Yum! Brands Reports Third-Quarter Results; Record 760 Net-New Units and Same-Store Sales Growth of 5%, Driving System Sales Growth of 8%; Sustained Digital System Sales of Over $5 Billion

LOUISVILLE, Ky.--(BUSINESS WIRE)--Yum! Brands, Inc. (NYSE: YUM) today reported results for the third-quarter ended September 30, 2021. Worldwide system sales excluding foreign currency translation grew 8%, with 5% same-store sales and 4% unit growth. Third-quarter GAAP EPS was $1.75, an increase of 90% over the prior year quarter. Third-quarter EPS excluding Special Items was $1.22, an increase of 21% over the prior year quarter.

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DAVID GIBBS COMMENTS

David Gibbs, CEO, said “Our third quarter results, led by record-breaking unit development and sustained momentum in digital sales, are a testament to the strength of our Brands and the unmatched commitment and capability of our best-in-class franchise partners. I am proud that each of our global divisions contributed to delivering 760 net-new units in the quarter. Our 5% same store sales growth for the third quarter, or 3% same-store sales growth on a 2-year basis, demonstrates the resilience of our diversified global business model despite the headwind of the Delta variant in certain key markets.

During the quarter, we advanced our digital capabilities with the acquisition of Dragontail and its AI-based integrated kitchen order management and delivery technologies that strengthens store operations, enhances the customer experience and makes it easier for team members to run a restaurant. As we continue to navigate the short-term uncertainties of the COVID recovery, we are incredibly confident in the ability of our iconic brands and our world-class talent to drive growth and maximize stakeholder value by delivering on our long-term growth algorithm.”

THIRD-QUARTER HIGHLIGHTS

• Worldwide system sales excluding foreign currency translation grew 8%, with KFC at 11%, Taco Bell at 8% and Pizza Hut at 4%.
• We reported 4% unit growth year-over-year and record third-quarter net-new unit growth of 760.
• Foreign currency translation favorably impacted divisional operating profit by $12 million.

KFC DIVISION

• KFC Division opened 636 gross new restaurants in 61 countries.
• Operating margin decreased 1.8 percentage points driven by lapping bad debt recoveries offset by system sales growth.
• Foreign currency translation favorably impacted operating profit by $10 million.
• For the division, same-store sales grew 1% on a 2-year basis, which includes the impact of about 1% of our stores being temporarily closed as of the end of the third-quarter 2021.
  • For KFC International, same-store sales declined 1% on a 2-year basis, which includes the impact of about 1% of our stores being temporarily closed as of the end of the third-quarter 2021.
  • For KFC U.S., same-store sales grew 13% on a 2-year basis.

PIZZA HUT DIVISION

• Pizza Hut Division opened 297 gross new restaurants in 39 countries.
• Operating margin increased 3.9 percentage points driven by same-store sales growth.
• Foreign currency translation favorably impacted operating profit by $2 million.
• For the division, same-store sales grew 1% on a 2-year basis, which includes the impact of about 1% of our stores being temporarily closed as of the end of the third-quarter 2021.
  • For Pizza Hut International, same-store sales declined 4% on a 2-year basis, which includes the impact of about 1% of our stores being temporarily closed as of the end of the third-quarter 2021.
  • For Pizza Hut U.S., same-store sales grew 8% on a 2-year basis.

TACO BELL DIVISION

• Taco Bell Division opened 74 gross new restaurants in 15 countries.
• Operating margin decreased 2.6 percentage points due to restaurant level margins returning to historical levels and increased general and administrative expenses offset by same-store sales growth.
• For the division, same-store sales grew 8% on a 2-year basis.

HABIT BURGER GRILL DIVISION

• The Habit Burger Grill Division opened 8 gross new restaurants in the U.S.
• During the quarter, The Habit Burger Grill Division same-store sales grew 11%.
  • For the year-to-date, The Habit Burger Grill Division same-store sales grew 18%.
• For the division, same-store sales for the quarter grew 7% on a 2-year basis, which includes the impact of about 1% of stores that were temporarily closed as of the end of the third-quarter 2021.

OTHER ITEMS

• Same-store sales growth on a 2-year basis is calculated using the geometric method as follows: (1 + Q3 2020 reported same-store sales growth) * (1 + Q3 2021 reported same-store sales growth) - 1.
• We recorded $52 million of pre-tax investment income related to the change in fair value of our approximate 5% investment in Devyani International Limited, an entity that operates KFC and Pizza Hut franchised units in India that executed an initial public offering during the quarter. This change in fair value resulted in a $0.16 benefit to third-quarter EPS.
• During the third quarter of 2021 a subsidiary of Taco Bell Corp. issued $2.25 billion of Securitization Notes. Proceeds were used to repay $1.3 billion of existing higher coupon Taco Bell Securitization Notes and for general corporate purposes including capital return to shareholders.
• Disclosures pertaining to outstanding debt in our Restricted Group capital structure will be provided at the time of the filing of the third-quarter Form 10-Q.

CONFERENCE CALL

Yum! Brands, Inc. will host a conference call to review the company's financial performance and strategies at 8:15 a.m. Eastern Time October 28, 2021. The number is 877/871-3172 for U.S. callers, 412/902-6603 for international callers, conference ID 1801564.

The call will be available for playback beginning at 10:00 a.m. Eastern Time October 28, 2021 through November 4, 2021. To access the playback, dial 877/344-7529 in the U.S., 855/669-9658 in Canada, and 412/317-0088 internationally, conference ID 10159830.

The webcast and the playback can be accessed by visiting Yum! Brands' website, investors.yum.com/events-and-presentations and selecting “Q3 2021 Yum! Brands, Inc. Earnings Call.”

ADDITIONAL INFORMATION ONLINE

Quarter end dates for each division, restaurant count details, definitions of terms and Restricted Group financial information are available at investors.yum.com. Reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures are included within this release.

FORWARD-LOOKING STATEMENTS

This announcement may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend all forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the fact that they do not relate strictly to historical or current facts and by the use of forward-looking words such as “expect,” “expectation,” “believe,” “anticipate,” “may,” “could,” “intend,” “belief,” “plan,” “estimate,” “target,” “predict,” “likely,” “seek,” “project,” “model,” “ongoing,” “will,” “should,” “forecast,” “outlook” or similar terminology. These statements are based on and reflect our current expectations, estimates, assumptions and/or projections, our perception of historical trends and current conditions, as well as other factors that we believe are appropriate and reasonable under the circumstances. Forward-looking statements are neither predictions nor guarantees of future events, circumstances or performance and are inherently subject to known and unknown risks, uncertainties and assumptions that could cause our actual results to differ materially from those indicated by those statements. There can be no assurance that our expectations, estimates, assumptions and/or projections, including with respect to the future earnings and performance or capital structure of Yum! Brands, will prove to be correct or that any of our expectations, estimates or projections will be achieved.

Numerous factors could cause our actual results and events to differ materially from those expressed or implied by forward-looking statements, including, without limitation: the severity and duration of the COVID-19 pandemic, food safety and food borne-illness issues; health concerns arising from outbreaks of a significant health epidemic; the success of our franchisees and licensees; our significant exposure to the Chinese market; changes in economic and political conditions in countries and territories outside of the U.S. where we operate; our ability to protect the integrity and security of personal information of our customers and employees; our ability to successfully implement technology initiatives; our increasing dependence on multiple digital commerce platforms; the impact of social media; our ability to secure and maintain distribution and adequate supply to our restaurants; the loss of key personnel, or labor shortages or difficulty finding and retaining qualified employees; the success of our development strategy in emerging markets; changes in commodity, labor and other operating costs; harm or dilution to our brands caused by franchisee and third party activity; pending or future litigation and legal claims or proceedings; changes in or noncompliance with government regulations, including labor standards and anti-bribery or anti-corruption laws; tax matters, including changes in tax laws or disagreements with taxing authorities; consumer preferences and perceptions of our brands; failure to protect our service marks or other intellectual property; changes in consumer discretionary spending and general economic conditions; competition within the retail food industry; not realizing the anticipated benefits from past or potential future acquisitions, investments or other strategic transactions, and risks relating to our significant amount of indebtedness. In addition, other risks and uncertainties not presently known to us or that we currently believe to be immaterial could affect the accuracy of any such forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty.

The forward-looking statements included in this announcement are only made as of the date of this announcement and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances. You should consult our filings with the Securities and Exchange Commission (including the information set forth under the captions “Risk Factors” and “Forward-Looking Statements” in our most recently filed Annual Report on Form 10-K and Quarterly Report on Form 10-Q) for additional detail about factors that could affect our financial and other results.

Yum! Brands, Inc., based in Louisville, Kentucky, has over 52,000 restaurants in more than 150 countries and territories primarily operating the company’s brands – KFC, Pizza Hut and Taco Bell – global leaders of the chicken, pizza and Mexican-style food categories. The Company’s family of brands also includes The Habit Burger Grill, a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more. Yum! Brands was included on the 2021 Bloomberg Gender-Equality Index and in 2020, Yum! Brands was named to the Dow Jones Sustainability Index North America and was ranked among the top 100 Best Corporate Citizens by 3BL Media.

Reconciliation of Non-GAAP Measurements to GAAP Results
(amounts in millions, except per share amounts)
(unaudited)

In addition to the results provided in accordance with Generally Accepted Accounting Principles in the United States of America ("GAAP"), the Company provides the following non-GAAP measurements.

• Diluted Earnings Per Share ("EPS") excluding Special Items (as defined below);
• Effective Tax Rate excluding Special Items;
• Core Operating Profit. Core Operating Profit excludes Special Items and FX and we use Core Operating Profit for the purposes of evaluating performance internally;
• Company restaurant profit and Company restaurant margin as a percentage of sales (as defined below).

These non-GAAP measurements are not intended to replace the presentation of our financial results in accordance with GAAP. Rather, the Company believes that the presentation of these non-GAAP measurements provide additional information to investors to facilitate the comparison of past and present operations.

Special Items are not included in any of our Division segment results as the Company does not believe they are indicative of our ongoing operations due to their size and/or nature. Our chief operating decision maker does not consider the impact of Special Items when assessing segment performance. The Special Items are described in (a) - (h) in the accompanying notes.

Company restaurant profit is defined as Company sales less Company restaurant expenses, both of which appear on the face of our Condensed Consolidated Statements of Income. Company restaurant expenses include those expenses incurred directly by our Company-owned restaurants in generating Company sales, including cost of food and paper, cost of restaurant-level labor, rent, depreciation and amortization of restaurant-level assets and advertising expenses incurred by and on behalf of that Company restaurant. Company restaurant margin as a percentage of sales ("Company restaurant margin %") is defined as Company restaurant profit divided by Company sales. We use Company restaurant profit for the purposes of internally evaluating the performance of our Company-owned restaurants and we believe Company restaurant profit provides useful information to investors as to the profitability of our Company-owned restaurants. In calculating Company restaurant profit, the Company excludes revenues and expenses directly associated with our franchise operations as well as non-restaurant-level costs included in General and administrative expenses, some of which may support Company-owned restaurant operations. The Company also excludes restaurant-level asset impairment and closures expenses, which have historically not been significant, from the determination of Company restaurant profit as such expenses are not believed to be indicative of ongoing operations. Company restaurant profit and Company restaurant margin % as presented may not be comparable to other similarly titled measures of other companies in the industry.

Certain non-GAAP measurements are presented excluding the impact of FX. These amounts are derived by translating current year results at prior year average exchange rates. We believe the elimination of the FX impact provides better year-to-year comparability without the distortion of foreign currency fluctuations.