Yum Brands shares fall after Taco Bell and Pizza Hut same-store sales growth disappoints

Yum Brands reported first-quarter earnings Wednesday that beat Wall Street’s expectations, but weaker-than-expected same store-sales growth at Taco Bell and Pizza Hut disappointed investors.

The company shares initially rose less than 1% in premarket trading before reversing and dropping by more than 2%.

“First-quarter results were a solid start to the year, reflecting particular strength at the KFC division and Taco Bell U.S.,” CEO Greg Creed said in a statement. “With this quarter, we have a healthy foundation to help us achieve our 2019 guidance.”

Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

• Adjusted earnings per share: 82 cents vs. 81 cents expected
• Revenue: $1.25 billion, matching expectations
• Same-store sales: up 4%, vs. 2.66% increase expected

On an unadjusted basis, Yum’s first-quarter net income slid 39% to $262 million, or 83 cents per share, from $433 million, or $1.27 per share, a year earlier. Yum’s roughly 3% stake in Grubhub shaved 5 cents per share off its earnings during the quarter.

Excluding refranchising gains, a tax expense on special items and other items, Yum earned 82 cents per share, topping the 81 cents per share expected by analysts surveyed by Refinitiv.

The company was able to raise its operating margin for all three of its brands, pulling in more profit. It attributed those gains to same-stores sales growth, as well as gains from its refranchising initiative. Across all three of its brands, Yum has been selling off thousands of its company-owned stores to franchisees to cut costs.

Net sales dropped 9% to $1.25 billion, in line with expectations. The company reported worldwide same-store sales growth of 4%, beating Wall Street’s estimates of 2.66%.

Taco Bell’s same-store sales growth of 4% missed expectations of 4.47%. The maker of the Quesarito has long been the standout of Yum’s brands, but the company is trying to accelerate sales even more by pushing it into new international markets. Creed told analysts on the conference call that the international division’s same-store sales growth lagged behind that of its home market. During the quarter, Taco Bell opened 12 new international stores.

Taco Bell has also rolled out delivery to over 4,000 of its U.S. locations. Executives would not share specific data but said that they saw benefits to both traffic and ticket.

Sales at Pizza Hut stores open at least a year were flat during the quarter, while Wall Street expected a bump of about half a percentage point. The laggard of Yum Brands has lost market share as it struggles to win over new customers. In the U.S., its largest market, sales declined by 1%.

KFC, which makes up the biggest chunk of Yum’s revenue, reported same-store sales growth of 5%, beating estimates of 2.74%. This quarter, the brand is lapping disappointing results from last year when a shortage of chicken in the U.K. dragged down sales. Sales in China, where more than a quarter of its sales now come from, rose by 11%. Yum China, Yum’s spinoff of its Chinese business, owns those stores.

Yum opened 310 net new stores during the quarter ended March 31.