Yum! Brands, Inc.

Good morning and welcome to the third quarter 2021 Yum! Brands earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. please limit yourself to only one question. Please note this event is being recorded. I would now like to turn the conference over to Jody Dyer, Vice President, Investor Relations and CFO, Digital and Technology. Please go ahead.

Thanks, Operator. Good morning, everyone, and thank you for joining us. On our call today are David Gibbs, our CEO, Chris Turner, our CFO, and Dave Russell, our Senior Vice President and Corporate Controller. Following remarks from David and Chris, we'll open the call to questions. Before we get started, I would like to remind you that this conference call includes forward-looking statements that are subject to future events and uncertainties that could cause our actual results to differ materially from these statements. All forward-looking statements are made only as of the date of this announcement and should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filing for the SEC. In addition, please refer to our earnings releases and relevant sections of our filing for the SEC to find disclosures and definitions of non-GAAP financial measures and other metrics that may be used on today's call, as well as reconciliations of non-GAAP financial measures. Please note that during today's call, all system sales results exclude the impact of foreign currency, and references to temporary store closures only include stores that were fully closed as of the end of the quarter, but have or are expected to reopen. For more information on our reporting calendar for each market, please visit the Financial Reports section of our website. We are broadcasting this conference call via our website. This call is also being recorded and will be available for playback. Please be advised that if you ask a question, it will be included in both our live conference and in any future use of the recording. We would like to make you aware of upcoming YUM investor events and the following. Disclosures pertaining to outstanding debt in our restricted group capital structure will be provided at the time of the Form 10-Q filing. Fourth quarter earnings will be released on February 9th, 2022, with a conference call on the same day. Now, I'd like to turn the call over to Mr. David Gibbs.

Thank you, Jodi, and good morning, everyone. I'm pleased to share our strong third quarter results, underpinned by record-breaking unit development, continued strong digital sales, and the adaptability of our brands to meet the needs of our consumers in an ever-changing environment. During the third quarter, we delivered 5% same-store sales growth or 3% same-store sales growth on a two-year basis. Despite a challenging operating environment due to the ongoing COVID pandemic, I'm extremely proud that we opened 760 net new units, a Q3 record, with broad-based strength across our portfolio. While Young China continues to be a leader in development, we opened 379 net new units across the rest of our portfolio, roughly equivalent to our Q3 2019 global net new units, including China. Our continued positive development and momentum this quarter is a testament to the strength of our iconic brands, fueled by strong unit economics and a healthy, well-capitalized franchise system primed for sustained growth. Now we'll discuss our Q3 results and two of the four growth drivers that underpin our recipe for growth, our relevant, easy, and distinctive brand, or RED for short, and our unrivaled culture and talent. I will also share an update on our ESG agenda, which we call our recipe for good. Then Chris will talk about our other two growth drivers, our unmatched operating capability and bold restaurant development, in addition to providing more details on our third quarter financial performance and our strong balance sheet and liquidity position. First, a few highlights from the quarter. Overall, Yum! third quarter system sales grew 8%, led by same-store sales growth of 5%. On a two-year basis, same-store sales grew 3%, which includes the impact of around 500 stores, or 1%, temporarily closed due to COVID as of the end of Q3. COVID restrictions and limited mobility in a few markets, primarily in Asia, had a significant impact on sales. However, our sales momentum remains strong as evidenced by the fact that our global two-year same-store sales growth, excluding Asia, accelerated since last quarter. Sales strength continued in many developed markets, including the U.S., U.K., and Canada, with significant recovery seen across Europe as restrictions eased throughout the quarter. We've also seen pockets of strength in our portfolio of emerging markets, including the Middle East, Latin America, Africa, and India, to name a few. As we've previously shared, looking across the more than 150 countries in which we operate, our recovery will neither be consistent from country to country nor linear within a country, reinforcing the competitive advantages of our diversified portfolio and our ability to serve customers through multiple on- and off-premise channels. A key growth driver for our business remains the continued acceleration of our digital and technology strategy, including how we leverage our global scale with technology investments to enhance the customer and employee experience, strengthen restaurant unit economics, and provide a competitive advantage for our franchisees. We're seeing strong and sustained momentum through our digital and off-premise channels across our global business, even as customers return to our dining rooms. We posted over 5 billion in global digital sales with a near 40% digital mix during Q3. We continue to expand delivery capabilities across the globe, setting a record this quarter with over 41,000 stores offering delivery to our customers. Most recently, we acquired Dragon Tail Systems, which will allow us to tap into the power of artificial intelligence to streamline the end-to-end food preparation process and further enhance our delivery capabilities. Where we've deployed Dragon Tail's cutting-edge technology, we've found that it makes it easier for team members to operate and run a restaurant and helps our franchisees strengthen store operations, all resulting in a better customer experience. This is the perfect segue to talk about our four red brands. Starting with the KFC division, which accounts for 52% of our operating profit, Q3 system sales grew 11%, driven by 6% same-store sales growth and 7% unit growth. On a two-year basis, Q3 same-store sales were up 1%, which included the impact of 1% of the stores being temporarily closed due to COVID. At KFC International, same-store sales grew 6% during the quarter. Same-store sales declined 1% on the two-year basis. As previously mentioned, increased COVID case counts and limited mobility in a few key Asia markets pressured top-line trends in the quarter. This quarter, several Western European markets joined the group of resilient markets leading their recovery, where sales have fully recovered to pre-COVID levels. Strong digital and off-premise growth, newsworthy products, and doubling down on value offerings have fueled top-line growth in these markets, coupled with the continuous strength of the chicken category across the QSR segment globally. Next, at KFC US, same-store sales grew 4% during the quarter, while same-store sales increased 13% on a two-year basis. The continued success of our chicken sandwich and the strength of the group occasion remain significant drivers of our same-store sales growth. Additionally, as of July, our year-to-date digital sales in the U.S. surpassed our full-year 2020 digital sales, which speaks to the results we're seeing from our investments in this critical growth channel. Now on to the Pizza Hut division, which accounts for 17% of our operating profits. Q3 system sales grew 4% driven by 1% unit growth and 4% same store sales growth. For the division, two-year same store sales grew 1% during the quarter, which included the impact of 1% of stores being temporarily closed as of the end of Q3 2021. Pizza Hut International same store sales grew 6% during the quarter, On a two-year basis, same-store sales declined 4%. While our Pizza Hut international business continues to be pressured given our substantial dine-in mix, the sustained strength in our off-premise business, as reflected by 21% same-store sales growth on a two-year basis, bodes well for the future of the brand and continues to fuel franchisee interest in investing in assets focused on serving the off-premise occasion. Our markets continue to demonstrate what it means to be red by focusing on strong value propositions and innovative partnerships, including Beyond Meat product offerings in two markets this quarter. At PZUS, we continue to see positive momentum with 2% same-store sales growth. On a two-year basis, same-store sales grew 8%, and the off-premise channel grew 17%. Pizza Hut continues to delight customers by bringing only from Pizza Hut premium innovation with the launch of the Edge Pizza and a return of the successful Detroit-style pizza in Q3. Additionally, we promoted the Big Dinner Box during back-to-school season to offer an easy dinner solution for our Pizza Hut customers. Moving on to Taco Bell, which accounts for 31% of our operating profit, third quarter system sales grew 8%, driven by 3% unit growth and 5% same-store sales growth. Two-year same-store sales growth was 8% for the quarter. Taco Bell continues to focus on long-term growth opportunities by expanding into multiple category entry points, including the relaunch of breakfast in August and the fried chicken category with the crispy chicken sandwich taco during the quarter. Meanwhile, Taco Bell International remains focused on their mission to make tacos cool around the world, while also ensuring the brand is culturally relevant in each market. In the UK, we gave away three tacos to the country to celebrate England advancing to the finals in the European Championship. Players on the English team even tweeted on behalf of the brand, resulting in Taco Bell being one of the top trending brands on Twitter during the finals. And finally, at the Habit Burger Grill, We saw system sales grow 19% during the quarter, driven by 11% same-store sales growth and 7% unit growth. On a two-year basis, same-store sales grew 7%, which included the impact of about 1% of stores being temporarily closed as of the end of Q3. We continue to see strong results through our digital channels, even as customers return to our dining rooms. During the quarter, we launched a culinary forward balsamic grilled chicken and asparagus salad that highlighted our unmatched char-grilled chicken and seasonal ingredients. Now I'll discuss our unrivaled culture and talent growth drivers. The hallmark of Yum is our people-first culture. We have tremendous leaders across our organization that have been developed internally to lead our brand, and because of our culture, we're able to attract world-class external talents. This quarter, we had the opportunity to announce some exciting internal promotions with planned leadership transitions. First, Tony Loewing, CEO of KFC, will be retiring on March 1st, 2022. I want to thank Tony for his more than 25 years working at Young. He has embodied what it means to be a people-first leader throughout his career and will no doubt leave a lasting legacy on the KFC brand. Tony's successor will be Saber Sami, KFC's Global Chief Operations Officer, who is an incredibly well-respected and experienced leader who has played a pivotal role in the KFC global business. Saber's promotion to CEO of KFC provided an opportunity to elevate another internal talent, with Dyke Schiff stepping in as President of KFC after serving as KFC's Global Chief People and Development Officer. With their combined experience of over 40 years with Yum!, both Sauber and Dyke will assume their new roles effective January 1st, 2022. I couldn't be more confident in our ability to continue to unleash the power of this iconic brand with both Sauber and Dyke leading KFC. Next, we recently announced that David Graves, Pizza Hut US General Manager, will be promoted to President of Pizza Hut US effective January 1st, 2022. Alongside Kevin Hockman, David has helped architect the Pizza at U.S. strategy and is the right person to lead the way forward for the brand by continuing to partner with our franchisees. With this promotion, Kevin Hockman, Interim President of Pizza at U.S. and President of KFC U.S., will return full-time to KFC U.S. I would like to thank Kevin for his unwavering commitment and leadership over the past two years as he led the pizza U.S. business and franchisees through a critical turnaround that has shown tremendous progress to date, all while simultaneously taking KFC U.S. to new heights. These internal promotions demonstrate that our deep bench of experienced leaders is a real competitive advantage for us across the restaurant industry. Lastly, we recruited significant external talent with the appointment of Aaron Powell as Chief Executive Officer at Pizza Hut. Aaron joins us from Kimberly-Clark, where he most recently led their Asia-Pacific business. We're thrilled to have Aaron join our leadership team with his seasoned CPG executive experience and believe his leadership, alongside Vipul Chawla and David Graves, will help fuel the brand's growth strategy. Equally as important as our recipe for growth is our recipe for good. I could not be prouder of the progress Yeomaner brands have made this year in sharpening the focus and execution of our ESG agenda, particularly on climate action and sustainable packaging, alongside our global unlocking opportunity initiative to tackle inequality. We are advancing our plans to reduce greenhouse gas emissions across our global system and supply chain by nearly half by 2030, while we work to implement, learn from, and scale pilots for reusable, recyclable, and compostable packaging in the front of our restaurants to meet our 2025 public commitments. Across all of our brands, we're focused on building a resilient business for the future with purpose and sustainability at the core. Our iconic brands and unmatched scale put us in a class of our own. We're competitively advantaged given the size and capabilities of our franchise system, and I'm thrilled with our teams as we continue to be nimble and meet the consumer where they are. Overall, I'm proud of how our business is performing, and I'm confident that we're positioned to win in a post-COVID world. With that, Chris, over to you.