The market didn't find yesterday's quarterly report out of Yum! Brands (NYSE: YUM ) all that appetizing. Adjusted earnings fell short for the first time in more than a year, and there wasn't enough strength at its Taco Bell, KFC, and Pizza Hut chains outside of China to offset the continuing slide of KFC in the world's most populous nation.
Rather than dwell on the unfortunate report, let's go over a few things that you might not know when it comes to Yum!'s three flagship eateries.
1. KFC wants to go upscale
Let's set aside the 13% drop in same-store sales at its KFC locations in China and Yum! going public with its realization that comps in China aren't going to turn positive during the current quarter as it had originally projected.
Closer to home, Yum! is taking a shot at transforming the seemingly tired fried chicken chain into a player in the booming fast-casual market.
Yum! opened its first KFC eleven store in Louisville this summer. The new concept looks a lot more like Chipotle Mexican Grill (NYSE: CMG ) than your friendly neighborhood KFC. You have the same glass-walled assembly line that you find at Chipotle with a daring menu that revolves largely around KFC's recently introduced boneless fried chicken.
It will naturally be a long time before KFC's thousands of domestic locations receive this kind of makeover. If you want a flatbread loaded with pineapple salsa, tortilla strips, and cilantro or a salad consisting of boneless fried chicken, orange ginger dressing, and wonton noodles, you're going to have to head out to Kentucky. However, it wouldn't be a surprise to see what works at KFC eleven show up at KFC itself sooner rather than later.
FYI, the name refers to the 11 secret herbs and spices in Colonel Sanders' original recipe.
2. Doritos Locos Tacos may have run their course at Taco Bell
The best-performing domestic Yum! chain this past quarter was Taco Bell, but the 2% growth in comps is well off the stellar same-store sales increases that the Mexican fast-food chain has been reporting since the original Doritos-dusted Locos Tacos rolled out early last year.
It was a good run. As of this summer, Taco Bell had sold a whopping 600 million of its Locos Tacos in last year's original Nacho Cheese incarnation and this year's Cool Ranch option. Taco Bell kicked in a spicier version recently, but it's clear that Taco Bell is going to have to do more now than simply tap the rest of the Doritos flavor wheel to tweak the line.
Out of the gate, Taco Bell was on to something. Comps soared 12% in its first full quarter of availability last year, and Chipotle's same-store sales weren't able to keep up. That isn't something that you see too often. However, things have been reverting back to normal again. Taco Bell needs to find the next new thing to keep customers coming.
3. A $600 loan is all it took to start Pizza Hut
Pizza Hut is actually doing what KFC is not in China, posting positive comps in Yum!'s latest quarter. It's yet another payoff for one of the better investments in restaurant history.
The two brothers who started what is now the world's largest pizza chain kicked things off with a $600 loan from their mother that they parlayed into transforming a small former bar into a pizzeria with secondhand baking equipment.
A small investment and a struggling bar aren't unique to Pizza Hut's origins. Papa John's (NASDAQ: PZZA ) has a surprisingly similar story. Its founder sold his prized 1972 Camaro Z28 to save his father's tavern. Once invested, he aimed to turn things around by spending $1,600 in secondhand restaurant equipment to turn a broom closet at the tavern into a pizzeria.
It follows that just as garages are synonymous with California tech start-ups that failing bars birth pizza chains.
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