Taco Bell Reigns Supreme as KFC Stumbles on the Yum! Brands Q2 Earnings

Taco Bell is proving to be the big moneymaker for Yum! Brands, as per its recent Q2 earnings call. The company further revealed that KFC is the weak link and earns the least amount of money for the conglomerate. Let’s take a look at what else we learned on the call.

Taco Bell Is the Taco King

CNBC is reporting that Yum! Brands had a “mixed quarter” in Q2. While Taco Bell reported a huge earnings quarter, KFC and Pizza Hut both missed the mark. The outlet is reporting that the slump has to do, in part, with the ongoing conflict in the Middle East.

“The impacts from the Middle East conflict, in addition to a more cost-conscious consumer, have presented headwinds to same-store sales,” Yum CEO David Gibbs told analysts on the earnings call. He continued by saying that, when compared to the previous quarter, sales trends in the United States had improved because of cheap dinners like Pizza Hut’s $7 Deal Lovers.

According to Chief Financial Officer Chris Turner, some 200 Yum locations are temporarily closed across the Middle East, Malaysia, and Indonesia. He acknowledged the possibility that some of those locations will close permanently if the crisis gets worse, but some might reopen as soon as later this month.

Yum’s flagship brand, Taco Bell, showed a 5% gain in same-store sales during the quarter. The chain’s presence is primarily limited to the United States, where its standing for affordability has shielded it from the decline in consumer spending. According to Gibbs, Taco Bell’s same-store sales increased across all income brackets.

Yum reported lower second-quarter net income than it did a year earlier, at $367 million, or $1.28 per share, as opposed to $418 million, or $1.46 per share. With items excluded, the business made $1.35 per share.

KFC Is Struggling

In the same earnings call, it was revealed that while Taco Bell reigned supreme, KFC continued to struggle. As reported by CNBC, KFC reported a 3% decline in same-store sales internationally and a 5% drop in the U.S. specifically.

However, Yum! Brands exceeded analysts’ projections for second-quarter profit as cost reductions and the company’s robust Taco Bell business in the United States more than made up for a decline in KFC sales.

“Taco Bell remains the crown jewel in Yum’s portfolio,” said TD Cowen analyst Andrew Charles in a note, according to Reuters.

Yum, like its competitors in the fast-food sector, has been making investments in loyalty programs and revamping its menus to try and win over consumers on a tight budget; but fierce competition for cheap meals and promotions has hurt Yum’s KFC business in the United States this year. On Tuesday, Aug. 6, its shares increased by 3% despite the company reporting a larger-than-expected decline in sales due to lower-class consumers cutting down on their dining-out expenditures.

“Significant volatility remains, and we recognize sales in some markets are not where we want them to be,” Gibbs said during the call.

Yum’s poor sales performance this quarter is consistent with outcomes from other large eateries, including Domino’s, McDonald’s, and Starbucks. Nevertheless, despite price increases, fresh menu items like Taco Bell’s Cantina Chicken experienced great demand across all income levels, contributing to a 5% increase in comparable sales in the division — above market estimates.

With the installation of kiosks and artificial intelligence-based technologies, the company is also making investments to enhance service times and the digital experience at its drive-thrus and storefronts.

Yum stated that the year’s inflation of commodities was less than anticipated and that it anticipates further cost reductions from its ongoing cost-savings initiative.

“We remain on track to achieve 5% unit growth for the full year despite the extended impact of the Middle East conflict,” Turner said.