Taco Bell quar­terly sales lose their kick

Northwest Arkansas Democrat-Gazette - - BUSINESS & FARM - CRAIG GIAMMONA

Yum Brands Inc.’s Taco Bell divi­sion, a key source of growth for the fast-food gi­ant, is show­ing signs of fad­ing.

Same-store sales at the Mex­i­can-in­spired chain in­creased 4 per­cent last quar­ter, miss­ing the 5.9 per­cent es­ti­mate of an­a­lysts. While that growth was still stronger than at Yum’s other di­vi­sions — KFC and Pizza Hut — those chains both came in ahead of pro­jec­tions.

The re­sults raise con­cern for a com­pany that’s been re­ly­ing heav­ily on Taco Bell since the spinoff of its Chi­nese op­er­a­tions last year. The taco seller has had suc­cess in the U.S. with buzzy food items and a mo­bile­order­ing ap­pli­ca­tion that has res­onated with younger din­ers. Yum also is ex­pand­ing the brand in­ter­na­tion­ally, adding hun­dreds of restau­rants in mar­kets such as In-

● dia, China and Brazil.

Yum shares fell $1.76, or 2.3 per­cent, to close Thurs­day at $74.86. The stock had gained 21 per­cent this year through the close of trad­ing Wed­nes­day.

Earn­ings amounted to 68 cents a share in the sec­ond quar­ter, ex­clud­ing some items. That beat the 61-cent es­ti­mate of an­a­lysts. But global same­store sales — a key mea­sure — were a bit weaker than ex­pected. They gained 2 per­cent, com­pared with an es­ti­mate of 2.2 per­cent, ac­cord­ing to Con­sen­sus Metrix.

The U.S. mar­ket for Taco Bell has be­come in­creas­ingly sat­u­rated. Restau­rants are re­ly­ing heav­ily on pro­mo­tions to get cus­tomers in the door, and lower prices at gro­cery stores — af­ter a record-set­ting run of food de­fla­tion — has made it more at­trac­tive for many Amer­i­cans to eat at home.

That’s why Yum is turn­ing to in­ter­na­tional mar­kets to help fuel Taco Bell’s growth. It opened its first lo­ca­tion in the Nether­lands ear­lier this year, and has said it will con­tinue ex­pand­ing in Spain, Gu­atemala, South Korea and the U.K. The global push is part of the chain’s

pre­vi­ously an­nounced goal of in­creas­ing an­nual sales to $15 bil­lion by 2022 from $10 bil­lion.

It plans to open at least 100 new lo­ca­tions each in China, Brazil, Canada and In­dia. The tar­get will help in­crease Taco Bell’s store count to 9,000 glob­ally in the next five years, up from 6,650.

In its home coun­try, Taco Bell is re­mod­el­ing lo­ca­tions and try­ing to build buzz with new ur­ban eater­ies — some of which even serve al­co­hol. The com­pany ex­pects to have more than 300 of those restau­rants in the next five years.

At Pizza Hut, where sales have been de­clin­ing, Yum is en­hanc­ing its dig­i­tal-or­der­ing fea­tures and adding more de­liv­ery driv­ers. While same­store sales dipped 1 per­cent last quar­ter, that was slightly bet­ter than the 1.5 per­cent drop es­ti­mated by an­a­lysts.

KFC, mean­while, has had suc­cess with off­beat ad­ver­tise­ments that fea­ture a se­ries of ac­tors play­ing its Colonel San­ders char­ac­ter. The chain has also added new fla­vors of chicken like Ge­or­gia Gold that have drawn din­ers. KFC posted a same-store sales in­crease of 3 per­cent last quar­ter. That beat the 2.3 per­cent es­ti­mate and marked 12 straight quar­ters of U.S. growth.

Bloomberg News/AN­DREY RUDAKOV

Vis­i­tors ap­proach a KFC restau­rant op­er­ated by Louisville, Ky.-based Yum Brands Inc., in Minsk, Be­larus, in March. The restau­rant chain on Thurs­day re­ported a quar­terly profit of $206 mil­lion.

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