Yum Brands fell short of Wall Street estimates for quarterly profit today, as the Taco Bell parent doubled down on promotions to attract inflation-wary consumers even as the company struggled with cost pressures.
Shares dropped more than 3% in premarket trading, despite the Louisville, Kentucky-based company topping first-quarter same-store sales estimates.
Yum Brands, which also owns the KFC and Pizza Hut brands, has banked on aggressive promotional offers and value-meal deal launches across its chains following a slowdown in demand last year, particularly from its lower-income customer base.
Those promotions - including Taco Bell's $2 burritos, KFC's $5 Mac & Cheese bowls and Pizza Hut's "Melts" - pulled in newer customers.
They helped total same-store sales jump 8% in the quarter, handily beating estimates of a 5.45% increase.
However, the aggressive promotions amid cost pressures tied to labour and raw materials, along with investments in digital business, technology and automation largely caused a near 25% decline in the company's quarterly net income.
Yum Brands also expects a $10-20m hit to current-quarter operating profit, the company's chief financial officer Chris Turner said on an earnings call.
Excluding special items, the company earned $1.06 per share in the first quarter, missing estimates of $1.13, according to Refinitiv IBES data.
The profit miss "was a little bit surprising when you consider what everyone else has reported. You've seen very positive results (from restaurants) across the board," Edward Jones analyst Brian Yarbrough said.
McDonald's, Burger King parent Restaurant Brands and Chipotle Mexican Grill all topped quarterly sales and profit estimates on the back of price hikes and robust demand.
