I’m pleased with the very strong performance at Pizza Hut Casual Dining, which delivered solid same-store sales growth as we continue to open new units at a record pace. For the total China Division, we remain on track to open at least 700 new units this year. This means we will have opened about 1,600 units over a two-year period. As KFC sales continue to recover, we expect to have solid momentum in China heading into 2014.

We expect record new-unit openings for Yum! Restaurants International and in India this year. Our emerging market new-unit pipeline is stronger than ever. Additionally, Taco Bell continues to deliver sales growth in the U.S. with industry-leading innovation.

Our estimated mid-single-digit full-year EPS decline versus prior year remains unchanged. We expect a strong bounce-back year in 2014 as we continue to aggressively invest behind our core strategies and capitalize on the enormous growth opportunities we see around the world.”
 

CHINA DIVISION

 
   

Second Quarter
   

Year-to-Date
    % Change         % Change

2013
   

2012

Reported
   

Ex F/X

2013

2012

Reported
   

Ex F/X
System Sales Growth (10) (12) (9) (10)
Same-Store Sales Growth (%) (20) +10 NM NM (20) +12 NM NM
Restaurant Margin (%) 10.6 15.6 (5.0) (5.0) 13.2 19.1 (5.9) (5.9)
Operating Profit ($MM)     68     182     (63)     (63)     222     438     (49)     (50)
 
  • China Division sales and profits were significantly impacted by adverse publicity surrounding Avian flu, as well as the residual effect of the December poultry supply incident.
  • System sales decreased 12%, prior to foreign currency translation.
    • Same-store sales declined 20%, including a 26% decline at KFC and 7% growth at Pizza Hut Casual Dining.
  • China Division opened 100 new units in the second quarter, and 326 new units year-to-date.
 
China Units   Q2 2013   % Change
Traditional Restaurants 1   5,982   +14
KFC 4,429 +13
Pizza Hut Casual Dining 918 +32
Pizza Hut Home Service   171   +23

1 Total includes East Dawning, Pizza Hut Express and Little Sheep units
 
  • Restaurant margin decreased 5.0 percentage points to 10.6%, primarily due to sales deleverage.
  • Foreign currency translation positively impacted operating profit by $1 million.
  • We are temporarily providing monthly same-store sales releases until sales have recovered. We will release July same-store sales for our China Division on August 12, 2013, after market hours.
 

YUM! RESTAURANTS INTERNATIONAL (YRI) DIVISION
 
   

Second Quarter
   

Year-to-Date
        % Change         % Change

2013

2012

Reported
   

Ex F/X

2013

2012

Reported
   

Ex F/X
Traditional Restaurants 14,665 14,105 +4 NA 14,665 14,105 +4 NA
System Sales Growth +2 +6 +3 +5
Restaurant Margin (%) 12.6 11.8 0.8 0.8 13.1 12.0 1.1 1.0
Franchise & License Fees ($MM) 207 193 +8 +11 432 392 +10 +12
Operating Profit ($MM) 163 150 +8 +12 362 318 +14 +16
Operating Margin (%)     22.8     19.5     3.3     3.5     26.2     21.5     4.7     4.9
 
  • YRI Division system sales increased 6% prior to foreign currency translation, driven by new-unit development and 1% same-store sales growth.
    • Emerging markets system sales grew 12%, driven by 8% unit growth and 5% same-store sales growth.
    • Developed markets system sales grew 1%, driven by 1% unit growth. Same-store sales declined 1%, driven primarily by weak results in Japan and the UK.
  • YRI opened 205 new units in 50 countries, including 129 in emerging markets.
    • 87% of all new units were opened by franchisees.
  • Restaurant margin increased 0.8 percentage points, primarily driven by the refranchising of our Pizza Hut UK Dine-In business late last year.
  • Operating profit growth was 12%; this included a benefit of 3 percentage points from refranchising the Pizza Hut UK Dine-In business.
  • Foreign currency translation negatively impacted operating profit by $5 million.
 
YRI MARKETS 1       SYSTEM Sales Growth Ex F/X
Percent of YRI 2   Second Quarter (%)   Year-to-Date (%)
Franchise    
Asia (ex Japan) 16% +10 +6
Japan 10% (5) (6)
Latin America 11% +7 +6
Middle East 3 8% +4 +4
Continental Europe 7% +2 +2
Canada 6% (1) (1)
 
Combined Company / Franchise
UK 12% (2) (1)
Australia / New Zealand 11% +4 +5
Thailand 2% +13 +15
Korea 2% +7 +9
 
Key Growth
Africa 7% +17 +17
France 4% +5 +5
Germany / Netherlands 2% +16 +16
Russia   2%   +48   +47

1 See website www.yum.com under tab “Investors” for a list of the countries within each of the YRI markets

2 Percentage of Total YRI System Sales for Full Year 2012

3 Middle East excludes Turkey, which was acquired from a franchisee in the second quarter
 
 

U.S. DIVISION
 
   

Second Quarter
   

Year-to-Date

2013
   

2012
   

% Change

2013
   

2012
   

% Change
Same-Store Sales Growth (%) +1 +7 NM +1 +6 NM
Restaurant Margin (%) 18.3 17.5 0.8 17.6 16.0 1.6
Franchise and License Fees ($MM) 199 188 +6 389 366 +6
Operating Profit ($MM) 173 166 +4 338 324 +4
Operating Margin (%)     24.5     20.4     4.1     24.1     20.1     4.0
 
  • U.S. Division same-store sales increased 1%, including growth of 2% at Taco Bell and 3% at KFC. Same-store sales declined 2% at Pizza Hut.
  • Restaurant margin increased 0.8 percentage points, driven primarily by refranchising.
  • Operating profit grew 4%; this included a benefit of 10 percentage points from overlapping costs incurred last year associated with the resolution of an employment lawsuit. Operating profit growth was adversely impacted by 3 percentage points due to refranchising.

INDIA DIVISION
  • India Division system sales increased 24%, prior to foreign currency translation. The system sales increase was driven by 25% unit growth and 2% same-store sales growth.
 
India Units     Q2 2013     % Change
Traditional Restaurants 1     597     +25
KFC 285 +34
Pizza Hut Casual Dining 180 +7
Pizza Hut Home Service     129     +34

1 Total includes 3 Taco Bell units
 

OWNERSHIP / SPECIAL ITEMS UPDATE
  • In the U.S., we refranchised 42 units for proceeds of $55 million, primarily related to Taco Bell. We recorded pre-tax U.S. refranchising gains of $28 million in Special Items.

SHARE REPURCHASE UPDATE
  • Year-to-date through July 9, 2013, we repurchased 5.7 million shares totaling $390 million at an average price of $68.

CONFERENCE CALL

Yum! Brands, Inc. will host a conference call to review the company’s financial performance and strategies at 9:15 a.m. Eastern Time Thursday, July 11, 2013. The number is 877/815-2029 for U.S. callers and 706/645-9271 for international callers.

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