Yum! 2Q16 Earnings Call Notes

Greg Creed – CEO

China doing well

” I’m particularly pleased with the continued sales momentum at KFC China which delivered better-than-expected same-store sales growth of 3%. This represents our fourth consecutive quarter of positive same-store sales growth at KFC China despite the second quarter being our most difficult of the year from a historical sales overlap standpoint. Importantly, our China Division is off to a good start in the third quarter for both KFC and Pizza Hut Casual Dining, including a return to positive same-store sales at Pizza Hut Casual Dining in recent weeks.”

Challenging conditions in the US though

“Outside of China, challenging industry conditions in the U.S. contributed to soft sales results. However, our three brand divisions in the aggregate delivered core operating profit growth largely in line with our expectations and remain on track to deliver against their full-year core operating profit growth targets. ”

Even though US soft in Q2 we’re seeing some momentum in Q3

“we said we’re seeing some improvement as we start the third quarter. Taco Bell which obviously was negative in Q2 has turned positive in Q3 through the first five or six weeks of the quarter. The KFC U.S. number is also stronger than the plus 2% we had, so I think we’re feeling that there’s some momentum. Obviously, I think as we all know in the U.S., the market is a little soft, but I think that we see some momentum in sales. I think that we believe that commodities will be under control and I think as I even may have said on the last call, we’re confident we can deliver the outside of China profit numbers even if the sales numbers are just a little tough to get to.”

We missed on transactions at Taco Bell in US

“And if you, if you want to talk about the U.S., I think that was also part of the question. I think the Taco Bell miss was a transaction miss pretty much. I think that’s probably the best way to describe it. And our look at the category also is probably for the trailing 13 weeks the U.S. is probably running about minus 1 same-store transactions and probably around plus 1 same-store sales. So that’s the sort of numbers that we see. But the Taco Bell miss was essentially driven by transactions. But as I said, I’m happy that in the first five or six weeks of the third quarter we’re back in positive territory on Taco Bell. So that’s a nice change in momentum.”

I think there’s a malaise in the US right now

“I think, as we said earlier, there is I call it a malaise in the U.S., is probably the best way to describe it. And I think there was an interesting report out yesterday that I think 75% of people 18 to 30 believe that the U.S. is either falling behind or failing as a nation, according to a GenForward Survey. So that’s not particularly good news from just what are people thinking. As I said earlier, we believe that in the U.S. the market is on a trailing 13 is about a minus 1% in transacts, it’s probably plus 1% in sales. As I said, I think the good news is we have started the third quarter stronger than we had in the second quarter”

Micky Pant

You get better lease deals when economic conditions are tough

“we’re very confident that we’re not over-expanding at all in the smaller-tier cities. It is our belief that under challenging economic conditions you get the best long term deals and if we’re able to secure long leases for these stores, we’re very confident these stores will make good returns in the future. So I don’t think we’re concerned at the moment with the rate of return on our new store sales.”

We have to watch commodity inflation in the back half

” We have to watch commodity inflation in the back half.”