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Yum! Brands Stocks Rise as Value-Focused Consumers Drive Taco Bell Sales

Posted on by darion

Key conclusions

  • Shares of KFC and Pizza Hut parent Yum! Brands rose Tuesday as the company offered an upbeat view of its value-oriented brands like Taco Bell as consumers pull back on discretionary spending.
  • Revenue rose year over year, but not as much as analysts had expected. Same-store sales were lower at KFC and Pizza Hut, but higher at Taco Bell.
  • In recent weeks, other fast-food giants like McDonald’s have also begun to emphasize quality as they take steps to win back customers who were turned away by high prices.

Yum! Brands (YUM) shares rose in intraday trading Tuesday, even though second-quarter sales and net income fell slightly short of estimates, as executives said the company is encouraged by Taco Bell’s results as consumers expect value for their money.

The parent company of Taco Bell, Pizza Hut and KFC reported higher revenue than expected in the second quarter of 2023 at $1.76 billion, slightly below analyst estimates compiled by Visible Alpha. Net income also missed estimates at $367 million, but adjusted net income of $386 million beat estimates after taking into account some one-time costs.

Taco Bell Drives Sales Growth as Fast-Food Values ​​Rise

Same-store sales rose 5% year over year at Taco Bell. However, lower sales at KFC and Pizza Hut reduced same-store sales by 1% for the company as a whole, in line with the first quarter.

Chief Executive Officer (CEO) David Gibbs said Tuesday during an earnings conference call that the company feels good about Taco Bell’s performance because of the chain’s ability to be an “always-on brand” in a consumer environment “where the consumer is probably pulling back a little bit.”

Value has been a key focus for other fast-food giants like McDonald’s (MCD) and Wendy’s (WEN) in recent months as the companies have found that many consumers, especially in lower-income brackets, have cut back on discretionary spending over the past year. Gibbs said the company is “well-positioned to navigate these consumer headwinds” because brands like Taco Bell and KFC have “reputations for value regardless of the environment.”

Yum! Brands shares were up 3.6% to $138.05 as of 2:10 p.m. ET Tuesday, continuing a streak of gains that has seen the stock rise 10% over the past two weeks.