FILE PHOTO: People walk by a Taco Bell and Pizza Hut, subsidiaries of Yum! Brands, Inc. in Manhattan, New York City, U.S., February 7, 2022. REUTERS/Andrew Kelly/File Photo
By Deborah Mary Sophia
(Reuters) -Yum Brands Inc fell short of Wall Street estimates for quarterly profit on Wednesday, as the Taco Bell parent doubled down on promotions to attract inflation-wary consumers even as the company struggled with cost pressures.
Shares dropped more than 3% in premarket trading, despite the Louisville, Kentucky-based company topping first-quarter same-store sales estimates.
Yum Brands, which also owns the KFC and Pizza Hut brands, has banked on aggressive promotional offers and value-meal deal launches across its chains following a slowdown in demand last year, particularly from its lower-income customer base.
Those promotions – including Taco Bell’s $2 burritos, KFC’s $5 Mac & Cheese bowls and Pizza Hut’s “Melts” – pulled in newer customers, helping total same-store sales jump 8% in the quarter, handily beating estimates of a 5.45% increase.
However, the aggressive promotions amid cost pressures tied to labor and raw materials, along with investments in digital business, technology and automation largely caused a near 25% decline in the company’s quarterly net income.
Yum Brands also expects a $10 million to $20 million hit to current-quarter operating profit, Chief Financial Officer Chris Turner said on an earnings call.
Excluding special items, the company earned $1.06 per share in the first quarter, missing estimates of $1.13, according to Refinitiv IBES data.
The profit miss “was a little bit surprising when you consider what everyone else has reported. You’ve seen very positive results (from restaurants) across the board,” Edward Jones analyst Brian Yarbrough said.
McDonald’s Corp (NYSE:MCD), Burger King parent Restaurant Brands and Chipotle Mexican Grill (NYSE:CMG) all topped quarterly sales and profit estimates on the back of price hikes and robust demand.