Yum Brands Inc has beaten Street estimates for quarterly sales and profit on, as more cash-strapped consumers flocked to its Taco Bell restaurant chain for pocket-friendly meals and snacks amid still high inflation.
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Taco Bell has lured more customers with its cheap menu offerings such as the $2 burritos, while demand has remained steady for its higher-priced crowd-favorite items such as quesadillas and Crunchy Wraps.
Analysts have said Taco Bell is well-positioned to further drive sales and margins through add-on items, combo meals and more premium offerings such as the $5 grilled cheese burrito, even as the Mexican-inspired chain ramps up cheaper food options.
Taco Bell also brought back its Mexican Pizza as a permanent menu item in September, after pulling it off in 2020, which helped fuel an 11% jump in same-store sales at the chain, crushing analysts' estimate for a 6.8% rise.
While Yum's Pizza Hut brand also launched new menu items in the quarter to draw in more customers, the chain's same-store sales growth of 1% missed expectations, largely owing to weakness in China and its exit from Russia.
Yum, which also owns the KFC restaurant chain, took a 2-point hit to profits from the move to exit Russia.
Total same-store sales at Yum rose 6% in the fourth quarter, while analysts were expecting a 4.57% increase, according to Refinitiv IBES data.
Excluding one-time items, Yum Brands earned $1.31 per share for the three months ended Dec. 31, beating estimates of $1.26.
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McDonald's Corp last week also topped quarterly profit and sales estimates, boosted by higher menu prices and increased customer visits at the burger giant's outlets.
The Louisville, Kentucky-based company also increased its quarterly dividend to about 60 cents per share.
UPDATE 4-Yum Brands Beats Estimates As Taco Bell Lures Value Hunters
The above news was followed by the following update:
Yum Brands Inc has beaten Street estimates for quarterly sales and profit, as strong demand for wallet-friendly meals at its Taco Bell restaurants helped offset weaker growth in its Pizza Hut and KFC chains.
Taco Bell's $2 burritos and $1.49 breakfast offerings attracted more low-income consumers looking for cheaper options amid decades-high inflation, while wealthier customers looking to save also increased orders from Yum's outlets.
"We are seeing higher-income customers coming more frequently. And some of that is no doubt due to trade down into our brands," Yum's chief executive officer, David Gibbs, said on an earnings call.
Taco Bell also relaunched the cult-classic Mexican Pizza in September. That helped same-store sales surge 11%, crushing analysts' estimate for a 6.8% rise.
Yum's shares were last up marginally in choppy trading.
Investors are watching consumer behavior for signs of pressure that could foretell a recession. Persistently high inflation has caused even some affluent diners to look for cheaper options such as McDonald's, while Chipotle on Tuesday 7 February missed profit estimates despite its wealthier core customers eating there more often.
Yum is "able to serve customers at any part of the economic strata" in the United States, chief financial officer Chris Turner said in an interview.
Higher-income customers ordered items like Taco Bell's Double Steak Grilled Cheese Burrito or Pizza Hut's Big New Yorker pizza with six extra-large, foldable slices, he said.
Turner declined to provide details about Taco Bell's US traffic levels or how much menu prices rose over the year. He would not say how much of the chain's comparable sales growth was due to higher prices.
A soft taco at one New York City Taco Bell location was priced at $2.39 on Wednesday 8 February, up 14% from February 2022, according to a Reuters tracker of fast-food prices.
Most restaurants raised prices last year to offset soaring costs for food and labor. This year, Yum's food inflation costs should moderate into the low- to mid-single digits, Turner said.
The launch of "Melts" - an individual-sized meal consisting of two slices of pizza and dipping sauce - at Pizza Hut and value deals on wraps at KFC also helped drive traffic. Both brands reported a rise in US same-store sales but weak China sales led to a miss on Wall Street estimates.
"In what could be a tough macro for restaurants this year ... Yum should continue to benefit from trade-down (from consumers)," said UBS analyst Dennis Geiger.
Total same-store sales at Louisville, Kentucky-based Yum rose 6% for the three months ended Dec. 31. Analysts had expected a 4.57% increase.
Yum also took a 2-point hit to profit from the move to exit Russia.
Excluding items, the company earned $1.31 per share in the fourth quarter, beating estimates of $1.26, according to Refinitiv IBES data.
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