LOUISVILLE Ky. Yum! Brands Inc. reported this month that U.S. sales would be weaker than expected for the remainder of 2009, underscoring concerns that the restaurant industry, and even quick-service chains, still face an uphill battle. —
Yum had said at the outset of 2009 that the second half of the year would provide some relief, as commodity cost pressures would have lessened and the consumer was expected to pick up spending—especially with new menu initiatives like KFC’s grilled chicken and national value menu, Pizza Hut’s pasta offerings, and Taco Bell’s lower-price-point items. —
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While the cost-savings are present, the sales momentum is not. Yum this month reduced its same-store sales outlook for the year, which it said would hurt the U.S. division’s profit expectations, although that still is expected to increase from a year ago. —
“There is no question that the consumer is under pressure, making it difficult to drive sales growth,” David Novak, Yum’s chairman and chief executive, said. —
Because of improved worldwide margins and the expected decrease in commodity costs, Yum said it would earn $2.10 per share this year, a 10-percent increase from 2008. Yum said cost-containment, including the reduction of $18 million in general and administrative expenses in the second quarter alone, would continue to drive U.S. results even as sales suffer. It noted that Pizza Hut, which competes at a higher price point than typical quick-service chains, would be its biggest challenge. The chain currently is promoting a $5 menu with four items as well as $9.99 pizzas. —
Domestic systemwide same-store sales fell 1 percent for the quarter ended June 13. While Yum no longer reports chain-specific results, it said same-store sales fell 8 percent at Pizza Hut, but were positive at Taco Bell and KFC. The recent introduction of Kentucky Grilled Chicken led to a “substantial positive turnaround” at KFC, Yum said. Industry observers questioned whether the sales spike following the debut of the product is sustainable. —
Securities analysts following the quick-service sector said slowing sales in the United States will continue to play the spoiler at most companies, although they will benefit from reduced cost structures and strong international sales and growth. —
“In general, we believe U.S. same-store sales trends for QSR were sluggish…but the earnings impact from any domestic [same-store sales] softness may have been offset by an improving cost picture…and a continuation of solid international sales trends,” said David Tarantino, a restaurant securities analyst at Robert W. Baird & Co. He said Burger King, the No. 2 burger brand behind McDonald’s, is most exposed to weakness in the United States, followed by Yum Brands and then McDonald’s Corp. —
Burger King has had sales trouble lately and some analysts predict a turn to negative same-store sales during the company’s latest fourth quarter ended in June. The company is not set to report results until next month. —
“Slowing overall quick-service sales tied to rising unemployment are making it more difficult for Burger King to get sales back on track,” Joe Buckley at Bank of America-Merrill Lynch said in a report. “We are also concerned about unusually high tension with franchisees.” —
Soft-drink rebates and failed efforts by the franchisor to enact systemwide value-focused promotions like a $1 double cheeseburger have stirred franchisee tension most recently. —
For the quarter ended June 13, Louisville-based Yum’s net income totaled $303 million, or 63 cents per share, versus earnings of $224 million, or 45 cents per share, in the same quarter a year ago. The company’s purchase of KFC operations in Shanghai, as well as other one-time items, led to 13-cents-per-share gain in the latest quarter, Yum said. —
Latest-quarter corporate revenue fell 7 percent to $2.45 billion, mainly because of unfavorable currency conversions based on a stronger U.S. dollar. —
The global franchisor of more than 32,000 restaurants said that worldwide system sales rose 3 percent, prior to currency conversion, and that worldwide operating profit rose 11 percent. Improved profit margins, new unit growth, cost management and improved year-over-year commodity pricing helped drive results, the company said. — [email protected] —
