Yum! Brands, Inc. (YUM) Q4 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call highlights strong financial performance, particularly with Taco Bell and KFC, and positive growth strategies. The Q&A reveals management's confidence in long-term growth, despite some vague responses. The strategic initiatives, like the 'Raise the Bar' and Byte expansion, along with positive financial metrics, suggest a positive market reaction. The lack of precise guidance on some fronts is a minor concern, but overall, the sentiment is positive.

Key Financial Performance

Taco Bell same-store sales growth 7% year-over-year growth, attributed to market share gains and outperforming the QSR industry.

KFC divisional core operating profit growth 10% year-over-year growth, driven by record-breaking unit development and strong performance in international markets.

Digital sales growth 20% year-over-year growth, driven by investments in digital platforms, loyalty programs, and AI-driven personalized marketing.

KFC system sales growth 6% year-over-year growth, with strong performance in the U.K. and Middle East markets.

Taco Bell system sales growth 8% year-over-year growth, driven by innovation-led buzz, value offerings, and increased penetration among diverse consumer groups.

Taco Bell U.S. restaurant level margins 25.7% in Q4, a 50 basis point expansion year-over-year, attributed to 4% same-store sales growth and strong transaction growth.

KFC Q4 restaurant level margins 12.7%, a 60 basis point expansion year-over-year, driven by improvements in U.K. and U.S. store margins.

Digital sales $11 billion in Q4, representing a 25% year-over-year growth and a digital mix of nearly 60%.

Yum! core operating profit growth 7% for the year, with a 10% growth excluding the Pizza Hut division.

Taco Bell international same-store sales growth 5% year-over-year, with standout performance in Canada, the U.K., and Spain.

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Operating Highlights

Digital capabilities: Digital mix approaching 60% and digital sales growing 20% year-over-year. Investments in Byte by Yum! platform, loyalty ecosystem, and AI-driven personalized marketing are driving top-line momentum.

Taco Bell Innovations: Taco Bell is innovating for next-generation growth with 2030 ambitions, including reaching $3 million in U.S. average unit volumes, expanding to 3,000 international stores, and delivering 25%-26% U.S. restaurant-level margins.

KFC Menu Enhancements: KFC is reengineering its menu and calendar, increasing marketing windows, and upgrading limited-time offerings. New platforms like Saucy by KFC and KWENCH beverage platform are being rolled out.

Taco Bell International Expansion: Taco Bell entered 5 new markets in 2025 and opened 155 gross units internationally, up almost 40% from the prior year. Development occurred in 26 countries, including India, the U.K., Thailand, Brazil, Spain, and Canada.

KFC International Growth: KFC opened nearly 3,000 units in 2025, spanning 105 markets. Franchise partnerships in India and Asia are accelerating growth, with significant potential in underpenetrated markets like India and Brazil.

Digital Ordering and SmartOps: Byte by Yum! platform expanded globally, with SmartOps in over 7,000 restaurants and digital ordering in nearly 18,000 restaurants. Benefits include reduced ordering failures, increased consumer satisfaction, and reduced stock-outs.

Franchisee Economics: Efforts to improve franchisee economics include analytics-driven store development plans, improved restaurant paybacks, and scaling profitable platforms.

Pizza Hut Strategic Review: A strategic review of Pizza Hut is underway, with plans to modernize technology, franchise agreements, and marketing. Targeted closures of underperforming units are expected in 2026.

Raising the Bar Initiatives: Yum! is focusing on battling for future consumers, accelerating restaurant-level economics, and leveraging Byte technology for connected consumer experiences and profitable growth.

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Risk or Challenges

Foreign Currency Impact: The company's system sales and operating profit growth exclude the impact of foreign currency, which could pose a risk if exchange rates fluctuate significantly in the future.

Pizza Hut Strategic Review: The ongoing strategic review of Pizza Hut, including targeted closures of underperforming units, could lead to short-term financial and operational disruptions.

Supply Chain Challenges: The company faces potential supply chain challenges, as evidenced by the Turkey closures in 2025, which impacted KFC's net new unit record.

Economic Uncertainty: Higher beef prices and economic conditions could impact restaurant-level margins, as seen with Taco Bell's U.S. operations.

Franchisee Economics: The company is focused on improving restaurant-level economics for franchisees, but challenges in achieving this could hinder sustained unit growth.

Technology Integration: The rollout of the Byte by Yum! platform and other technology initiatives involves significant investment and operational complexity, which could pose risks if not executed effectively.

Competitive Pressures: The company faces competitive pressures in the QSR industry, requiring continuous innovation and investment to maintain market share.

Regulatory and Market Risks: Expansion into new markets and regions, such as Asia and Europe, involves navigating regulatory and market-specific challenges.

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Guidance & Outlook

Taco Bell 2030 Ambitions: Taco Bell aims to reach approximately $3 million in U.S. average unit volumes, expand to 3,000 international stores, and deliver 25%-26% U.S. restaurant-level margins by 2030. This involves expanding digital and loyalty programs, introducing new category entry points, and driving higher frequency and traffic.

KFC 2026 Plans: KFC plans to reengineer its menu and calendar, increase marketing windows, and upgrade limited-time offerings. It will roll out the KWENCH beverage platform to 3,000 stores and refine tender offerings. A global innovation hub will shorten development cycles and enhance product testing.

Taco Bell 2026 Marketing Calendar: Taco Bell will launch 26 new and tested innovations, expand value menus, and optimize $5, $7, and $9 boxes. Digital is expected to drive nearly 25% of Taco Bell's average unit volume growth in 2026.

Pizza Hut Strategic Review: The strategic review of Pizza Hut is ongoing, with plans to complete it in 2026. The Hut Forward program includes marketing modernization, technology upgrades, and targeted closures of underperforming units.

Byte by Yum! Technology Platform: The Byte platform will expand globally in 2026, with SmartOps deployed in KFC UK and digital ordering in KFC Australia. The platform aims to improve operational efficiency, consumer satisfaction, and restaurant-level economics.

Taco Bell International Expansion: Taco Bell plans to reach 3,000 international units by 2030, supported by analytics-driven development and strong franchisee economics. In 2025, Taco Bell entered five new markets and opened 155 international units.

KFC Global Expansion: KFC plans to continue its record-setting unit growth, focusing on emerging markets like India and Brazil. Franchise partnerships are expected to accelerate growth in underpenetrated regions.

2026 Financial Guidance: Excluding Pizza Hut, Yum! expects to meet or exceed its long-term growth algorithm, including over 5% net new unit growth. Taco Bell U.S. restaurant-level margins are projected at 24%-25%. G&A expenses will grow mid-single digits, and interest expenses will range between $500 million and $520 million.

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Shareholder Return Plan

Dividend Payments: For the year, Yum! returned approximately $1.35 billion to shareholders through dividends and share buybacks. The company continues to prioritize offering a competitive dividend as part of its capital priorities.

Share Buybacks: Yum! Brands completed share buybacks as part of its strategy to return excess cash to shareholders. This was included in the $1.35 billion returned to shareholders in 2025.

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Key Q&A

Q:Can you elaborate on opportunities to accelerate long-term growth, particularly focusing on Taco Bell and KFC?

A:The CEO highlighted momentum in KFC and Taco Bell, with KFC achieving record gross unit openings in 2025 and Taco Bell showing strong same-store sales growth. Strategies include improving restaurant economics, expanding loyalty programs, and leveraging marketing innovations like partnerships and new product categories. Taco Bell aims to reach $3 million AUVs by 2030, supported by initiatives like the Luxe value menu and loyalty program growth.

Q:What are the prospects for reacceleration in KFC Global Development, especially outside of China?

A:The CEO emphasized the 'Raise the Bar' strategy to improve AUV growth and restaurant economics. Examples of accelerated growth include markets like Korea, Italy, and Japan, where focused strategies led to significant increases in net new units. The company aims to unlock white space in underpenetrated markets with higher AUVs and royalty rates.

Q:How are you thinking about unit development growth rates for KFC and Taco Bell?

A:The CFO noted near-record development in KFC and accelerating growth in Taco Bell. The 'Raise the Bar' strategy is expected to naturally lead to long-term acceleration. Factors like Turkey closures and Yum! China’s strategy with lower AUVs but strong paybacks were discussed. Unlocking higher AUV markets globally is a focus for future growth.

Q:Can you provide details on Taco Bell's comp growth in 2025, including traffic and demographic trends?

A:Taco Bell achieved strong same-store sales growth, with transaction growth nearly 5 points ahead of the category. Growth was driven by increased penetration and frequency across all income bands, with notable gains among higher-income consumers and the 18-24 age group. Marketing, value offerings, and loyalty programs contributed to this success.

Q:What is the current adoption and progress of the Byte initiative in the U.S. and internationally?

A:Byte has the highest penetration in the U.S., particularly in Taco Bell and Pizza Hut systems. International expansion is underway, with a focus on thoughtful deployment and change management. The CFO emphasized ongoing investments in technology to maintain and upgrade systems, which are incorporated into the company’s growth algorithm.

Q:What are the gating factors for further international expansion of Byte, and how quickly do benefits materialize?

A:The CEO explained that deployment involves evaluating Byte’s benefits relative to existing systems, aligning with franchise partners, and implementing thoughtfully. Change management is crucial, especially for SmartOps. Expansion will be steady, with benefits materializing as franchisees and marketing teams leverage Byte’s capabilities.

Q:What are your views on life beyond Pizza Hut and the potential for adding another global brand?

A:The CEO stated that the focus is currently on completing the strategic review of Pizza Hut and driving performance across all four brands. The 'Raise the Bar' strategy aims to improve relevance, restaurant economics, and Byte deployment, enhancing the long-term trajectory of the business. No specific plans for adding another brand were discussed.

Q:What is the optimal number of Pizza Hut stores in the U.S., and will the 250 closures encompass all necessary reductions?

A:The CFO clarified that the 250 closures are part of the Hut Forward program and represent a small portion of the 20,000 global units. These actions are deemed necessary for the brand’s strategic review and are focused on early 2026.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the potential addition of another global brand, stating that the focus remains on completing the strategic review of Pizza Hut and driving performance across existing brands. Additionally, while discussing Byte’s international expansion, the timeline and specific benefits were described as a 'journey,' lacking precise metrics or deadlines.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

YUM Transcript

Yum! Brands, Inc. (YUM) Q4 2025 Earnings Call Transcript

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The earnings call summary reveals strong financial metrics, including a 15% YoY EPS increase and record-high digital sales. KFC's margin improvement and Taco Bell's growth initiatives are promising. The strategic review of Pizza Hut and the Taco Bell franchise acquisition indicate a focus on long-term growth. The Q&A section highlights positive sentiment around Taco Bell's performance and KFC's turnaround efforts. Despite some management vagueness, the overall sentiment is positive, suggesting a stock price increase of 2% to 8% over the next two weeks.

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The earnings call highlights strong financial performance and strategic initiatives. Despite a slight margin decline, robust digital sales growth and promising new concepts like Live Mas Cafe and Byte by Yum! suggest positive future prospects. The management's confidence in achieving 8% profit growth, coupled with increased shareholder returns, further bolsters sentiment. However, some uncertainties remain, such as the precise impact of tech investments. Overall, the positive elements outweigh the negatives, leading to a positive outlook for the stock price.

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