Yum! Brands Joins Chipotle, McDonalds And Starbucks In Showing Affordable Food Cravings Are Stronger Than Recessionary Fears

Yum! Brands Inc (NYSE: YUM) reported its first quarter earnings last Wednesday, joining Chipotle Mexican Grill Inc (NYSE: CMG), McDonald’s Corporation (NYSE: MCD) and Starbucks Corporation (NASDAQ: SBUX) in reporting a rise in same-store traffic. More precisely, U.S. same-store sales were up 12.6% YoY at McDonalds ,12% at Starbucks, 10.9% at Chipotle and 9% at YUM! Brands' Taco Bell. However, despite greater sales and a rebound in China, Yum! Brands earnings fell short of Wall Street estimates.

Yum! Brands

For the quarter ended on March 31st, net sales rose 6% to $1.65 billion. Same-store sales rose 8% in the quarter as its three largest chains as KFC, Taco Bell and Pizza Hut outperformed expectations with their sales rebounding in China.

Net income dropped from 2022’s comparable quarter when it amounted $399 million, or $1.36 per share to $300 million, or $1.05 per share respectively. Earnings melted by 7 cents per share due to declines in the value of unnamed investments and further 8 cents per share due to an unfavorable foreign currency exchange. Excluding items, $1.06 per share was earned.

While international markets struggling with bubbling inflation, CFO Chris Turner stated that inflation, supply chain disruptions and staffing challenges have subsided in the U.S. Yum ! Brands opened 746 new locations across all of its chains during the quarter and shortly after the quarter ended, the chain completed its Russia exit.

Yum’s Three Largest Brands

Fueled by international markets, KFC’s same-store sales rose 9% while in China, KFC’s largest market, system sales expanded as much as 17%, lifting the chain’s international same-store sales growth to 11%.

Pizza Hut also followed with China’s system sales soaring 24% in the quarter, with the country being its second largest market after the U.S. which saw same-store sales growth of 8%. Overall, Pizza Hut’s same-store sales rose 7%.

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Taco Bell reported same-store sales growth of 8% for the quarter, while being the brand that saw the largest increase in openings as it continued to expand its international footprint.

McDonald’s Key Figures

First quarter earnings and revenue exceeded Wall Street Estimates, with U.S. traffic rising for the third consecutive quarter. Net sales expanded 4% as they amounted to $5.9 billion with all three divisions reporting same-store sales growth of 12.6%.

For the quarter ended on March 31st, McDonald’s made a net income of $1.8 billion, or $2.45 per share, up from $1.1 billion, or $1.48 per share it made during 2022’s comparable quarter. Adjusting for charges and other items, such as the $180 million charge related to terminating leases and employee severance as part of a corporate reorganization, McDonald’s EPS adds up to $2.63. Although executives are confident of the fast-food giant’s ability to navigate any challenges that lie ahead, they are conservative in their expectations regarding the macroeconomic environment.

Chipotle Proves Its Pricing Power

What’s even more impressive with Chipotle is that its traffic rose above expectations despite the Mexican food chain making one of the biggest price increases. With 10% higher menu prices compared to last year’s comparable quarter, Chipotle’s pricing power is more than proven. Both top and bottom lines exceeded estimates as first-quarter net income amounted to $291.6 million, or $10.50 per share, rising from $158.3 million, or $5.59 per share earned during 2022’s comparable quarter on the back of revenue expanding 17.2%, to $2.37 billion, from $2 billion generated during 2022’s comparable quarter. CEO Brian Niccol revealed that higher-income consumers are returning to restaurants more frequently, as well as lower-income ones compared to six months ago but the traffic of the later is still lower compared to 2022’s comparable quarter. Overall, traffic rose about 4%, succeeding to reverse last quarter’s decline. 41 new locations were opened during the three-month period.

Affordable Food Cravings Are Stronger Than Recessionary Fears

Value menus helped attract diners who would otherwise be pulling back on their restaurant spending. Yum! Brands, McDonalds and Chipotle not only flourished but also succeeded in resisting the industry trend of slipping traffic as their reports showed that especially US consumers are willing to indulge in affordable dining despite higher menu prices.

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice. 

 

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