Updated from 2:26 p.m. ET with analyst comment and details from earnings call.
What's up with Taco Bell?
The Mexican-themed fast-food joint, fresh off an impressive 2015, notched a meager 1% same-store sales increase in the first quarter, below the consensus estimate for a 3.1% gain, parent company Yum! Brands (YUM - Get Report) announced Wednesday. The result was noticeably slower than the 4% increase seen in the fourth quarter, and well off the strong 6% gain logged last year.
"Taco Bell faced increased value pressure from the burger chains in the first quarter," said Yum! Brands interim Chief Financial Officer David Russell to analysts on a conference call. Russell added, "Same-store sales improved throughout the quarter, and we remain confident in achieving 3% same-store sales growth for the year, with a stronger second half than first half."
But, given Taco Bell's high-profile new product launches in the quarter, the sales slowdown remains a concern.
On Super Bowl Sunday, Taco Bell debuted its long-awaited new item called the Quesalupa. Originally tested at 36 restaurants in Ohio last year, the Quesalupa keeps the thick, fried shell of Taco Bell's signature chalupa, except the shell is stuffed with cheese. Inside the caloric bomb is the typical Taco Bell fare of ground beef, cheddar cheese, lettuce, tomato and sour cream.
Then Taco Bell took the wraps off a new, nationwide $1 breakfast menu in mid-March, just several days before the first quarter closed. The breakfast menu -- which is permanent -- consists of 10 items, three of which have been newly created.
Taco Bell executives likely won't have to wait too long to get a deeper explanation for the chain's sales slowdown. McDonald's (MCD - Get Report) will report first-quarter earnings on Friday, and likely will show continued success with its all-day breakfast platform launched last October. At least one Wall Street analyst agrees Taco Bell is being hurt by increased discounts for hamburgers among McDonald's, Burger King (division of Restaurant Brands International (QSR - Get Report) ), Wendy's (WEN - Get Report) and others.
"Taco Bell's sales shortfall reflects likely pressure from aggressive quick-service burger category discounting," said Barclays analyst Jeffrey Bernstein in a client note. Bernstein maintained his equal weight rating on shares of Yum! Brands.