Yum Brands in recent years has spent most of its earnings calls talking about two entities: Taco Bell, its high-flying domestic Mexican fast-food chain, and KFC international, its big global unit-growth story.
Outside of that has been a crapshoot. Pizza Hut is starting to get the treatment of a brand that is on the market. Habit Burger, Yum’s fourth chain, sometimes gets mentioned, and sometimes it does not. But KFC U.S. has become a complete afterthought.
Wednesday’s first quarter earnings report took that a step further. Rather than break out U.S. and international same-store sales growth for its flagship brand, Yum is now relegating the U.S. to just-another-market status, without such breakout.
This was not lost on analysts, who asked Yum about the lack of information on Wednesday. Here is what CFO Ranjith Roy said:
“As we looked this quarter, we periodically review our disclosure to ensure that it aligns with drivers of growth and profitability that are most relevant to everyone following our releases. U.S. KFC’s place on our disclosure is now reflective of its scale in the overall Yum portfolio, where it currently comprises materially less than 5% of Yum operating profit, ex Pizza Hut. And of course, we’ll continue to focus on it strategically, but from a disclosure standpoint, that’s where it landed.”
Indeed, as a percent of KFC’s system sales, the U.S. is now the chain’s third-largest market, behind China (26%) and Europe (13%). It is tied with the rest of Asia at 12%. But that should change in, oh, a quarter or two given the fact that Asia grew system sales by 11% last quarter and KFC U.S. declined by 2%.
From that standpoint, the decision is understandable. KFC U.S. has been in decline for years. It is no longer a Top 20 chain and is only the fifth largest chicken brand in the U.S. It is unlikely to become a big part of the Yum Brands portfolio anytime soon.
One of the challenges of being a public company in turnaround mode is the pressure to report financial results. By hiding the same-store sales figure, Yum can shield the KFC U.S. management from at least some of the negative attention that might come with a bad number. KFC U.S. can operate in relative anonymity.
And most public companies like focusing on the positive in their earnings reports, though Yum tends to be one of the more glass-half-full companies in the public restaurant universe.
But it’s not as if KFC had an awful quarter. Its system sales in the U.S. declined 2% last quarter, which suggests at worst a 2% decline in same-store sales, and probably less given the chain’s generally steady shrinking store base.
And the argument that KFC U.S. isn’t big enough to warrant its own callout rings hollow when the company runs Habit Burger, a tiny brand by any measure of the word compared with the rest of the Yum platform. Habit generated $700 million in system sales last year, or about one-sixth the size of KFC U.S.
(Habit, by the way, had its strongest quarter since 2022, with 5% same-store sales growth, which we know because Yum reported it. And we know what the brand has done every quarter since then because Yum reported it.)
More to the point, KFC U.S. is a psychological barometer for Yum Brands given the absolute importance to the global brand to the company’s operating profit, with or without the on-the-market Pizza Hut. And the investor base that Yum is talking to remains mostly in the U.S.
Don’t take our word for it, either. Listen to CEO Chris Turner, in response to the analyst’s question. “It is a strategically important business for us. It’s our biggest brand. It’s our home market and a vibrant chicken market. We’ve said over the last few years, we’ve been dissatisfied with the trajectory of performance in that business. And we’re very pleased with what the U.S. leadership team is doing to change the trajectory there.”
KFC is an iconic restaurant chain, both in the U.S. and globally. It was a franchising pioneer that became a pioneer in developing overseas.
Its struggles in the U.S. have been one of the sadder developments in the industry over the past several years, struggles that have prevented the chain and its parent company Yum from reaching their full potential. And now those struggles have relegated that iconic, U.S. brand to the same status in Yum’s quarterly public comments as it gives to KFC Canada.