YUM! BRANDS, INC. Introduction and Overview
The following Management's Discussion and Analysis ("MD&A"), should be read in
conjunction with the unaudited Condensed Consolidated Financial Statements
("Financial Statements"), the Forward-Looking Statements and our Annual Report
on Form 10-K for the fiscal year ended December 31, 2021 , ("2021 Form 10-K").
All Note references herein refer to the Notes to the Financial
Statements. Tabular amounts are displayed in millions of U.S. dollars except per
share and unit count amounts, or as otherwise specifically identified.
Percentages may not recompute due to rounding.
Yum! Brands, Inc. and its Subsidiaries (collectively referred to herein as the
"Company," "YUM," "we," "us" or "our") franchise or operate a system of over
54,000 restaurants in more than 155 countries and territories, primarily under
the concepts of KFC , Taco Bell , Pizza Hut and The Habit Burger Grill
(collectively, the "Concepts"). The Company's KFC , Taco Bell and Pizza Hut
brands are global leaders of the chicken, Mexican-style and pizza food
categories, respectively. The Habit Burger Grill , is a fast-casual restaurant
concept specializing in made-to-order chargrilled burgers, sandwiches and more.
Of the over 54,000 restaurants, 98% are operated by franchisees.
YUM currently consists of four operating segments:
•The KFC Division which includes our worldwide operations of theKFC concept •The Taco Bell Division which includes our worldwide operations of theTaco Bell concept •The Pizza Hut Division which includes our worldwide operations of thePizza Hut concept •The Habit Burger Grill Division which includes our worldwide operations of theHabit Burger Grill concept Through our Recipe for Growth and Good we intend to unlock the growth potential of our Concepts and YUM, drive increased collaboration across our Concepts and geographies and consistently deliver better customer experiences, improved unit economics and higher rates of growth. Key enablers include accelerated use of technology and better leverage of our systemwide scale. Our Recipe for Growth is based on four key drivers: •Unrivaled Culture and Talent: Leverage our culture and people capability to fuel brand performance and franchise success •Unmatched Operating Capability: Recruit and equip the best restaurant operators in the world to deliver great customer experiences •Relevant, Easy and Distinctive Brands: Innovate and elevate iconic restaurant brands people trust and champion •Bold Restaurant Development: Drive market and franchise expansion with strong economics and value Our global citizenship and sustainability strategy, called the Recipe for Good, reflects our priorities for socially responsible growth, risk management and sustainable stewardship of our people, food and planet. We intend for this MD&A to provide the reader with information that will assist in understanding our results of operations, including performance metrics that management uses to assess the Company's performance. Throughout this MD&A, we commonly discuss the following performance metrics: •Same-store sales growth is the estimated percentage change in system sales of all restaurants that have been open and in the YUM system for one year or more, including those temporarily closed. From time-to-time restaurants may be temporarily closed due to remodeling or image enhancement, rebuilding, natural disasters, health epidemic or pandemic, landlord disputes or other issues. The system sales of restaurants we deem temporarily closed remain in our base for purposes of determining same-store sales growth and the restaurants remain in our unit count (see below). Throughout 2021 we had a significant number of restaurants that were temporarily closed including restaurants closed due to government and landlord restrictions as a result of COVID-19. Additionally, due to our decision in the quarter endedMarch 31, 2022 , to suspend the operations of our 70 company-ownedKFC stores inRussia , such restaurants are considered temporarily closed atMarch 31, 2022 for purposes of our same-store sales growth calculation and unit count presentation. We believe same-store sales growth is useful to investors because our results are heavily dependent on the results of our Concepts' existing store base. Additionally, same-store sales growth is reflective of the strength of our Brands, the effectiveness of our operational and advertising initiatives and local economic and consumer trends. •Gross unit openings reflects new openings by us and our franchisees. Net new unit growth reflects gross unit openings offset by permanent store closures, by us and our franchisees. To determine whether a restaurant meets the definition of a 20 -------------------------------------------------------------------------------- unit we consider whether the restaurant has operations that are ongoing and independent from another YUM unit, serves the primary product of one of our Concepts, operates under a separate franchise agreement (if operated by a franchisee) and has substantial and sustainable sales. We believe gross unit openings and net new unit growth are useful to investors because we depend on new units for a significant portion of our growth. Additionally, gross unit openings and net new unit growth are generally reflective of the economic returns to us and our franchisees from opening and operating our Concept restaurants. •System sales and System sales excluding the impacts of foreign currency translation ("FX") reflect the results of all restaurants regardless of ownership, including Company-owned and franchise restaurants. Sales at franchise restaurants typically generate ongoing franchise and license fees for the Company at a rate of 3% to 6% of sales. Increasingly, customers are paying a fee to a third party to deliver or facilitate the ordering of our Concepts' products. We also include in System sales any portion of the amount customers pay these third parties for which the third party is obligated to pay us a license fee as a percentage of such amount. Franchise restaurant sales and fees paid by customers to third parties to deliver or facilitate the ordering of our Concepts' products are not included in Company sales on the Condensed Consolidated Statements of Income; however, any resulting franchise and license fees we receive are included in the Company's revenues. We believe System sales growth is useful to investors as a significant indicator of the overall strength of our business as it incorporates our primary revenue drivers, Company and franchise same-store sales as well as net unit growth.
In addition to the results provided in accordance with Generally Accepted
Accounting Principles in
•Diluted Earnings Per Share excluding Special Items (as defined below);
•Effective Tax Rate excluding Special Items;
•Core Operating Profit. Core Operating Profit excludes Special Items and FX and we use Core Operating Profit for the purposes of evaluating performance internally;
•Company restaurant profit and Company restaurant margin as a percentage of sales (as defined below).
These non-GAAP measurements are not intended to replace the presentation of our
financial results in accordance with GAAP. Rather, the Company believes that the
presentation of these non-GAAP measurements provide additional information to
investors to facilitate the comparison of past and present operations.
Special Items are not included in any of our Division segment results as the
Company does not believe they are indicative of our ongoing operations due to
their size and/or nature. Our chief operating decision maker does not consider
the impact of Special Items when assessing segment performance.
Company restaurant profit is defined as Company sales less Company restaurant
expenses, both of which appear on the face of our Condensed Consolidated
Statements of Income. Company restaurant expenses include those expenses
incurred directly by our Company-owned restaurants in generating Company sales,
including cost of food and paper, cost of restaurant-level labor, rent,
depreciation and amortization of restaurant-level assets and advertising
expenses incurred by and on behalf of that Company restaurant. Company
restaurant margin as a percentage of sales ("Company restaurant margin %") is
defined as Company restaurant profit divided by Company sales. We use Company
restaurant profit for the purposes of internally evaluating the performance of
our Company-owned restaurants and we believe Company restaurant profit provides
useful information to investors as to the profitability of our Company-owned
restaurants. In calculating Company restaurant profit, the Company excludes
revenues and expenses directly associated with our franchise operations as well
as non-restaurant-level costs included in General and administrative expenses,
some of which may support Company-owned restaurant operations. The Company also
excludes restaurant-level asset impairment and closures expenses, which have
historically not been significant, from the determination of Company restaurant
profit as such expenses are not believed to be indicative of ongoing operations.
Company restaurant profit and Company restaurant margin % as presented may not
be comparable to other similarly titled measures of other companies in the
industry.
Certain performance metrics and non-GAAP measurements are presented excluding
the impact of FX. These amounts are derived by translating current year results
at prior year average exchange rates. We believe the elimination of the FX
impact provides better year-to-year comparability without the distortion of
foreign currency fluctuations.
21
--------------------------------------------------------------------------------Results of Operations
Summary
All comparisons within this summary are versus the same period a year ago.
For the quarter endedMarch 31, 2022 , GAAP diluted EPS was$1.36 per share, an increase from$1.07 per share in the quarter endedMarch 31, 2021 , and diluted EPS, excluding Special Items, was$1.05 per share, a decrease from$1.07 per share in the quarter endedMarch 31, 2021 .
Quarterly Financial highlights:
% Change
System Sales, ex FX Same-Store Sales Units GAAP Operating Profit Core Operating Profit
KFC Division +9 +3 +8 (3) +1
Taco Bell Division +8 +5 +5 +4 +4
Pizza Hut Division +3 Even +5 Even +2
Worldwide +8 +3 +6 (6) (5)
Additionally:
•During the quarter, 997 gross units were opened contributing to the addition of 628 net new units.
•During the quarter, we repurchased 3.4 million shares totaling
•Foreign currency translation unfavorably impacted Divisional Operating Profit
for the quarter by
22
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Worldwide
GAAP Results
Quarter ended
2022 2021 % B/(W)
Company sales $ 470 $ 476 (1)
Franchise and property revenues 714 658 9
Franchise contributions for advertising and other services 363
352 3
Total revenues 1,547 1,486 4
Company restaurant expenses 402 392 (3)
G&A expenses 253 206 (23)
Franchise and property expenses 32 23 (42)
Franchise advertising and other services expense 361 343 (5)
Refranchising (gain) loss (4) (15) (76)
Other (income) expense (6) (6) NM
Total costs and expenses, net 1,038 943 (10)
Operating Profit 509 543 (6)
Investment (income) expense, net (7) - NM
Other pension (income) expense - 3 83
Interest expense, net 118 131 11
Income before income taxes 398 409 (3)
Income tax (benefit) provision (1) 83 101
Net Income $ 399 $ 326 22
Diluted EPS(a) $ 1.36 $ 1.07 27
Effective tax rate (0.2) % 20.2 % 20.4 ppts.
(a)See Note 2 for the number of shares used in this calculation.
Performance Metrics
Unit Count 3/31/2022 3/31/2021 % Increase (Decrease)
Franchise 52,990 49,714 7
Company-owned 1,062 1,074 (1)
Total 54,052 50,788 6
Quarter ended
2022 2021
Same-store Sales Growth (Decline) % 3 9
System Sales Growth (Decline) %, reported 6 14
System Sales Growth (Decline) %, excluding FX 8 11
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Our system sales breakdown by Company and franchise sales was as follows:
Quarter ended
2022 2021
Consolidated
Company sales(a) $ 470 $ 476
Franchise sales 13,676 12,909
System sales 14,146 13,385
Foreign Currency Impact on System sales(b) (275) N/A
System sales, excluding FX $ 14,421 $ 13,385
KFC Division
Company sales(a) $ 126 $ 133
Franchise sales 7,607 7,140
System sales 7,733 7,273
Foreign Currency Impact on System sales(b) (229) N/A
System sales, excluding FX $ 7,962 $ 7,273
Taco Bell Division
Company sales(a) $ 214 $ 208
Franchise sales 2,894 2,672
System sales 3,108 2,880
Foreign Currency Impact on System sales(b) (5) N/A
System sales, excluding FX $ 3,113 $ 2,880
Pizza Hut Division
Company sales(a) $ 5 $ 14
Franchise sales 3,155 3,082
System sales 3,160 3,096
Foreign Currency Impact on System sales(b) (41) N/A
System sales, excluding FX $ 3,201 $ 3,096
Habit Burger Grill Division
Company sales(a) $ 125 $ 121
Franchise sales 20 15
System sales 145 136
Foreign Currency Impact on System sales(b) - N/A
System sales, excluding FX $ 145 $ 136 (a)Company sales represents sales from our Company-operated stores as presented on our Condensed Consolidated Statements of Income.
(b) The foreign currency impact on System sales is presented in relation only to the immediately preceding year presented. When determining applicable System sales growth percentages, the System sales excluding FX for the current year should be compared to the prior year System sales.
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