The operator of the Yum! Brands 2024 Second Quarter Earnings Call introduces Matt Morris, Head of Investor Relations, who will be joined by CEO David Gibbs, CFO Chris Turner, and Senior Vice President and Corporate Controller Dave Russell. The call will include forward-looking statements and non-GAAP financial measures, and will be recorded and available for playback.

Yum! is holding several investor events, including the release of their third quarter earnings and a talk about consumer data. Despite a challenging operating environment, the company saw 10% growth in core operating profit and remains confident in their long-term growth goals. They are focusing on providing affordable options for consumers through deals and value menus.

In the second quarter, Yum! Brands saw improving trends in the US market and continued to refine its offerings in international markets. Taco Bell experienced stabilized check management and year-over-year check growth, while KFC markets excluding China reported a mid-single-digit increase in same-store sales. The company's 2024 commodity inflation was lower than expected, and its strategic areas of digital sales, scale leveraging, and technology deployment showed strong momentum. Taco Bell and KFC International were the main drivers of system sales and operating profit growth, with Taco Bell achieving above-average same-store sales and near-record high margins. Craveable innovation at a higher price point proved successful across all income cohorts.

In the fourth paragraph, the speaker discusses the success of KFC International's quarter-over-quarter same-store sales, which showed strong improvement on a two-year trend. They also mention the brand's impressive unit growth and the importance of choosing the right franchise partners. The KFC team is focused on giving franchisees the tools to succeed, such as the SuperApp and global loyalty program. The speaker then moves on to discuss the company's "RED" brands, culture, and growth strategy. They also provide updates on second quarter results and restaurant development, as well as their balance sheet and capital strategy. Finally, they mention that the pressure on same-store sales growth in directly impacted markets is expected to decrease in the coming months.

In addition to the Middle East, Malaysia, and Indonesia, other markets have also been affected by the Middle East conflict, but some areas have seen improvement. Yum China opened its 200th KCOFFEE location, which is a reduced investment and helps drive future sales growth. The company acquired 216 KFC restaurants in the UK and Ireland and is optimizing operations there. Taco Bell's US same-store sales grew 5% and outpaced the industry, thanks to new menu items and a focus on digital sales, which grew by over 30%.

Taco Bell International is focusing on building brand relevance and facing challenges with a limited marketing budget. Pizza Hut's system sales were flat, but improvements have been seen in same-store sales trends, especially in the US, Thailand, and Hong Kong. The brand is expanding with new platforms and leadership is driving efficiency and aligning with consumer trends. The Habit Burger Grill saw a decline in system sales due to increased costs in their home market of California.

The company's efforts to optimize store labor led to a significant increase in restaurant level margins despite challenges in the regional market. The Habit's Double Charred Burger was named the best quick service burger. The company's people-first culture has resulted in the recruitment of talented leaders, including Carl Laredo and Kalen Thornton. Melissa Friebe, a former Taco Bell employee, has also joined Pizza Hut as the Chief Marketing Officer. The company is focused on promoting talent and fostering collaboration through events like KFC's global marketing planning meeting.

KFC has been actively working towards its Good Growth strategy, with a focus on reducing greenhouse gas emissions and promoting sustainable practices. They have also made progress in eliminating unnecessary plastic packaging and have partnered with non-profits to provide education and job opportunities in communities. Despite system sales pressures, KFC saw a 10% growth in core operating profit and is confident in their investments to become more agile and resilient in the future. Their goal is to become the franchisor of choice and provide better, faster, cheaper, and safer technology services to their partners.

In the paragraph, the speaker discusses the company's plans to utilize AI technology, specifically in drive-through Voice AI, in Taco Bell and KFC stores. They also mention their efforts in driving growth and increasing shareholder value through technology and business resilience. The second half of the paragraph focuses on the company's financial results, including a 3% growth in system sales and a 10% growth in core operating profit. The speaker also mentions the impact of global conflicts on their business and the resilience of their company-owned Taco Bell stores in the US.

Taco Bell's store-level margins were strong at 25.6%, with mature stores achieving over 27%. This is due to their successful business model, which focuses on delivering a great consumer experience, value, and high margins for franchisees. The brand is also taking advantage of the growing digital sales mix to improve operations and labor productivity. Additionally, the company saw improved expense leverage and expects to generate more savings from their resource optimization program. Despite a negative impact from foreign currency translation, the reported operating profit increased by 6%. However, rising interest rates in the US have caused a headwind of nearly $180 million in foreign currency, which is equivalent to one year of operating profit growth under their long-term growth algorithm.

In the second quarter, Yum! Brands reported a $1.35 ex-special EPS, with a $0.20 negative impact from taxes and lower investment gains. The company opened 894 units, contributing to a 5% increase in unit count and 4 points to total system sales growth. They also transferred rights for certain brands in Latin America to focus on Pizza Hut growth. KFC opened 598 units in 57 countries, while Pizza Hut opened 236 units in 30 countries. The company also closed a transaction to purchase 216 stores in the UK and Ireland.

Pizza Hut's unit growth is increasing in China and Japan, offsetting closures in the US and slower development in Indonesia and Malaysia. Taco Bell has opened new units in both domestic and international markets, with a 7% increase in international units excluding China. The company is also focused on its digital and technology initiatives, with a goal of becoming the leading global digital restaurant company. This includes the deployment of foundational platforms and leveraging data to make better decisions. In Q2, the company made progress in providing frictionless experiences for consumers through its digital and technology advancements.

The company has successfully implemented drive-through Voice AI technology in over 100 Taco Bell stores and plans to expand to several hundred more by the end of the year. They are also testing this technology in KFC Australia. The company is also making progress in implementing their Yum! commerce platform at Pizza Hut US and will soon transition to this platform in the UK and Canada. They are also deploying their Poseidon point-of-sale system and Dragontail AI-enabled restaurant management system to improve operations and customer satisfaction. Additionally, they are scaling their SuperApp for restaurant managers at Pizza Hut and plan to have it available at 10,000 KFC stores globally by the end of the year.

In this paragraph, the speaker discusses the company's focus on AI-driven personalization and their partnership with a start-up in this space. They also provide an update on their balance sheet and liquidity position, including their capital priorities and plans for returning excess cash to shareholders. The speaker also mentions their outlook for the rest of 2024, including their goal of achieving 5% unit growth and similar levels of gross unit openings compared to 2023.

In the Middle East, Malaysia, and Indonesia, there are currently 210 temporarily closed restaurants with plans to reopen some of them later this month. However, there is a risk that some may permanently close due to the ongoing conflict. This would negatively impact reported unit count and royalties. Taco Bell company-operated store margins are expected to be 23-24%, and G&A expenses are expected to be lower year-over-year. Despite the softness in sales due to the conflict, Yum! is confident in delivering 8% core operating profit growth for the full year. The company is focused on digital and technology initiatives and has strong franchise partners around the world.

The speaker, David Gibbs, is ready to take questions from the operator. The first question is from David Tarantino about the company's outlook and how they are thinking about same-store sales growth in the second half of the year. David Gibbs responds by saying their thinking hasn't changed and they are forecasting an improvement in same-store sales growth quarter-to-quarter, despite the uncertain macro environment. He also mentions that they have the right levers to pull and their brands are performing well. The next question is from Jon Tower.

The speaker discusses the growth of G&A and how it is being reallocated and streamlined to drive faster and more efficient growth for Yum! and its franchisees. They mention one-time benefits, digital and technology, and productivity as key drivers of this growth. They also mention the acquisition of four companies and the hiring of new employees as contributing factors. The company is focused on becoming a more digital company and finding ways to operate more effectively in all areas of the business.

The speaker discusses the strong performance of Taco Bell in the second quarter and expresses confidence in the brand for the rest of the year. They mention the brand's focus on value and unique menu items as key factors in its success. Additionally, they highlight investments being made in areas such as AI and marketing to drive long-term growth.

The speaker congratulates the company for navigating a challenging environment and delivering 8% core operating profit growth year-to-date. They question if there is potential for better sales trends and profit growth in the second half compared to the first half, given the expected favorable G&A and timing differences.

The speaker discusses the strong global unit development of the company, despite some macro pressures. They mention the success of KFC and the effective management of challenges by the brands and franchisees. They also note that about two-thirds of their brand country combinations have opened a new store in the last 12 months.

The speaker mentions that there has been a widespread impact on small countries not being able to build stores, and that the ability to open new stores will be similar to previous years. There may be some closures in the Middle East, but they will likely be lower volume stores. The impact on system sales from development is expected to be similar to last year. The franchisees have confidence in the strength of the brands and are seeing good returns on their investments. The speaker also mentions that there have been some issues in the Middle East, Indonesia, and Malaysia, but does not provide specific details.

The speaker discusses the impact of recent events on the company's business, specifically in the Middle East and other markets. They mention the difficulty in measuring this impact but highlight strong sales growth in unaffected markets. The speaker also addresses a question about the sustainability of margins at Taco Bell, attributing their success to various factors and expressing confidence in their ability to maintain high margins in the future.

Chris Turner and David Gibbs discuss the impressive margin story of Taco Bell in a value-oriented environment. They credit the success to leveraging their scale on food purchases and utilizing digital technology, such as Voice AI. They are confident that this will continue to provide strong value and margins for franchisees and company stores. Despite inflation and headwinds, the company is proud of their strong results and excited for the future as they continue to invest in their brands and digital leadership.

The speaker discusses their recent attendance at a Taco Bell franchisee convention and the excitement and strong partnerships for the brand. They also mention the resilience of their business model and the bright future for Taco Bell International. The speaker concludes by thanking everyone for their time and ending the conference call.

This summary was generated with AI and may contain some inaccuracies.