Q1 2025 Yum! Brands Inc Earnings Call
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Speaker Change: Hello, everyone and thank you for joining him a 2025 last.
First quarter earnings call.
Semi: My name is semi and I'll be coordinating your call today.
Semi: During the presentation you can rest of your question about crushing star followed by one on these kind of frankly pad.
Semi: If you change your mind, Please press star flipped back to sort of think keypad. Please.
Speaker Change: Please can we ask that you keep to one question per person.
Speaker Change: And I'd like to hand over to your host Mike Morris head of Investor Relations to begin.
Speaker Change: Please go ahead ma'am.
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. Please note that this call includes forward looking statements that are subject to future events and uncertainties that could cause our actual result.
Speaker Change: To differ materially from these statements all forward looking statements are made only as of the date of this call and should be considered in conjunction with the cautionary statements in our earnings release and risk factors discussed in our SEC filings. 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 systems sales and operating profit growth will exclude the impact of foreign currency for more information on our reporting calendar for each market. Please visit the financial reports section of the IR website.
Speaker Change: We're broadcasting this conference call via our website. This call is also being recorded and will be available for playback.
Speaker Change: I would like to make you aware of our second quarter earnings will be released on August 5th with the conference call on the same day now I'll turn it over to David.
Speaker Change: You, Matt and good morning, everyone.
David Gibbs: Thrilled to report that we delivered a strong first quarter with core operating profit up 8% fueled by exceptional results from our twin growth engines Taco Bell you asked in KFC International.
David Gibbs: The success evident in the performance of these two businesses reflect significant and durable competitive advantages, including the operational advantage provided by our AI powered digital platform bite by.
David Gibbs: Our ability to quickly integrate new technology that Leverages Yum 's vast proprietary datasets into our digital ecosystem, along with an ability to scale and grow with highly capable <unk> partners is an enormous competitive advantage in the global restaurant space.
Speaker Change: Earlier this quarter I announced my intention to retire next year after what will be a 37 year career with the company I reached this decision after much reflection in recognition of the great work that has been done over the last year to set up the business for long term success.
Speaker Change: With the business in a position of strength. This feels like the right time for a transition and having a year to identify a successor insurers, we can do so thoughtfully and seamlessly.
Speaker Change: I'll be working closely with the board to ensure a smooth leadership transition.
Speaker Change: That said I couldnt be more excited about the direction of the business and the momentum we're seeing across our key growth engines to start the year.
Speaker Change: Let's start with our twin growth engines.
Speaker Change: First Taco Bell U S delivered a staggering 9% increase in same store sales, an impressive achievement, especially against the backdrop of soft industry trends.
Speaker Change: Notably this quarter Taco Bell saw significant expansion in consumer penetration, reflecting our efforts to elevate our positioning and broadened our relevance, which helped us to grow traffic low single digits.
Speaker Change: <unk> digital momentum is also accelerating.
Speaker Change: <unk> has reduced system limitations empowering Taco Bell's world class advertising team to push creative boundaries, one area and marketing with enormous potential as the expansion of AI, driven decisioning to enable personalized experiences for consumers.
Speaker Change: For example, we are testing the use of these tools to enable us to deliver one to one communication to our consumers recall, what they talk about consumer day. The team share do they expect to generate over $225000 in additional per store sales by 2030 or an approximate 10% increase the <unk> through expanded digital.
Speaker Change: Donald and loyalty membership what truly sets Taco Bell U S. Apart. However is its unique ability to deliver compelling value, while improving store level margins a rare combination in the industry. This winning combo helped to drive an astounding, 16% increase in operating profit for the quarter with such a stark contrast in performance versus the.
Speaker Change: The industry, it's no wonder Taco Bell was once again named the number one franchise by entrepreneur magazine's franchise 500 for the fifth consecutive year.
Speaker Change: This honor reflects Taco Bell's brand strength loyal consumer base and the confidence of our franchise partners are other twin growth engine KFC International also earned top honors for the second consecutive year as entrepreneur magazine's fastest growing international franchise.
Speaker Change: Additionally, with 524 gross openings across 50, plus countries KFC International outpaced its first quarter development plan KFC International posted accelerating same store sales and strong gains in brand perception, driven by bold investments in value crave worthy new offerings and distinctive media and innovative partnership.
Speaker Change: Globally, KFC international achieved low single digit traffic growth, including in markets like China, which delivered its ninth consecutive quarter of traffic growth.
Speaker Change: This quarter also highlighted strong progress in the bold initiatives designed to meet the next generation of consumers and add new layers of growth.
Speaker Change: At Taco Bell, our first live Mas cafe, especially beverage concept featuring drinks like Chillers Agua refresh because coffees and more alongside the classic menu launched in December and is off to a phenomenal start.
Speaker Change: Test location has experienced a 40% sales lift with guests purchasing over 300 specialty beverages daily on average.
Speaker Change: Energized by the strong performance, we are planning a rapid expansion. This year look for an exciting update on live Mas Cafe from Taco Bell in the coming weeks.
Speaker Change: We piloted quenched by KFC in 38 restaurants in the U K, the first KFC market to experience our innovative entry into the fast growing specialty beverage category.
Speaker Change: Ah globally led initiative born from insights by Collider lab strategy branding and innovation consultancy.
Speaker Change: <unk> features 10 hand crafted drinks across four specialty drink categories, Lemonade refreshes shakes and iced coffees.
Speaker Change: Early results have been promising with participating restaurants seeing growth in both transactions and beverage sales outperforming previous specialty drink offers building on this momentum we have expanded the pilot to Australia, where results are already exceeding forecast in driving incremental traffic plans.
Speaker Change: Plans are in motion to scale to additional markets in the coming months.
Speaker Change: In the U S. Our bold new concept saucy is exceeding expectations sales or more than double the U S system average, placing this saucy location among the top 15 locations in the KFC U S system.
Speaker Change: We're planning a phased expansion to at least 20 stores targeting sites will allow us to unlock marketing synergies through geographic proximity.
Speaker Change: I'll now discuss the strategic drivers that underlying 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 first quarter results balance sheet position and capital strategy, followed by our outlook for the balance of 2025.
Chris Turner: Starting with our loved pillar and our brands at champion consumer experiences.
Speaker Change: The KFC division, which accounts for 51% of our divisional operating profit grew system sales by 5% driven by 6% unit growth and 2% same store sales growth.
Speaker Change: Internationally, we reset core value across several markets, while modernizing the brand through menu upgrades and breakthrough innovation, including the double down zinger in the UK crispy non in France, and Zynga Nachos in Australia.
Speaker Change: Sustained investment in the value layer improved our net value score by seven points versus our largest competitor.
Speaker Change: Relevant partnerships and new media strategies also drove a two point gain in brand perception among younger consumers globally.
Speaker Change: A number of markets experienced meaningful momentum, including Canada, where same store sales accelerated to 6%, reflecting strong consumer engagement following a collaboration with Mike's hasani.
Speaker Change: Korea delivered 13% same store sales growth and double digit transaction gains fueled by expanded lunch in snacking options and higher delivery sales.
Speaker Change: Africa recorded 8% same store sales growth supported by improving consumer sentiment and effective value led promotions U.
Speaker Change: U S performance was driven by a double value promotion five dollar bowls, and the $10 Tuesday bucket, leading to low single digit transaction growth.
Speaker Change: Taco Bell, which accounts for 37% of our divisional operating profit delivered an exceptional quarter with system sales up 11% fueled by impressive same store sales growth of 9% topline performance was driven by low single digit traffic increases across all income cohorts.
Speaker Change: The brand generated strong buzz with the success of its crispy chicken Nuggets milk bar, Churros cheesy, dipping burritos, and steak and queso crunch wrap sliders with $5 $7 $9 Lux boxes offered compelling value with a $9 looks cravings box featuring rotating limited time inova.
Speaker Change: Talk about also expanded category entry points with bold offerings like <unk> de cantina chicken and steak Nacho fries.
Speaker Change: We've now seen multiple quarters of rapid adoption in digital with mix, reaching 42% and sales growing 37% year over year.
Speaker Change: In March Taco Bell hosted both its consumer day and live Mas live events spotlighting, the brand's bold innovation and powerful fan connection and consumer day the team unveiled the ambitious global.
Speaker Change: I N G ring, the bell strategy outlining a compelling long term vision to drive sales improve margins expand its footprint and accelerate digital growth.
Speaker Change: Live Mas live brought together top social media Influencers and Diehard Taco Bell fans for an immersive celebration of the brand's bold this new menu innovations and experiences.
Speaker Change: Event Buzz with excitement blending exclusive tastings live entertainment and behind the scenes access to what's next for Taco Bell, including exclusive limited edition Merch collaboration and awards for its most loyal supportive pizza.
Speaker Change: Pizza hut, which represents 12% of our divisional operating profit had system sales declined 3% in Q1. The decline in system sales was primarily attributable to disappointing same store sales performance in the U S.
Speaker Change: Excluding the U S same store sales were positive for the quarter with meaningful improvements across Asia, Europe, and the middle East in.
Speaker Change: In the U S sales started soft in January and improved through February and March with the last few weeks showing sequential gains in revenue and transaction growth.
Speaker Change: The U S business faced an intense competitive environment to drive momentum Pizza U S leaned into group occasions, with its stuffed crust and wings promotion and ultimate HUD bundle, both of which increased check and attracted new users.
Speaker Change: During the Super Bowl the ultimate Hot bundled helped deliver pizza hut's highest ever digital sales per restaurant.
Speaker Change: Looking ahead Pizza Hut U S will focus on its three D strategy.
Speaker Change: Stinker of offerings for group occasions.
Speaker Change: <unk> everyday value through platforms, such as the $7 deal lovers, and disruptive innovation to gain share in a competitive market.
Speaker Change: Habit Burger and Grill system sales growth was flat this quarter.
Speaker Change: Tempura avocado wedge has launched this quarter and became one of the brand's highest performing side <unk> in recent history. This quarter habit shifted its marketing to focus on brand fame, including an amplified social media presence and the Super Bowl placement that drove 10 million total impressions.
Speaker Change: Looking ahead habit is in the early stages of expanding local restaurant marketing through on the ground field teams strong same store sales growth in Florida, Washington, and in New Jersey reinforce our confidence in the brand's long term growth potential and the impact of market specific engagement.
Speaker Change: Moving to our connected pillar, we are advancing our ability to serve every consumer everywhere at any time.
Speaker Change: Earlier this year, we announced <unk>.
Speaker Change: Our proprietary suite of AI powered software as a service products designed to deliver integrated seamless technology across our restaurants.
Speaker Change: This strategic investment is delivering results with digital sales up 12% year over year as mentioned previously Pizza U S achieved its highest Super Bowl sales ever with every digital order process through bite commerce, marking a major milestone in our digital transformation. This success highlights the scalability and reliability of our Pla.
Speaker Change: That form we're also seeing stronger consumer engagement, including a $4 5 million quarter over quarter increase in KFC loyalty members at <unk>.
Speaker Change: Oh Bell active loyalty membership grew 45% year over year fueled by unique experiences like build your own luck stocked in the spring break fan favorite boat.
Speaker Change: Looking ahead, we're excited about our new partnership with Nvidia, which will accelerate the development of innovative AI technologies across Yum worldwide, Chris will share more about this shortly.
Speaker Change: A cornerstone of Yum brands is our unrivaled culture and talent and I would like to congratulate two executives who are taking on larger leadership roles. Meg Ferron, who was previously GM of KFC UK and Ireland was promoted to the position of President of Taco Bell North America effective February 10th and Catherine Tan Gillespie, formerly the CMO and.
Speaker Change: CDO for KFC U S became president of KFC U S effective April one.
Speaker Change: I am confident Meg and Catherine will help lead the storied brands to even greater success.
Speaker Change: Speaking of the talent and the Yum system, we recently witnessed the Companys collaborative culture in action with nearly 1000 people attended our global franchise Convention in Australia. The four day summit was attended by World class franchisees from all over the globe with some traveling more than 10000 miles to attend.
Speaker Change: The power of each brand in young collectively was on display demonstrating the advantages of our system hasnt driving profitable growth for franchisees and alike.
Speaker Change: This strong sense of unity and shared purpose among our global franchise partners. It's also reflected in the way the company integrates responsibility and community impact into its core values. Those efforts were recognized by the conference Board, which presented the company with its corporate responsibility award on April 23.
Speaker Change: The award celebrates organizations that have fully embedded responsible business practices into their core strategies driving business efficiencies and creating long term value.
Speaker Change: To wrap up Im thrilled with our first quarter results, which clearly demonstrate the strength of the Taco Bell brand and the momentum in KFC.
Speaker Change: Our recent investments in KFC to enhance our value proposition modernize our brand and update our menu are delivering sustainable improvements in top line trends I left our global franchise convention, knowing Yum is simply one of the best positioned <unk> with an unbelievable international franchise base that is more than ever committed to grow their portfolios and capitalize.
Speaker Change: On the strong financial returns offered by our brands for investors and as a long term shareholder myself. The bold initiatives, we're taking that will give us a leading edge in oil markets as an aspect of our story that can't be ignored and I look forward to sharing the continued progress in that pursuit and unlocking the multiple unique levers for profitable growth.
Chris Turner: With that Chris over to you.
Chris Turner: Thank you David and good morning, everyone today, I'll discuss our first quarter financial results, our balance sheet and capital strategy and our outlook for 2025 as David mentioned, we are off to a good start in 2025 with momentum in our topline impressive growth in digital mix and strong profit flow through to the bottom line.
Chris Turner: First quarter system sales grew 5% driven by 3% same store sales growth and 3% unit growth ex.
Chris Turner: Ex special G&A expenses were $274 million up 3% year over year reported G&A was $302 million and includes $24 million in special expenses related to our resource optimization program that is unlocking efficiency in the organization along with investments related.
Chris Turner: So our brand headquarters consolidation.
Chris Turner: <unk> core operating profit was $586 million up 8% highlighting the strength of our global multi brand portfolio.
Chris Turner: Delivering 8% core operating profit is a strong result, and a complex consumer environment driven by the contributions of our twin growth engines.
Chris Turner: Taco Bell delivered 16% core operating profit growth led by double digit system sales growth and strong profit flow through on flat G&A.
Chris Turner: <unk> grew operating profit, 9% driven by 5% system sales growth and lower G&A. A good example of the impact of the strategic actions, we've taken to remove duplicative work across the system at.
Chris Turner: At Pizza Hut first quarter operating profit growth was negatively impacted by seven percentage points or approximately $6 million due to expenses associated with transitioning stores from four franchise entities to new ownership and by three percentage points due to timing of technology spending within franchise advertising and other services expenses.
Chris Turner: Yeah.
Chris Turner: One important driver of <unk> overall performance as our store level margin performance, particularly for our largest equity estate Taco Bell Taco Bell's magic Formula allows it to deliver category leading value while also maintaining industry, leading margins the expansion of Taco Bell's Lux cravings box lineup at $5.
Chris Turner: $7 and $9 price points delivered exceptional value across income levels with the $5 lockbox, becoming a massive win with low income consumers.
Chris Turner: As we announced at <unk> live we expect Taco Bell U S full year margins to come in at 24% to 25%.
Chris Turner: That habit restaurant level margin performance was commendable with an impressive 310 basis point improvement year over year, despite meaningful labor headwinds in California.
Chris Turner: Another factor supporting store level margins across all brands is the acceleration in digital sales at Taco Bell digital mix reached 42% while have it expanded digital mix 10 points driven by kiosk sales increasing to 17% of mix up from 10% last year.
Chris Turner: First quarter ex special EPS was $1 30.
Chris Turner: Reported EPS was <unk> 90, including an unfavorable tax impact of 33.
Chris Turner: Relating to a tax reserve in a foreign jurisdiction Phi.
Chris Turner: Finally in general our business has minimal supply chain related tariff risk as most markets source within their country or with countries, where there is not currently tariff risks as a result, we expect tariffs to have an immaterial impact on our system wide supply chain. Our global scale offers our system advantages to drive supply chain.
Chris Turner: Efficiencies and our expert teams are partnering with suppliers and franchisees on the limited items, where there is potential impact.
Chris Turner: Now onto development, while Q1 development reflects previously signaled and planned closures, including in Turkey and across Pizza Hut unit development in the first quarter was in line with our forecast and we are on track to deliver 5% unit growth excluding Turkey. This year.
Chris Turner: Our development engine remains healthy with 751, new stores opened in Q1 roughly in line with Q1 last year across 68 countries.
Chris Turner: <unk> led the way with 528 openings the second highest for a first quarter in their history, driven by growth in China, India, Japan and Thailand.
Chris Turner: Globally KFC offers highly attractive paybacks with the global average below five years, and even stronger paybacks in markets like China, Thailand, and the Middle East Pizza.
Chris Turner: Pizza Hut delivered solid development with 198, new units across 34 markets, while Taco Bell added 24 gross units Taco Bell's net unit development in Q1 reflects planned phasing closures in Malaysia, and the closure of remaining restaurants in China's tier two cities as announced at Taco Bell.
Chris Turner: Consumer day in March the team is on track to deliver 100 international net new units this year with growth strongest in the U K, Spain and India.
Chris Turner: Lastly, habit continues to improve at store level paybacks and is exploring opportunities to capitalize on lower cost conversions from fast casual brands closing stores in its core markets. As a reminder, the termination of our franchise agreement in Turkey resulted in 537 closures 283, KFC locations and two <unk>.
Chris Turner: Hundred 50 for Pizza hut locations as shared on our last call. The Pizza hut team also accelerated plant closures or engaged with franchise partners to strengthen our system specifically in markets such as Chile, The U K and the U S. Notably in the U S and U K, we facilitated a transfer.
Chris Turner: <unk> of more than 200 stores to more capable franchise partners.
Chris Turner: In Latin America recently, the Serrano group signed a binding agreement for a majority ownership in a joint venture with IMC, our KFC franchisee in Brazil.
Chris Turner: The Serrano group is one of our World Class <unk> partners, who started with their first KFC store in Ecuador, and now manages nearly 800 stores across six countries in Latin America.
Chris Turner: Over the past three years, they've opened 183, new stores leveraging a sophisticated supply chain that includes in house commentaries and chicken processing facilities.
Chris Turner: We believe this strategic deal paves, the way for accelerated unit growth and a large and underpenetrated market.
Chris Turner: As David mentioned earlier this month, we hosted our global franchise Convention in Sydney, Australia, bringing together franchisees from around the world the energy and enthusiasm were unmistakable over several days, we aligned on brand strategy covering everything from World class development capabilities to cutting edge marketing analytics.
While showcasing the power of our global network and the competitive advantage that comes from sharing best practices across markets. We also celebrated franchise partners, who delivered outstanding results underscoring the strength of our system the chance to speak with so many of our franchisees made it clear that sentiment and the Yum system.
Chris Turner: Is strong with many eager to grow their portfolios and helped to reinforce one of the arms greatest advantages a network of strong corporate minded franchise partners, who see opportunity and are willing to invest even in times of macro volatility.
Chris Turner: 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.
Chris Turner: Bye bye with emphasis on both foundational and AI driven capabilities were showcased extensively at the franchise convention and our D&C leaders engaged in meaningful one on one conversations with our largest and most strategic franchisees deepening relationships and reinforcing our shared vision for growth.
Chris Turner: We held in depth product demonstrations for our bite platform and highlighted some of the unique innovations only possible with an integrated technology stack as a result of this we have overwhelming interest from our franchisees and adopting by in their restaurants, completing the rollout of bite in our U S brands remains a top priority in 2025.
Chris Turner: But given the level of interest we're beginning to work with our international franchisees on how we can scale bite into their markets in an accelerated fashion over the coming years. We are also thrilled to announce our partnership with Nvidia This quarter, a milestone that enables us to accelerate the development and deployment of cutting edge AI technology. So.
Chris Turner: <unk> across our system.
Chris Turner: We're focusing on three key areas of the business.
Chris Turner: This automated drive through and call center operations to deliver more natural and seamless ordering experiences for our consumers.
Chris Turner: Computer vision technology to enhance back of house and drive thru efficiency through real time analytics.
Chris Turner: And advanced restaurant intelligence to equip general managers with personalized action plans that drive operational excellence.
Chris Turner: These innovations will enhance operational performance support our teams and elevate the guest experience across our brands. We believe AI will become the new operating system of restaurants, and our partnership with Nvidia positioned at the forefront of that Revolution.
Chris Turner: Now, let me highlight the significant strides across our easy experiences easy operations and easy insights pillars <unk>.
Chris Turner: Starting with our easy experience this pillar, where we prioritize delivering frictionless consumer experiences this quarter Pizza hut U K powered by the launch of our bite Commerce platform achieved impressive digital momentum with a 67% year over year increase in mobile app transactions in 2020.
Chris Turner: Five we're set to scale by commerce to four new Pizza Hut International markets.
Chris Turner: And introduced AI powered personalization to drive higher average order value and accelerate transaction growth KFC is also making strong progress in this area with kiosks now representing its largest digital sales channel accounting for nearly 50% of all digital sales, excluding China, highlighting the growing consumer preference.
Chris Turner: For this convenient ordering option.
Chris Turner: Turning to our easy operations pillar, where we're focused on optimizing operations to support and empower our team members in Q1, we expanded bite restaurant coach to an additional 5000 stores the bite coach's digital routine tools and training have enabled more proactive consistent and scalable performance management across our <unk>.
Chris Turner: Restaurants at.
Chris Turner: At Taco Bell U S. We on boarded an additional 500 restaurants to bytes backup house platform, bringing the total stores live to 3000. This continued momentum reflects strong operator engagement and meaningful progress toward building a fully connected kitchen ecosystem that drives efficiency and data informed.
Chris Turner: Decision, making.
Chris Turner: Lastly, under our easy insights pillar, we're leveraging data to drive smarter more informed decision, making our U S brands are harnessing our powerful data engine and first of its kind cross brand consumer data platform to deliver personalized marketing campaigns, which for our first test through the email channel.
Chris Turner: Delivered two times the improvement in consumer engagement compared to traditional E mail marketing.
Chris Turner: Since the end of last year, we've expanded AI driven marketing use cases across our brands further embedding intelligence into how we engage and convert consumers. These advancements are driving smarter targeting increased efficiency and stronger returns on our digital marketing investments.
Chris Turner: Next I'll provide an update on our balance sheet and liquidity position net capital expenditures for the quarter totaled $56 million, reflecting $15 million and refranchising proceeds and $71 million in gross capital expenditures throughout the quarter, we repurchased approximately 1.5 dollars 6 million.
Chris Turner: <unk> shares for a total of $228 million, our net leverage ratio ended the quarter at three nine times.
Chris Turner: Subsequent to quarter end, we took advantage of a favorable window of interest rate volatility to enter into a new three year interest rate hedge reducing our exposure to interest rate risk on $1 5 billion of variable rate debt for which hedges had recently expired.
Chris Turner: As a result, we expect $10 million in interest rate savings versus our planned interest expense for 2025, which had contemplated higher interest rates on that debt.
Chris Turner: As I shared on the last call subject to market conditions, we expect to maintain our net leverage ratio at approximately four times over the medium term by issuing incremental debt subject to market conditions as our business grows.
Chris Turner: 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 now.
Chris Turner: Now, let me share our latest outlook for the full year 2025 is shaping up to be a complex year to navigate given the economic uncertainty and geopolitical challenges. However, we believe this is another year that will demonstrate the resilience of our business model in the U S. Taco Bell, which represents approximately 80% of our U.
Speaker Change: <unk> profit is incredibly well positioned to navigate this environment as the value leader with an opportunity to take share from higher priced competitors.
Speaker Change: Robust innovation pipeline, including the return of Crispy chicken Nuggets in Q2 reinforces our view.
Internationally, we are seeing that KFC, which represents 85% of our international profits is recovering from the middle east conflict and gaining momentum around the world more broadly the strength of our diversified portfolio of four brands and more than 155 countries combined with our well capitalized three C part.
Speaker Change: <unk> allows us to manage country specific challenges and continue investing through uncertainty given these advantages and after a strong Q1 performance we remain confident in our plan to deliver 8% core operating profit growth this year.
Speaker Change: Excluding the lap of the benefit of the 50 <unk> week in 2024 as for the shape of the profit growth. This year in Q2, we expect to experience lower profit growth in part due to onetime expenses such as our global franchise convention.
Speaker Change: As a result, we expect second half operating profit growth to be higher than the first half landing us on algorithm for the full year.
Speaker Change: Finally on FX with the U S dollars recent move lower at current spot rates, we expect a $10 million tailwind to GAAP operating profit for the remainder of the year.
Speaker Change: To close while the near term macro environment remains uncertain. Our leaders that are focused on the long term opportunity the vast underpenetrated white space around the globe, we're making significant progress toward becoming a more efficient adaptable and data driven organization and in a challenging consumer environment, we remain.
Speaker Change: Energized by the momentum behind bold initiatives like live Mas Cafe, <unk> and quench each offering distinct avenues to grow our topline and expand market share.
Speaker Change: Our 98% franchise structure global footprint, and consistent cash generation give us flexibility and confidence no matter the near term noise.
Speaker Change: With that operator, we are ready to take any questions.
Speaker Change: Thank you very much to ask a question. Please press star followed by one on your side of thing keep at night.
Speaker Change: If you change your mind, Please press star followed by two.
Speaker Change: Please limit it to one question per person.
Speaker Change: To answer your question business your devices on mute locally.
Brian Bittner: Our first question comes from Brian Bittner from Oppenheimer.
Speaker Change: Your line is open. Please go ahead.
Speaker Change: Thank you and good morning my.
Speaker Change: My question is on KFC International It's obviously, a very important driver of the <unk> model and it was very encouraging to see the same store sales for KFC international accelerate in the first quarter did that 3% level.
Speaker Change: We're sensing some worry investors out there that perhaps American brands like KFC could be seen softness outside the U S from from geopolitical dynamics, although it's really hard to find evidence of that happening. So I would love for you to address your take on this and how youre thinking about the sustainability of <unk>.
Speaker Change: <unk> improved trends moving forward. Thank you.
Brian Bittner: Thanks for your question, Brian Yes, we agree we are encouraged by what we're seeing out of KFC International you mentioned, the 3% same store sales growth actually there was an issue with Ramadan timing negatively impacted the quarter and if you backed out China. Our sales internationally were up 5% same store sales so.
Brian Bittner: And that growth is actually quite widespread if you look at the table in our earnings release, you can see system sales was up in all 10 markets that we measure.
Brian Bittner: So we are sort of putting the issues from the middle east behind us and most of the world and we feel good about the recovery there and we have not seen.
Brian Bittner: We obviously monitor this and any other kind of consumer change behavior, we have not seen any anti American sentiment impacting our stores. One thing I will say is I think the team is doing an amazing job navigating this environment. They are leaning in a little bit more on value of the Canadian market was up strongly this quarter leaning in on the <unk>.
Brian Bittner: Dollar price point Korea did a buy one get one free I mentioned some of the innovation that we're doing around the world.
Brian Bittner: We launched the double down Zinger Burger <unk>.
Brian Bittner: <unk> share from competitors in France, we had a really creative offering I think I mentioned in the prepared remarks, the crispy non burger that drove really strong sales growth out distancing the market and taking share from others. So there's a lot to like about the recovery for KFC globally, it's widespread and sets us up for a good year on KFC.
Brian Bittner: Yeah.
Brian Bittner: Yeah.
Brian Bittner: Okay.
Brian Bittner: Our next question comes from David Tarantino from Baird.
Speaker Change: Your line is open. Please go ahead.
David Tarantino: Hi, good morning.
Speaker Change: Chris I wanted to ask about the full year guidance.
Speaker Change: And I appreciate your comments on your confidence in achieving the 8% operating income growth, but I wanted to ask.
Related to the back weighted nature of that.
Speaker Change: Your degree of confidence in the second half acceleration and the profit growth.
Speaker Change: And what what gives you that confidence.
Speaker Change: In light of.
Speaker Change: Maybe an uncertain macro backdrop.
Speaker Change: Yes, Hey, thanks bunch Dave.
David Gibbs: David If we look at the full year, we're off to a good start in Q1, 8% core operating profit in Q1, despite the impact of the strategic moves that we mentioned at Pizza hut.
David Gibbs: I think about the rest of the year company store margins were on plan in Q1, but Q1 is seasonally low so if we look at the full year.
David Gibbs: We expect to be on plan in terms of our company store profit margins full year, we mentioned on top of about 24% 25%.
Speaker Change: Pizza Hut, if you look at the quarter those strategic moves.
Speaker Change: And the timing that we mentioned it was about an $8 million impact so big for pizza small in the Grand scheme of things.
Speaker Change: And if we look at the back part of the year on Pizza Hut, we've got some favorable profit lapse.
Matt: Thanks, Matt.
Matt: We look at our full year plan right now for Pizza Hut, we expect to get to roughly flat profit on the full year.
Matt: Obviously, we're working to drive sales every day.
Matt: Pleased with Q1, but our plan is it dependent on sequential acceleration on same store sales in the us throughout the year.
Matt: We've got plenty of levers to drive the full year profit, we're confident in the 8%.
Speaker Change: Our next question comes from Dennis Geiger UBS.
Speaker Change: Your line is open. Please go ahead great.
Speaker Change: Great. Thanks, guys I wanted to ask another on.
Speaker Change: In the broader international or or sort of impacts on the global macro environment, but specifically on store development across the portfolio.
Speaker Change: Could you talk a little bit more about that unit development outlook for the year.
Speaker Change: Thinking sort of what sounds like a strong trajectory excluding the planned closures. It sounds like franchisees are in a good spot returns are encouraging but any additional commentary on sort of the confidence in the development outlook, even if the macro.
Speaker Change: Have a downturn your competence there to kind of continue to hit hit numbers. Thank you very much.
Speaker Change: Yes, we're confident in the development plan as we said we were just in Australia with our global franchise convention. The mood was incredibly upbeat. Despite all the complexities around the globe our franchisees are confident in the future.
Speaker Change: Our brands.
Speaker Change: Of course, as you know our franchisees are larger and more sophisticated and well capitalized on average than franchisees and other systems. So they think long term and they invest through near term noise.
Speaker Change: If you look at the year gross openings in Q1 for the company were higher than in 2023. So we're off to a good start on gross really what we had planned closures in Turkey, and the strategic closures and Pizza hut of course, those closures were significantly lower volume than our system averages.
Speaker Change: Economic impact wasn't significant on those.
Speaker Change: KFC second highest Q1 ever from a gross build standpoint, we opened in 53 countries in Q1 versus <unk> 43 countries last year paybacks remains strong in KFC.
Speaker Change: If you go to Pizza Hut, obviously Q1 was lower.
Speaker Change: Lower than normal given all the factors that we just described but if we look at the next three quarters for the remainder of the year. We expect net development will be higher year over year. So on a on a full year basis, we feel good about the development plan, we feel good about the confidence of our franchisees.
Speaker Change: Yes.
Speaker Change: China's call. This morning, they reiterated their confidence in their development plan in their guidance, which obviously is a big part of our development plan.
Speaker Change: Our next question comes from David Palmer from Evercore ISI.
Speaker Change: Your line is open. Please go ahead.
Speaker Change: Thanks.
David Tarantino: Yes, David Congratulations on what will be I, just choose checking this out on your bio that youre going to have a 37 year career at Yum and yet somehow you still seem pretty young so good job well done on that.
Speaker Change: Pretty incredible.
Speaker Change: At Taco Bell I wanted to ask you Chris.
Speaker Change: On by feels like early days in a good way for not.
Speaker Change: Just.
Speaker Change: Talk about but for <unk>.
Speaker Change: In enterprise and for your franchisees and other systems.
Speaker Change: And what I Wonder is right now maybe this is a period of investment in that Youre going to be training models like your voice AI for example in the drive thru, it's going to be getting better so maybe the benefits today.
Speaker Change: Going to be a fraction of what they'll be attacked those those models get stronger and more robust and the fidelity is greater and you get to <unk>.
Speaker Change: 90% fulfillment.
Speaker Change: Those things could happen more rapidly than we think maybe one or two years and you have something that even becomes an external revenue source for yum as youre sharing these tools and becomes an sort of an AWS for you guys.
Speaker Change: So maybe a comment on that and then separately on saucy revisited that concept.
Speaker Change: Dan when we were at the ICR.
Speaker Change: And it's a great concept I wonder what youre going to do with that.
Speaker Change: That was a converted KFC did that kind of looks expensive.
Speaker Change: Do you.
Speaker Change: It's doing big volume, so maybe it becomes a growth concept in of itself, but maybe you can find some ways to sprinkle a little saucy onto your existing kfc's somewhat more of an approachable price price point. Thanks.
Speaker Change: Yeah, Hey, Thanks, David two good questions I'll start on them by the $1 billion, we have invested in our digital technology strategy over the last several years is one of the best investments that Jan has ever made.
Speaker Change: You're seeing it come to life, we shared a lot of the.
Speaker Change: The data and insights from the impact on the Taco Bell system at <unk> live event. The consumer day event, just a few weeks back the data is indisputable, where we see.
Speaker Change: Helping to drive digital mix expansion, you see faster topline growth and faster bottom line growth for our franchisees.
Speaker Change: And we're really just getting started and we've made a lot of progress in the U S. But at our global franchise Convention, Joe Park, and the team did an incredible job, bringing back to life and we had a ton of interest from franchisees. There. So we're looking forward to how we grow by outside of the U S and that's R. R.
Our priority is to continue to deliver for our system as you say as we incorporate AI.
Speaker Change: The acceleration should continue in terms of the impact that we can deliver.
Speaker Change: We won't rule out some day that we may be able to serve restaurants beyond the yum system, but our priority right now is serving our franchisees in the system if I go to sources.
Speaker Change: You said, it's a great experience.
Speaker Change: Great start with the concept saucy by KFC down in that one store in Orlando.
Speaker Change: Four months in.
Speaker Change: Lots of learnings, but we're very pleased with the start as we said on the call one of the highest performing stores in the KFC system in the U S. We are looking at multiple avenues to expand.
Speaker Change: Of course, we always over the long term grow with our franchise partners. So you could expect in the long term franchise stores and company stores, but we're being very methodical, making sure we pick the very best partners to work with and we want to scale. It while preserving the unique identity that comes to life. When you are there and that restaurants, plus we've got.
Speaker Change: Being able to supply chain and real estate that goes along with it so more to come.
Speaker Change: As we go forward on sources.
Speaker Change: Our next question comes from Danilo Qalqiliya Bernstein.
Speaker Change: Your line is open. Please go ahead.
Speaker Change: Great. Thank you very much.
Speaker Change: I wanted to ask a question.
Speaker Change: Beyond the dual granted the dual engine of growth.
Speaker Change: It's very clear the diesel engine of growth is working exceptionally well.
Speaker Change: But for an acceleration further can you might need to lean more into the remaining 20% of your operating profit so the U S and pizza hut.
Speaker Change: This might be offering outside returns given that there is a relatively compressed expectation from investor base. So can you spend more on the <unk> strategy and by when do you expect to see same store sales and traffic to be more sustainably profitable sorry positive. Thank you.
Speaker Change: Yes, great question.
Speaker Change: Obviously, the twin growth engines are what powers, our long term algorithm, but that doesn't mean that we aren't incredibly excited update other 17% and what it can do to further accelerate our growth.
Speaker Change: Taco Bell International in particular.
Speaker Change: <unk> is really starting to get a lot of traction in one of the things that came out of this global franchise Convention was just massive enthusiasm from our existing franchise base at Pizza hut, KFC and starting to get more involved with Taco Bell as we're seeing more success around the world.
Speaker Change: We've talked about that we'll get to 100 net new units this year, but their plans are much more aggressive as we go forward and that will start to become a meaningful contributor to our growth model in the U S KFC International.
Speaker Change: The U S actually had positive transaction growth this quarter.
Speaker Change: I think we have Katherine sand coming in to lead that business some.
Speaker Change: Some of the work that's being done on the traditional business as well as the opportunity to leverage <unk> as David Palmer had noted.
Speaker Change: I think there's lots of reasons to be excited about the future of KFC U S. And then finally at Pizza Hut Pizza.
Speaker Change: A tough category right now.
<unk> in the U S and certainly the pizza category with everybody reported negative sales.
Speaker Change: Is pressured, but we've obviously seen pizza hut.
Speaker Change: <unk> growth in years past when they do when they get the thing.
Speaker Change: The offerings right for consumers like with mills.
Speaker Change: And value I know Carl Laurino, who just assume that the leadership role of Pizza Hut U S last year was around this time.
Speaker Change: <unk> plans to grow the brand and accelerate.
Speaker Change: Spansion in the U S and internationally island and the team.
Speaker Change: As we've commented we've got pretty good positive positive same store sales growth last quarter internationally and lots of reasons to be excited about the recovery thats occurring there coming out of the middle East. So we don't we manage each and every business that we have as.
Speaker Change: As a growth business invested in.
Speaker Change: Robust plans for their growth going forward.
Speaker Change: We talked about the twin growth engines, obviously, because thats the majority.
Speaker Change: If it comes to that.
Speaker Change: Yeah.
Speaker Change: Our next question comes from John <unk> JP Morgan.
Speaker Change: Your line is open. Please go ahead.
Speaker Change: Hi, Thank you.
Speaker Change: <unk> is on the <unk> partnership.
Speaker Change: What young expects to accomplish I guess, both in the short term and the medium term and if you can help educate us of what is exclusive or proprietary or unique between Nvidia and <unk> that you will be able to take advantage of that presumably many in Europe and many others in your industry that you compete again.
Speaker Change: It will not be able to.
Speaker Change: Yeah. Thanks for the question John Obviously, we're incredibly excited about the partnership with Nvidia.
Speaker Change: This has been over a year in the making I would say we're seeing the first meeting with their team. When we started to discuss this and can see their light up when they started to realize the capabilities that we had.
Speaker Change: That we built with thousands of people into our Tech Department.
Speaker Change: In terms of what we're working on obviously a lot of that is going to be proprietary what we've said publicly is we're working with them on voice AI, we're working with them on vision and we're working with them.
Speaker Change: Analytics.
Speaker Change: But we have 40 different AI initiatives.
Speaker Change: Are staffed and distinct projects right now so there's a world of opportunity for us to work together and I think they recognize.
Speaker Change: But in the restaurant space, there's nobody that has built the capability that we have we're the perfect partner for then the relationship is off to a fantastic start.
Speaker Change: And as I think somebody said earlier, we really just scratched the surface on what we can do with the tech that we built it's been $1 billion investment.
Speaker Change: We built this Ferrari now as well.
Speaker Change: Just starting to get it out on the track and hit the gas. So I'm excited about the impact that we can have on all parts of our business across the customer's employees franchisees and their profitability as it just says it's a virtuous cycle the bit of our tech gets the more we can do with it.
Speaker Change: Yeah.
Speaker Change: We have time for one more question.
Speaker Change: Our final question comes from Andrew Charles from D. D TD Cowen your.
Speaker Change: Your line is open. Please go ahead.
Andrew Charles: Great. Thank you and just to Echo David Congrats on a storied career at Yum.
Speaker Change: Very encouraging talk about performance in the first quarter and a very tough U S domestic backdrop I'm.
Speaker Change: I'm curious is it realistic to expect that Taco Bell is up 10% performance on a two year basis.
Speaker Change: Can persist throughout 2025.
Andrew Charles: Yeah first of all Andrew Thank you for the comments.
Chris Turner: My career and thank you for acknowledging what is absolutely stand out quarter for Taco Bell plus nine when we're seeing everybody else reporting negative numbers and we know the industry is.
Speaker Change: I'll add to negative.
Chris Turner: And.
Chris Turner: To the point about well the trends continue obviously.
Chris Turner: I'm not going to give very specific guidance for the full year on exactly where Taco Bell sales are going to end because we're constantly navigating changing changing environment, but I will say in terms of April trends and we have seen a general continuation of what we saw in Q1 I know this is a tough operating environment for everybody else in the industry.
Chris Turner: Just probably an environment that favors Taco Bell and Thats, what youre seeing there are firing on all cylinders, we talked about in the prepared remarks, how their penetration is going up so we're bringing more customers into the brand that's with things like cantina chicken, which launched a year ago and is bringing light and lapsed users into the brand.
The value that we're offering really stands out in this environment nobody else has the $5 seven to $9 box offerings, we have coupled with the cravings value menu and then of course, the hallmark of Taco Bell is their innovation.
Chris Turner: Things like Crunch wrapped sliders, we can go have an event like live must live.
Chris Turner: Unveil our innovation for the entire year and not have to worry about anybody copying it theres nobody sells anything close to what we sell.
Speaker Change: A very enviable position in the industry. It's why we call Taco Bell a category of one brand and yes, we are seeing a continuation of the trends into Q2, although our lap obviously gets much harder as we start to lap cantina chicken. So the one year numbers have come down a little.
Speaker Change: We're excited about the impact that Taco Bell is going to have this year, but really the way it's set up for success very much fueled by that of the digital work that Chris has been talking about.
Speaker Change: So just to wrap up I think this was another quarter that demonstrated the strength of the AUM business model the resiliency of that model.
Speaker Change: In 2024, we delivered on our 8% core operating profit commitment when most of our competitors were not able to given the international challenges.
Speaker Change: And we did it again this quarter again with the backdrop of a lot more challenges in the softer U S. Consumer the consistency of our growth I think is the envy of the industry. Our twin growth engines are firing on all cylinders and the milestones that we reached this quarter on digital I think we'll look back is.
Speaker Change: Important the launch of bite by the.
Speaker Change: The reaction that we've gotten from the international franchise community the partnership with Nvidia the $1 billion investment is really starting to pay dividends hitting 55% digital sales. This quarter numbers that would have been unheard of just a few years ago. So we're off to a good start for the year and are excited about finishing this year really strong.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: This concludes today's call. Thank you very much for joining you may now disconnect your lines.
Speaker Change: Yeah.
Speaker Change: Okay.