to a more streamlined digital and technology organization with increased productivity.
Speaker Change: And as we continue to deploy our capabilities across our system were bending the curve on the net P&L impact of our digital and technology investment shift.
Speaker Change: Shifting to restaurant profitability total restaurant level margins stood at 16, 8% with Taco Bell achieving 24, 3% its second highest full year margin rate behind 2020.
Speaker Change: Habit restaurant level margins improved to 10% rising 150 basis points year over year and over 500 basis points relative to 2022.
Speaker Change: Notably despite higher labor rates in California habits labor costs as a percentage of company sales decreased 150 basis points year over year.
Speaker Change: Strategic labor model enhancements and process optimization.
Speaker Change: As a result of these moves and the hard work of our teams we achieved core operating profit growth of 8% a strong result, given the macroeconomic challenges. This reflects the resilience of our multi brand global franchise business model.
Our effective tax rate ended the year at 23, 5% outside of our previously communicated range of 21% to 23% due to higher tax expense on the gain realized when we sold our investment in Debbie Ani in 2024.
Speaker Change: This profit growth drove a 4% increase in EPS to $5 39, excluding special items, and the 50, <unk> week impact, but including a higher year over year tax rate impact of 19.
Speaker Change: As well as an additional 18 headwind due to the combined impact of year over year, Debbie on a net investment losses and current year foreign currency translation headwinds.
Speaker Change: Moving on to our robust development engine, we opened over 800, new units in Q4 and more than 4500 for the year.
Speaker Change: Reinforcing the strong investment appeal of our brands and the high confidence of our franchise partners and the long term growth potential of our brands.
Speaker Change: KFC led the way opening a record nearly 2900 new units this year across 97 countries with 16 markets opening 25 or more stores.
Speaker Change: This year the brand saw its highest ever store openings with record builds in China, South Africa, Japan, the Philippines, Italy in Chile.
Speaker Change: At Pizza Hut. The team opened 512 units in Q4 and 1280 for the year driven by expansion in China, India, Saudi Arabia and Canada.
Speaker Change: In line with our modernization efforts Pizza hut introduced a new U S restaurant design concept in November replicating elements of its successful digital forward model from international markets.
Speaker Change: This format aligns with evolving consumer expectations by featuring an open kitchen self access pickup cabinets and a digital drive through with a streamlined menu of high demand items Taco Bell continued its expansion, adding 347, new units, including 234 in the U S and 113.
Speaker Change: Holly.
Speaker Change: Turning to the Middle East specifically, the resilience of our business in the region as evidenced by the fact that we opened 171, new stores in 2024 across our KFC and Pizza hut brands, excluding Turkey.
Speaker Change: Primarily to our largest partner in that region Americana.
Speaker Change: On a net new unit basis globally in total we delivered 1301 net new units in the quarter and 2000 and 757 for the year, reflecting the strength of our gross openings, partly offset by an uptick in closures are primarily low volume low royalty stores tied to underperforming.
Speaker Change: Nothing is more important than maintaining high standards and protecting the reputation of our brands. In this regard last month, we terminated our franchise agreements in Turkey, and reacquired the master franchise rights for Germany, which will result in the removal of 284, KFC and 254.
Speaker Change: More pizza hut stores in Turkey from our unit count in Q1 from.
Speaker Change: From time to time, we removed franchisees from our system when they cannot meet our standards.
Speaker Change: In those situations. The closing units are typically well below our system average.
Speaker Change: As a result, and as was the case with Turkey. The financial impact is typically not significant to our ongoing financial performance from such terminations.
Speaker Change: These transitions create long term opportunities for new growth minded franchise partners and we are actively searching for the right three C franchise partner to reopen the Turkey market and drive future success.
Speaker Change: As a reminder, we had a similar situation in Saudi Arabia in 2020 and that market is now seeing strong growth.
Speaker Change: I will now discuss our connected brand strategy that continues to revolutionize digital and technology across our system strengthening operations enhancing consumer experiences and unlocking new insights.
Through bite, we are making significant strides across our easy experiences easy operations and easy insights pillars paving the way for a more connected data driven and efficient future.
Speaker Change: We continue to focus on delivering frictionless consumer experiences under our easy experience pillar in 2024, we made excellent progress deploying our bite digital ordering platform, formerly the Yum Commerce platform.
Speaker Change: Taco Bell KFC and Pizza hut in the U S are all now powered by our by digital ordering products with Pizza Hut U S substantially completing its transition in Q4.
Speaker Change: We also migrated three pizza hut international markets, including the UK onto the bite digital ordering platform in 2024.
Speaker Change: In the U K the platform facilitated over 50% digital transaction growth.
Speaker Change: On the App channel and drove faster processing times than the previous system in 2025, we plan to expand our buyer digital ordering platform to five additional markets, while introducing AI, driven personalization and our omnichannel loyalty software.
Speaker Change: The Bight digital ordering platform and it's seamless connection with our bite restaurant technologies make it easier for consumers to place digital orders, while reducing complexity for our team members.
Speaker Change: Within easy operations, we empower franchisees with our best in class by restaurant management platform to enhance efficiency and optimize operations.
Speaker Change: In 2024, we more than doubled the number of stores using bites restaurant coach mobile App, formerly Super App.
Speaker Change: Two over 20000, KFC and pizza hut locations across 120 countries.
Speaker Change: This mobile app simplifies routine audits in operations and has the scale platform, we will use to deliver AI driven recommendations to our team members. Meanwhile, our bite kitchen and delivery system, formerly Dragon tail is now live in over 8000 restaurants across multiple markets with full implementation plan for <unk>.
Speaker Change: <unk> and Pizza Hut U S. In 2025 and continued expansion globally.
Speaker Change: At Taco Bell U S. We continue to launch our bite back of House technology, formerly tracks restaurant management system and reached over 500 restaurants in 2024 with plans to scale it across the entire system in 2025.
Speaker Change: Lastly, I'll discuss our easy insights pillar, our AI and data driven approach is redefining how we engage with consumers our rich hub of transactional detail as combined with operations data guest experience data and consumer data to power our AI strategy.
Speaker Change: One area. We continue to be excited about is AI, driven marketing to enable hyper personalized messaging and experiences.
Speaker Change: Already our U S brands are leveraging AI to execute targeted campaigns with early tests on E mail promotions, resulting in a doubling of consumer engagement compared to traditional approaches.
Speaker Change: This breakthrough is just the beginning we expect the scale AI driven personalization across all brands and digital channels, creating more relevant and engaging consumer interactions.
Speaker Change: With bites rapidly expanding capabilities, we are building an intelligent integrated digital platform that strengthens our brands enhances consumer experiences and empowers our franchisees as we scale. These innovations we are confident they will drive long term growth deeper consumer connections and a more efficient operating model across our global Sis.
Speaker Change: The future is digital and we are leading the way.
Speaker Change: Next I'll provide an update on our balance sheet and liquidity position.
Speaker Change: Net capital expenditures for 2024 totaled $208 million, reflecting $49 million and Refranchising proceeds and $257 million in gross capital expenditures.
Speaker Change: In line with our commitment to deliver shareholder value today, we announced an increase in our quarterly dividend to <unk> 71 per share.
Speaker Change: Out the year, we repurchased approximately three 3 million shares for a total of $440 million combining.
Speaker Change: Combining dividends and share buybacks, we returned $1 2 billion to shareholders in 2024.
Speaker Change: Our net leverage ratio ended the year at 4.0 times with our debt balance remaining largely unchanged.
Speaker Change: Given our continued confidence in <unk> future trajectory and that our leverage has drifted lower by a full turn we plan to deliver materially higher capital returns going forward than in the past two years.
Speaker Change: Specifically and subject to market conditions, we expect to stop deleveraging and maintain our net leverage ratio at approximately four times over the medium term by issuing incremental debt as our business grows overall.
Speaker Change: Overall, our capital priorities remain unchanged and focus on maximizing shareholder value through strategic investments in the business, maintaining a strong and flexible balance sheet offering a competitive dividend and returning excess cash to shareholders.
Speaker Change: Looking ahead to 2025, we remain confident in our long term growth trajectory, while acknowledging some near term headwinds.
Speaker Change: Our Q1 unit growth will reflect the 538 units exited in Turkey. We will also in Q1 move forward with expediting closures of a number of pizza hut restaurants in a few markets, resulting in an incremental 200 closures.
Speaker Change: Despite the resulting decline in our unit count during the first quarter relative to the end of 2024, we expect full year unit growth in 2025 to reach at least 4% or 5% when excluding the onetime Turkey related closures as always our unit growth is more heavily weighted to the fourth quarter.
Speaker Change: We anticipate same store sales performance will improve in many markets supported by stronger value perception scores and an ongoing sales recovery in markets affected by the middle East conflict and we anticipate another strong year of sales performance at Taco Bell U S.
Speaker Change: We expect G&A to increase by a low single digit percentage, excluding the headwind from the reset of below target incentive compensation experienced in 2024, including this onetime headwind and assuming an on target bonus expense, we expect G&A to increase by a mid single.
Speaker Change: Percentage in 2025.
Speaker Change: We are pleased to share that this G&A profile, coupled with the previously mentioned that unit and sales growth drivers leads us to plan. Another very strong year of core operating profit growth delivering on our long term algorithm target of 8%.
Speaker Change: Turning to items impacting net income excluding the impact of the previously mentioned potential incremental debt issuances, we expect interest expense to fall between $500 million and $520 million.
Speaker Change: Regarding our expected tax rate, we like other multinationals are seeing ongoing increases in foreign income tax rates and are increasing our forecasted range for taxes to 22% to 24% in.
Speaker Change: In summary, we are optimistic about the year ahead with strong brand momentum across our portfolio as we enter 2025.
Speaker Change: As Matt mentioned, we're thrilled to host Taco Bell's consumer day in New York City on March 4th where we will showcase Taco Bell live Mas live and unveil the brand's ambitious growth plans.
Speaker Change: Originally scheduled for an earlier date, we decided to reschedule this event to prioritize the safety and well being of Los Angeles residents affected by the devastating California wildfires and to avoid distracting from the ongoing recovery and rebuilding efforts in that community.
Speaker Change: With that operator, we are ready to take any questions.
Speaker Change: Thank you.
Speaker Change: We will now begin the Q&A session.
Speaker Change: I would like to ask a question. Please press star one on your telephone.
Speaker Change: Pat.
Speaker Change: Withdraw your question please press <unk>.
Speaker Change: Hey, Susan She'll site is Amit lately.
As a reminder, please limit yourself to one question.
Speaker Change: Our first question today comes from Dennis Geiger from UBS. Please go ahead.
Speaker Change: Great. Thank you.
Speaker Change: I wanted to ask a bit more about international in sort of the solid results and improvement that you saw through for Q.
Speaker Change: If you could touch to some extent on the health of international franchisees, perhaps how that impacts your growth trajectory expected through 'twenty five and then maybe just any kind of characterization of international conditions. The market share and are they improving is it stabilization that you are just kind of taking share any any commentary on that would be helpful. Thanks guys.
Speaker Change: Yes, hi, Thank you for the question.
Speaker Change: Obviously international is a complex environment for us in the last year, but the good news is things are improving and we feel a lot of confidence going into 2025, I would break let's take KFC since it's one of our twin growth engines and their international business I would break it down into three parts. The first is those markets that had a.
Speaker Change: Hi impact from the conflict in the middle East that would be the middle East markets, plus Malaysia, and Indonesia, you can see for the full year, our sales system sales were down 12% in those markets, but in Q4, we were up 11.
Speaker Change: Regaining momentum we're getting the labs that are obviously much more favorable but that obviously had a fairly significant impact on our full year numbers. The flip side of that is there's a number of markets. We're tracking where we believe there was no impact.
Speaker Change: If you look at all of those no impact markets in aggregate the full year system sales growth with 9% that is very encouraging that with an unimpaired markets. Our business is performing very strongly at KFC.
Speaker Change: If you look at the performance in Q4, it actually accelerated its up 10% system sales growth.
Speaker Change: So those two things sort of offset each other and then you've got all of the markets in the middle and just a comment or two on the markets in the middle there are a lot of markets, where we are seeing where we saw some impact on a trade area by trade area basis, not market wide, but just trade areas depending on the communities they serve.
Speaker Change: Those markets are also recovering an example of that would be a market like India that in Q4 saw a five point swing in same store sales growth to the better. So we're seeing the improvements in the trade area by trade area impacted markets, we're seeing them in the fully impacted markets from last year and we.
Speaker Change: As you add it all up for last year was 4% system sales growth, but as we go into next year, obviously that creates easier laps of momentum in the business.
Speaker Change: Chris I know, maybe you can talk a little bit to franchisee health Yeah, Dennis on franchisee health you setback, we obviously.
Speaker Change: Prior to being we believe we are the best franchise or in the world in the restaurant industry.
Speaker Change: The top three spots in the entrepreneur franchise ranking last year Taco Bell many years in a row.
Speaker Change: Being the head of the franchise 500.
Speaker Change: And the number one indicator of global franchise health is the gross unit trajectory that we had 4500 units. This year, even when we lost a little bit of the gross unit upside from the Middle East situation. That's the ultimate test always a few situations that were.
Speaker Change: What can you saw a couple of those.
Speaker Change: Good resolution Americana.
Speaker Change: Acquiring into Oman business.
Speaker Change: So we're continuing to stay close to our franchisees around the globe feel good about the overall health of the franchise base.
Speaker Change: Thank you.
Brian: Our next question comes from Brian.
Speaker Change: Brian. Please go ahead.
Brian: Good morning.
Speaker Change: Thanks for taking the question you talked about 2025 being and on algorithm year for core operating profit growth of at least 8%.
Speaker Change: And you also mentioned or hinted that unit growth, maybe a bit below the 5% algorithm because of the Turkey closings in <unk>. So.
Speaker Change: I'm just curious how are you modeling the makeup of that small gap.
Speaker Change: Do you anticipate same store sales to be a bit above the algorithm, maybe as KFC international recovers.
Speaker Change: It seems like G&A based on your commentary is not going to be a big tailwind like it was in 2024. So just any additional details on the 2025 algo that you are willing to give would be appreciated.
Speaker Change: Yeah.
Speaker Change: As far as the algorithm goes as you can imagine you can get to the outcome of the algorithm, 8% core operating profit and a number of different ways as we have varying royalty rates around the world. The Turkey closures for example aren't much of a headwind because is that entire Turkey business in aggregate was at two <unk>.
Speaker Change: $1 million sales business.
Speaker Change: The.
Speaker Change: Non material royalty income so.
Speaker Change: I think the parts of the business that we feel really good about are going to drive our growth. This year and those are our twin growth engine recovery and KFC international but I talked about just a second ago, and then Taco Bell U S.
Speaker Change: <unk> fourth quarter.
Speaker Change: Out distancing the category a lot of momentum in the business I don't want to steal her thunder from the consumer data that's coming up in just a couple of week on March 4th in New York City.
But when you take a look at those two twin growth engines, and what Theyre able to do.
Speaker Change: I think we feel quite confident in our ability to hit that 8% core operating profit number.
Speaker Change: Thank you.
Speaker Change: Next question comes from David Tarantino from Baird. David. Please go ahead.
David Tarantino: Hi, good morning.
David Tarantino: My question is on your G&A outlook longer term, Chris I was hoping maybe you could frame up.
David Tarantino: Where you think that could go as a percent of system sales.
David Tarantino: I think you mentioned bending the arc on.
David Tarantino: The impact from the tech investments so should.
David Tarantino: Should we expect that to move lower over time, or I guess any way to frame that up would be helpful.
David Tarantino: Okay.
David: Yes, Thanks, David.
David: Proud of the results that we've achieved with our resource optimization program, coupled with the progress with my young on bending the curve of the net P&L impact of those digital and technology investments and.
David: And you saw the results and how that played out in G&A. This year of course that was coupled with our incentive comp because of the middle east trends being below plan. So.
David: So as we look to this year.
David: Youre going to see as we said in the comments low single digit percentage increase.
David: I think it's in the ballpark of normal increase for a scaled.
David: Asset light franchise or and then on top of that we've got about a $35 million year over year lap on the reset of that incentive comp, but I think if we go long term, we're going to continue to get leverage on our G&A as we grow the top line and so to your point over the long haul G&A as a percent of system sales.
David: Should continue to come down.
David: We of course are going to make investments in things that drive the long term health of the business, we're doing that in AI right now organizational capabilities around supply chain. So we're always thinking about long term health, but yes in general we're going to get leverage over the long term.
David: Thank you.
Speaker Change: Our next question comes from Gregory <unk> from Guggenheim Securities Gregory. Please go ahead.
David: Yeah.
David: Hey, Thanks for the question My question is just.
David: Going back to <unk>.
David: You want Scott to do with the KFC U S business and how you envision it.
David: Him, maybe making his stamp and improvements there is this new product and new cycle kind of calendar.
David: Upgrades as it kind of a bolder rethink of the box and the format. Just just any thoughts on what he can do and what youre envisioning that sort of improvement to look like.
Speaker Change: Thanks, Gregory as far as Scott coming in and taking a leadership with the KFC brand globally.
Speaker Change: A lot of excitement Scott's worked all around the world for KFC knows the business from the inside out worked at multiple functions fantastic leader.
Speaker Change: Great resume of experiences and success at Taco Bell.
We couldnt be more excited about him assuming leadership of KFC as far as it fascinating part about all this is he started at KFC U S 20 years ago. So you see the brand in all these countries around the world and grounded in the KFC U S business going back as far as 20 years I think he's got a lot of thoughts about ways to strengthen that business, which we.
Speaker Change: We'll let him describe to you as we get further into this journey.
Speaker Change: The big issues are just more modernizing the experience for our consumers leading into digital which that work has already started you've seen what we're doing and you saw some of the press around our saucy concept.
Speaker Change: Certainly the initial results from that.
Speaker Change: Put it mildly have been very encouraging so we're going to expand that test pretty dramatically. This year to try to get a better read on how elements of that or how that solution would play for the KFC U S. Long term business. So there is a number of things working between digital and concept dating.
Speaker Change: And menu innovation that I think Scott will be perfectly positioned to help lead and help her five.
David Palmer: Thank you. Our next question comes from David Palmer Evercore ISI, David. Please go ahead.
Speaker Change: Thanks.
Speaker Change: And agree on those comments on Scott congrats to him on that promotion.
Speaker Change: Wanted to I wanted to ask one about.
Speaker Change: The technology stuff and bite I think Yum brands is a little different than that fast food franchise of our peers in the level of vertical an internal build out of <unk>.
Speaker Change: Tech capabilities.
Speaker Change: Okay.
Speaker Change: Obviously, it's going to it might be different in terms of taxes for the service.
Speaker Change: So maybe.
Speaker Change: I'm wrong, and drawing that distinction between Yamana did peer group, but it's obviously a different strategy for the company and its one thats exciting going forward could you just talk a.
Speaker Change: A bit about the arguments for and against this type of thing where the franchisees.
Speaker Change: Versus an outsource model and then what <unk> can do for you and your profit growth and 25% and long term. Thanks.
David Palmer: Yeah. Thanks for the question David.
David Palmer: It's one of the aspects of the business that we are really excited about we just issued a press release. This morning about bite. So it's a little bit of a coming out party in terms of how we talk about it.
David Palmer: My experience in this business for 35 years is when you are beholden to third party platforms on technology, it's very difficult and it creates a lot of friction in the business. So we.
David Palmer: We go back 10 years. This strategy started back then as I came into the CFO role and wanted to make sure that we control our destiny with the belief that the largest restaurant company in the world. We should have the best technology in the world for our franchise partners at the lowest possible cost.
David Palmer: And that we've been on a mission to bring that to life over the last few years, we've done that through acquisitions of World class technology, we've done that through some in house development and one of the really important aspects of this which is in the release, but I just want to highlight is the way that we have now built the tech stack that works together there are a lot of people that operate restaurants.
David Palmer: Where you might have dozens of different tech vendors that you're trying to coordinate with to get to your restaurant to work every day think about the complexities of that and trying to get those different disparate disparate platforms to all work together, it's very difficult we've experienced that firsthand by building our own tech stack.
David Palmer: In making that investment, we're giving our franchisees a much more turnkey solution that gives us more capability in terms of how we can grow sales make the experience easier for the employees in the restaurants and that is what's behind putting everything under the.
David Palmer: Umbrella and making sure it all works seamlessly together, where we now have all the components to do that it's been rolled out in parts of the world as you saw from the numbers Taco Bell U S is ahead of the rest of the world, but the rest of the world in terms of rolling it out Youre seeing the results, we're getting there, but the rest of the world is going to catch up. So we're very excited about it when Chris Turner joined Us.
David Palmer: He brought in a lot of expertise in this area too and it has been the architect along with Joe part and then prior to Joe Clay Johnson on all of this so I'll, let Chris say, a few words as well yeah. David just building on your point that this is a natural milestone on our journey keep in mind that the overall purpose of the journey is to deliver advantaged capabilities.
Speaker Change: <unk> with advantaged economics to our franchisees that will drive faster topline and bottomline growth for both the franchisees and for young that's what's driving all of this.
Speaker Change: And of course by as David said, just indicates the underlying spirit and increasingly the reality.
Speaker Change: Seamless integration between the elements in the ecosystem plus it makes it easier for us to communicate that integrated ecosystem I'll give you a couple of examples of how that speed comes alive you heard us talk about on the last call and on this call. Our AI driven marketing personalization efforts that we were able to stand up very quickly.
Speaker Change: Across all three brands in the U S. Because they all have bite digital ordering in place.
Speaker Change: Historically that would have taken us a lot longer to do than we would've done it at different paces across each of those brands because of all the integration work with third parties that would have been required and so thats, enabling speed on bringing new capabilities to market that integration between elements of the Baidu ecosystem is also why we were able to move so fast with voice AI at Taco Bell.
Speaker Change: As an example.
Speaker Change: So we will continue to drive the strategy, we still got a long way to go and deploying bite across markets around the globe, but we started with our largest brand country combinations in the U S.
Speaker Change: As we continue to get adoption.
Speaker Change: That helps us to reduce the impact on the P&L of our investments, but it was the right thing for us to do the last few years to invest ahead on behalf of our franchisees to build.
David Palmer: And acquired this ecosystem as David mentioned Taco Bell U S is the place where we have the most of the elements in place today and I think it's undeniable that it is adding to Taco Bell's top line success and the bottom line success for our franchisees.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Next question comes from Brian <unk> from Morgan Stanley Brian. Please go ahead.
Speaker Change: Okay.
Speaker Change: Yes. Thanks, Good morning, guys I wanted to ask about that topic too it is.
Speaker Change: You sort of bring under one umbrella are you, suggesting that there's a pretty significant acceleration and rollout of that this year.
Speaker Change: Have you sort of accounted for the net impact of that.
Speaker Change: And the guidance that you provided and I guess.
Speaker Change: You point to talk about U S switches.
Speaker Change: Is doing very well is there any other kind of like illustration in the other brands that you can point to for this.
Speaker Change: This is where these technologies are really driving sales or if you sort of separate out some of the markets.
Speaker Change: Have you seen that that visible impact.
Sure.
Speaker Change: Yes, so we do think that bringing together under the.
Umbrella again, reflecting the underlying integration that we're building will help us to accelerate over the long term and how we deploy it makes the deployments faster and it makes us easier to communicate to our franchise partners the benefits of the overall ecosystem.
Speaker Change: So yes, we will continue to drive deployments.
Speaker Change: At the same time, we think that those deployments will turn into acceleration in top line growth and acceleration and improvements in using economics, which supports the unit development story.
Speaker Change: KFC U S has had a skewed KC international as an example has had tremendous growth.
Speaker Change: In digital ordering in part driven by kiosks every time, we convert to digital sales, we hit higher check size, we get increase in frequency and we get productivity benefits in the restaurant.
Speaker Change: <unk> talked about KFC loyalty now in 14 markets.
Speaker Change: France as an example, we had loyalty sales increased by 40%. So elements of the overall strategy are coming to life and helping us to drive improvements in the business around the globe, but theres more to come as.
As we do that of course at the same time.
Speaker Change: We flowed this into the economics, we will need to continue to make investments in the next generation of capabilities to stay at the leading edge.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Operator, we have time for one more question.
Speaker Change: Thank you. Our final question today comes from John <unk> from JP Morgan. Please go ahead.
John: Hi, Thank you the question is on <unk>.
Speaker Change: Unique challenges and opportunities you may have a tracking retaining technologists.
Best in class, leading edge technologies, and bite with him obviously being a restaurant analyst we haven't quite list to the gold rush of people searching for AI talent and what have you, but it does certainly appear that thats ongoing and many different companies around the U S and around the world. So can you talk about you know maybe something special or unique.
Speaker Change: <unk> you can do to attract and retain the best not just kind of today, but as this technology and the demand for talent evolves. Thank you.
Speaker Change: I'm glad you asked that question John.
Speaker Change: Something that I was a little bit concerned about myself early on in this journey, but.
Speaker Change: The Great News is if you think about.
Speaker Change: Known for being one of the great developers of talent in the industry our culture.
Growth at our businesses are experiencing and we will be experiencing this is a very attractive place to work.
Speaker Change: We are seeing that.
Speaker Change: We're able to attract great talent, obviously Joe Park.
Speaker Change: Already becoming an industry icon and leading with.
Speaker Change: With technology works, we're not seeing very high turnover in technology and I can tell you that team is pumped.
Speaker Change: This announcement today is the result of a lot of their hard work.
Speaker Change: To put it together and we have people looking to come into your home all the time enjoying that technology team they've got a really exciting journey and they've got the best case scenario.
Speaker Change: I'd open space lots of funding in banking.
Speaker Change: All of our 60000, plus restaurants to roll this technology out to.
Speaker Change: And.
Speaker Change: It is one of our competitive advantages in every part of the business that we can attract the best talent in the industry and that is true in technology.
Speaker Change: I want to thank everybody for the time on the call today.
Speaker Change: As we talk to investors one of them had a great way to describe which.
Speaker Change: I'll just sort of quote we are a quality compounding investment with diversified global exposure in the more resilient less discretionary consumer space.
Speaker Change: I think that is really well put in what you saw in 2024 is exactly that we.
Speaker Change: We delivered 8% core operating profit goal despite some massive headwinds.
Speaker Change: And we did that because we have a talented leaders around the world. We have world. We have some amazing iconic brands and amazing franchise partners and that will not change. So that is our strength and as we go into 2025 as we've mentioned all of that is adding up to momentum at the end of Q4.
Speaker Change: <unk> into 2025.
Speaker Change: Lenders confidence in our twin growth engines, the ability of those growth engines, coupled with bite and some of the other things we talked about to drive.
Speaker Change: Accelerated growth I'm looking forward to seeing everybody in New York City on March 4th. So if you haven't reached out to our IR team and you want to attend please do so we'd love to see you there.
Speaker Change: Okay.
Speaker Change: This concludes today's conference call. Thank you for joining everyone. You may now disconnect your lines.
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