Yum! 3Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“we are very disappointed with our overall third quarter results, and the fact we now believe China same-store sales will unlikely be positive for the fourth quarter. Frankly, these results are well below the high expectations we have for our business.”

“Our number one priority at KFC China is to build and reinforce positive consumer perceptions around the safety of our food, and while our key brand attributes have improved significantly from where they were in the first few months following the December incident, the fact is that they remain below 2012 levels.”

“We are also leveraging our massive network of employees and suppliers through social media.”

“Today, we have nearly 4,500 KFC restaurants in over 900 cities in China. That’s more than twice the size of our nearest competitor in the QSR category. Additionally, we serve about 60 million customers at KFC every week or so, which is almost the entire population of the U.K.”

“Pizza Hut casual dining units, and now have over 950 units in 242 cities, compared to the over 900 cities where KFC currently operates.”

“Make no mistake, we love our overall position in China. We have complete confidence in a full recovery and long term impressive growth at KFC.”

“Outside of China, we expect generally on-target performance for Yum! Brands this year”

“So, to sum things up, in spite of our short term sales issue with KFC in China, the fundamentals of the Yum! growth model remain extremely compelling”

“As you know better than I, there are three keys to driving shareholder value in retail: new unit development, same-store sales growth, and high returns.”

“We have three iconic brands, and while we have 58 restaurants per million people in the United States today, we only have two restaurants per million in the emerging markets.”

“Remember, Pizza Hut has continued to deliver outstanding results in China,”

“thoughts on 2014.: we expect our YRI and U.S. divisions to continue to grow operating profit generally in line with our ongoing growth model, or 10% and 5% respectively.”

“One of the ways that they’ve been able to be more efficient is that they’ve improved the way that they’ve forecasted sales in their labor requirements at the store level. They’ve become increasingly sophisticated in this area, and they’re developing new tools and techniques to deliver optimal service levels with relatively low labor. So we remain confident they’re going to be able to sustain these results into next year”

“And what we see is that the biggest issues we have from a perception standpoint lie in the area of the safety, reliability, trust. And so I think that’s what we see as the biggest problem we have.”

“And also, I think what we think we need is we need more innovation. We need more innovation.”

“We consider our best operators in the world to be in China, and as you would expect, they remain very much focused on customer service metrics, and they do not do things with their labor scheduling that would in any way compromise the customer experience. We don’t see that as at all related to sales performance.”

“I think if there’s one characteristic that I would give the Chinese team the most kudos for, if we have one group that thinks more long term than them, I don’t know what group it is. We do things on behalf of the customer, we think about the brand for the long term. ”

“as I talked about, the food cost inflation changing from what we saw in Q3, it’s a moderate change. We saw basically flat commodity costs in Q3, and we expect modestly positive in Q4. It’s not a dramatic swing.”

“There’s no doubt that labor inflation has been much lower in China that we had anticipated. You’ll recall that we had guided mid-teens labor inflation, and what we now expect for 2013 is high single digits. Now, that has come through a favorable mix shift in our restaurant level employees, and some restaurant level wage control.

But I do want to stress that we don’t necessarily see that continuing into next year. The fact is that wage growth had moderated across China, but the central government’s objective remains to double disposable per capita income by 2020.”

“If you look at the consumer research, that’s what our take is. This is not a precise science, you know? I can’t tell you 100% for sure, but when we look at what do we have to target at KFC, what do we need to do at KFC to really get the business moving forward, we think it’s continuing to make progress on regaining the trust.”

“Well, we launched the beef burger, which is a product innovation that we had some high hopes for. And while we had good success rate in the sense that the mix was good, we didn’t get the incrementality”

“We never have blamed the macros for anything. We don’t talk about macros, or weather, or anything like that. We just don’t. We just don’t believe in it.”

” think what we really have here is a country wide issue of trust. And it’s in tier four, five, six cities, tiers one, two, three cities. That’s what we really think we have to address. That’s what our marketing folks have determined by listening to our customers, and that’s what we’re getting after. So I think that’s the issue that we’re really trying to deal with.”

“We believe that one of the strengths of our business is that we are as heavily franchised as we are, which drives extraordinary return on invested capital for us. So we’re not moving away from that strategy”

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