Yum! Brands, Inc.

Hello, all, and welcome to Young Brands, Inc., third quarter 2023 earnings call. My name is Lydia, and I'll be your operator today. If you'd like to ask a question during the call, you can do so by pressing start, followed by the number one on your telephone keypad. We kindly ask that you limit yourself to one question only. I'll now hand you over to your host, Matt Morris, head of investor relations. 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 will open the call to questions. Before we get started, please note that this 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 call and should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC. In addition, please refer to our earnings release and relevant sections or filings with the SEC to find disclosures, definitions and reconciliations of non-GAAP financial measures, and other metrics used on today's call. Please note that during today's call, All system sales growth and operating profit growth results exclude the impact of foreign currency. 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. Looking ahead, our first quarter earnings will be released on February 7th with a conference call on the same day. Now, I'd like to turn the call over to David Gibbs.

Thank you, Matt, and good morning, everyone. Before I go over our third quarter results, I'd like to express our deep concern for those affected by the ongoing violence in Israel and Gaza. The safety of our people in the region is our utmost priority, and in addition to staying in close contact with our local team members and franchisees, our franchise restaurants in the region are only open when it is safe for staff and customers. FIOMA is supporting affected employees and contributing to humanitarian organizations that are providing critical aid. Our heartfelt wish is for the safety and well-being of innocent civilians and families in the region impacted by this conflict. Turning to our third quarter results, which once again reflect our ability to grow our iconic brands globally through our recipe for good growth. I'm proud to share that we delivered 10% system sales growth, led by 6% same-store sales growth and 6% unit growth. We set a Q3 record on unit development, opening an incredible 1,130 gross new units in the quarter. Our digital sales growth remains on fire, with sales up more than 20% year over year, and digital sales setting a record by exceeding $7 billion. Our third quarter core operating profit grew an impressive 16%. KFC International and Taco Bell US, which collectively contribute approximately 80% of our divisional operating profit, fueled this quarter's growth. Together, these twin growth engines delivered a remarkable 13% system sales growth in the quarter. KFC International has the most units among quick service restaurants in 60 countries and has been adding more absolute units than any other retail brand in the world since 2021. Of course, Taco Bell U.S. is in a class of its own in the domestic QSR category as a culturally iconic brand and clear leader in value perception with the most crave-worthy food in the industry. Taco Bell has unmatched menu flexibility, exceptional pricing power, industry-leading unit economics, and world-class franchise partners. Both businesses are performing at extremely high levels and have ambitious plans to accelerate their growth to even greater heights. Now let me discuss the quarter's results in greater detail through the lens of two of our growth drivers, relevant, easy, and distinctive, or RED, brands, and unrivaled culture and talent. RED brands are the cornerstone of our strategy, and the way we bring this to life continues to evolve as consumers' behaviors shift and new trends are established. Over the past quarter, we have made significant progress in three specific initiatives, building sales layers through new category entry points, leveraging technology to drive brand loyalty, and delivering exciting value offers to broaden appeal. Our brand teams are galvanized around these three focus areas, and we are highly encouraged by the results these areas are driving in our divisions, which I will now highlight. Starting with the KFC division, which grew system sales 12% this quarter, driven by 8% unit growth and 6% same store sales growth. While much of KFC's recent momentum has been led by emerging markets, This quarter, we saw a broad-based strength across a more diverse group of geographies, further proof of our ability to win in any macro environment. A few markets with standout same-store sales growth performance include Africa at 9% growth, Australia with 9% growth, and Latin America and Caribbean at 8%. KFC's hand-breaded original recipe nuggets are a global innovation platform and represent a new category entry point to attract individuals and families. After a successful launch in the U.S., we expanded nuggets to our Latin America and Caribbean market this quarter and saw incredible consumer reception that helped drive significant sales. The team plans to expand the offering to several more places around the world. KFC Africa delivered their 11th consecutive quarter same-store sales growth with a combination of abundant value offers, strong e-commerce sales, and the relaunch of their breakfast campaign driving this quarter's performance. Finally, I want to highlight our KFC Australia business as they continue to deliver fantastic performance with kiosk sales growing more than 90% compared to last year and the advent of a highly personalized value campaign that drove significant own-channel sales. The KFC global team is also making great progress in expanding its loyalty program around the world, including in the US, where we soon expect to launch KFC rewards. Next, I'll discuss our Taco Bell division, which delivered 11% system sales growth in Q3, led by 8% same-store sales growth and 5% unit growth. At Taco Bell US, system sales grew 11% with an impressive 8% same-store sales growth and 3% unit growth. The Taco Bell team leveraged its magic formula that encompasses a balanced set of commercial strategies, including building brand buzz, unparalleled value, mass occasions, and digital initiatives to grow transactions during the quarter. They delivered unparalleled value with the return of fan favorites like the $5 box, an amazing platform at a compelling price point. Though Taco Bell featured a great value promotion in the quarter, value purchases remained within range of the brand's intended 10% mix target. This, combined with exciting innovation and brand buzz, helped the brand maintain its industry-leading margins of 24%. A key component of the magic formula is MAS Occasions, the brand's personal expression of building new category entry points. One such example is the growth in chicken offerings, which the team plans to further expand with the launch of its Cantina menu. We're excited about the impact these new menu items will have as we roll out these offerings in 2024. Another component of this brand's success is digital, which includes loyalty. While a Taco Bell loyalty customer already spends 40% more per year than a traditional customer, the consumer feedback we've received indicates that we can do an even better job at creating more obvious and exciting ways to both earn and redeem rewards. Starting next year, Taco Bell will enhance its loyalty program and provide easier access across channels to earn and redeem points. Additionally, members will enjoy more exclusive experiences, including more digital innovation, early access to new products, and loyalty-enabled experiences. Eventually, the team will integrate its loyalty program with digital menu boards to create an even more personalized experience. Taco Bell International delivered 16% system sales growth driven by 23% unit growth and 1% same-store sales growth. A key contributor to Taco Bell's international business has been robust digital sales, which increased nearly 45% year-over-year this quarter. The Global Taco Tuesday campaign that launched in June continued to drive customer engagement around the globe, bringing greater brand awareness and equity with consumers. The international markets are focused on amplifying National Taco Day and providing consumers with both craveable food and everyday value. Turning to the Pizza Hut division, which grew system sales 4% driven by 4% unit growth and 1% same-store sales growth. International same-store sales grew 2% driven by transaction growth in China, continued momentum and melts, and more strategically activating aggregator partnerships in international markets. Same-store sales results in the U.S. were flat as Pizza Hut leaned into its long-term strategy to build new category entry points through individual meal occasions with products like Melts and Wings. This quarter, Pizza Hut U.S. teamed up with the Teenage Mutant Ninja Turtles to relaunch our Big New Yorker pizza and deliver pizzas into the New York City subway stations, leading to over 1 billion media impressions. As we head into the fourth quarter, the Pizza at U.S. team launched a late-night initiative, strategically expanding operating hours in more than 1,000 restaurants to give consumers even more ways to access the brand. To wrap up with the Habit Burger Grill, system sales grew 4% driven by 8% unit growth. The new Habit leadership team is settling in well and has placed a distinct focus on building strong unit-level economics to set the brand up for long-term success. Of note, the team is developing a new cost-effective packaging range designed for off-premise occasions, along with a new prototype store to optimize capex and pre-opening costs. The Habit is set to launch its first everyday value platform in November called Simple Crafts after a successful test this quarter. We have tremendous confidence in the long-term prospects of this brand are encouraged by the improvements that the team is making to deliver success in the future. Now I'll turn to our good growth strategy, starting with our people pillar. We've held powerful forums this quarter supporting our unrivaled culture and talent growth driver, including a leadership development conference for underrepresented talent and a new program aimed at preparing high potential female talent to be part of the next generation of senior leadership. In addition, we're furthering our culture of collaboration and building capability across our company. Recently, a cross-brand group of leaders gathered for the first red innovation experience in our innovation lab, where they learned design thinking and real-time problem solving through new age innovation techniques. We're also making a meaningful impact in the communities we serve through our global Unlocking Opportunity initiative to create more equality. For example, in the UK, KFC partnered with a nonprofit with the goal of having one-third of its new hires be at-risk youth. In Sri Lanka, Pizzut is investing in the development of 30 vocational and technical training facilities to prepare youth for careers in the QSR industry. In terms of our planet pillar and our focus on reducing greenhouse gas emissions, we're educating suppliers through the Supplier Leadership and Climate Transition, a consortium of multinational companies created to accelerate climate action in the supply chain. Many of Yum's poultry, beef, and dairy suppliers in key markets have joined this program or already have emissions reduction goals. These are just a few of the examples of the great work of our teams, earning us recognition like Newsweek's 2023 America's Greenest Companies. Overall, we're incredibly pleased with our results for the quarter and year to date. Our strategy is clear, and the emphasis we are placing on building sales layers through new category entry points, leveraging technology to drive brand loyalty, and delivering exciting value offers to broaden appeal is going to drive our business forward even faster. As we conclude our internal annual operating plan reviews and look forward to 2024, it's clear we have the very best teams in place and are perfectly set up to capture an even greater share of a growing global QSR market and deliver compelling shareholder value going forward. With that, Chris, over to you.