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
53,000 restaurants in 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 53,000
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 social responsibility, 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. 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 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
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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.
As of the beginning of the second quarter, as a result of our progress towards
exiting Russia and our decision to reclass net profits attributable to Russia
from the operating segments in which those profits were earned to Unallocated
Other income (see Notes 1 and 8), we have elected to remove all Russia units
from our unit count as well as to exclude those units' associated sales from our
system sales totals. We removed 1,112 units and 53 units in Russia from our
global KFC and Pizza Hut unit counts, respectively. These units were treated
similar to permanent store closures for purposes of our same-store sales
calculations and thus they were removed from our same-store sales calculations
beginning April 1, 2022 .
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.
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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.
Results of Operations
Summary
All comparisons within this summary are versus the same period a year ago. Such
comparisons reflect the impact of removing all Russian units from our unit count
and their associated sales from our total system sales as of the beginning of
the second quarter.
For the quarter ended June 30, 2022 , GAAP diluted EPS was $0.77 per share, a
decrease from $1.29 per share in the quarter ended June 30, 2021 , and diluted
EPS, excluding Special Items, was $1.05 per share, a decrease from $1.16 per
share in the quarter ended June 30, 2021 .
For the year to date ended June 30, 2022 , GAAP diluted EPS was $2.13 per share,
a decrease from $2.35 per share in the year to date ended June 30, 2021 , and
diluted EPS, excluding Special Items, was $2.10 per share, a decrease from $2.22
per share in the year to date ended June 30, 2021 .
Quarterly Financial highlights:
% Change
System Sales, ex FX Same-Store Sales Units GAAP Operating Profit Core Operating Profit
KFC Division +1 (1) +3 (8) (2)
Taco Bell Division +10 +8 +4 +9 +9
Pizza Hut Division Even (3) +4 (10) (7)
Worldwide +3 +1 +4 (2) (1)
Year to date Financial highlights:
% Change
System Sales, ex FX Same-Store Sales Units GAAP Operating Profit Core Operating Profit
KFC Division +5 +1 +3 (6) (1)
Taco Bell Division +9 +6 +4 +6 +7
Pizza Hut Division +2 (1) +4 (5) (2)
Worldwide +5 +2 +4 (4) (3)
Additionally:
•During the quarter, 781 gross units were opened resulting in the addition of
463 net-new units for the quarter and 1,091 for the year to date.
•Net-new unit additions were offset by the removal of 1,165 Russia units for a
total decline in unit count of 702 units versus our unit count at March 31, 2022
and 74 versus our unit count at December 31, 2021 .
•Foreign currency translation unfavorably impacted Divisional Operating Profit
for the quarter and year to date by
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Worldwide
GAAP Results
Quarter ended Year to date
2022 2021 % B/(W) 2022 2021 % B/(W)
Company sales $ 499 $ 520 (4) $ 969 $ 996 (3)
Franchise and property revenues 737 706 4 1,451 1,364 6
Franchise contributions for 400 376 6 763 728 5
advertising and other services
Total revenues 1,636 1,602 2 3,183 3,088 3
Company restaurant expenses 415 417 1 817 809 (1)
G&A expenses 254 230 (11) 507 436 (17)
Franchise and property expenses 29 27 (10) 61 50 (24)
Franchise advertising and other 396 372 (6) 757 715 (6)
services expense
Refranchising (gain) loss (8) (7) 34 (12) (22) (43)
Other (income) expense (4) (4) NM (10) (10) NM
Total costs and expenses, net 1,082 1,035 (4) 2,120 1,978 (7)
Operating Profit 554 567 (2) 1,063 1,110 (4)
Investment (income) expense, net 15 (1) NM 8 (1) NM
Other pension (income) expense 1 2 86 1 5 84
Interest expense, net 148 159 6 266 290 8
Income before income taxes 390 407 (4) 788 816 (3)
Income tax provision 166 16 NM 165 99 (67)
Net Income $ 224 $ 391 (43) $ 623 $ 717 (13)
Diluted EPS(a) $ 0.77 $ 1.29 (40) $ 2.13 $ 2.35 (9)
Effective tax rate 42.6 % 4.0 % (38.6) ppts. 21.0 % 12.1 % (8.9) ppts.
(a)See Note 2 for the number of shares used in this calculation.
Performance Metrics
Unit Count 6/30/2022 6/30/2021 % Increase (Decrease)
Franchise 52,363 50,317 4
Company-owned 987 1,074 (8)
Total 53,350 51,391 4
Quarter ended Year to date
2022 2021 2022 2021
Same-store Sales Growth (Decline) % 1 23 2 16
System Sales Growth (Decline) %, reported (1) 32 2 23
System Sales Growth (Decline) %, excluding FX 3 26 5 18
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Our system sales breakdown by Company and franchise sales was as follows:
Quarter ended Year to date
2022 2021 2022 2021
Consolidated
Company sales(a) $ 499 $ 520 $ 969 $ 996
Franchise sales 13,457 13,604 27,133 26,513
System sales 13,956 14,124 28,102 27,509
Foreign Currency Impact on System sales(b) (553) N/A (829) N/A
System sales, excluding FX $ 14,509 $ 14,124 $ 28,931 $ 27,509
KFC Division
Company sales(a) $ 115 $ 147 $ 241 $ 280
Franchise sales 7,137 7,491 14,744 14,631
System sales 7,252 7,638 14,985 14,911
Foreign Currency Impact on System sales(b) (426) N/A (655) N/A
System sales, excluding FX $ 7,678 $ 7,638 $ 15,640 $ 14,911
Taco Bell Division
Company sales(a) $ 243 $ 223 $ 457 $ 431
Franchise sales 3,266 2,966 6,160 5,638
System sales 3,509 3,189 6,617 6,069
Foreign Currency Impact on System sales(b) (13) N/A (19) N/A
System sales, excluding FX $ 3,522 $ 3,189 $ 6,636 $ 6,069
Pizza Hut Division
Company sales(a) $ 5 $ 12 $ 10 $ 26
Franchise sales 3,034 3,131 6,189 6,213
System sales 3,039 3,143 6,199 6,239
Foreign Currency Impact on System sales(b) (114) N/A (155) N/A
System sales, excluding FX $ 3,153 $ 3,143 $ 6,354 $ 6,239
Habit Burger Grill Division
Company sales(a) $ 136 $ 138 $ 261 $ 259
Franchise sales 20 16 40 31
System sales 156 154 301 290
Foreign Currency Impact on System sales(b) - N/A - N/A
System sales, excluding FX $ 156 $ 154 $ 301 $ 290 (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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