Yum Brands charts turnaround at Taco Bell

AP News
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Posted: Oct 05, 2011 12:03 PM
Yum Brands charts turnaround at Taco Bell

Fast-food restaurant operator Yum Brands Inc. is bracing for another round of sluggish U.S. sales late this year but predicted a turnaround at Taco Bell next year with the planned launch of new products meant to reinvigorate the slumping brand.

Yum Chief Financial Officer Rick Carucci told industry analysts on Wednesday that the owner of the Pizza Hut, Taco Bell and KFC chains expects another sales drop in the fourth quarter in its struggling U.S. business.

The company on Tuesday reported across-the-board sales declines in the U.S. but said its third-quarter profit grew thanks to strong sales and restaurant growth in China and elsewhere overseas.

While the international business has thrived, the struggles in the U.S. remain a concern for Yum.

"We know that we need to turn around our U.S. business," Carucci said.

Taco Bell accounts for about 60 percent of Yum's slumping U.S. profit, but the chain is struggling to overcome publicity from a lawsuit earlier this year that claimed the filling in its tacos and burritos didn't contain enough beef to be called that.

The highly publicized suit was later dropped, but the company has blamed it for the sales decline. Taco Bell called the accusations false and fought back with hard-hitting marketing on televisions and in newspapers, but months later the chain is still struggling to rebound.

The Mexican-style restaurant chain reported a 2 percent drop in third-quarter revenue at its U.S. restaurants open at least a year, an improvement from a 5 percent decline in the second quarter.

"Taco Bell is making steady improvement, but it's slow improvement," Yum Chairman and CEO David C. Novak said in the conference call with industry analysts. "We're obviously not pleased with our same-store sales."

Yum said it is pinning hopes for a sales rebound on a pipeline of new products that Taco Bell plans to start introducing late in the first quarter of next year. Novak said the chain will be "reinventing the taco."

He predicted the new menu items will provide "a significant uplift in our business."

Meanwhile, Louisville-based Yum expects to open about 1,500 restaurants this year in its international markets, led by an expected 600 new units in its key China operations. Carucci said the new openings will offer a strong "head start" for profits next year.

In China, operating profit rose 7 percent in the third quarter, adjusted for currency fluctuations.

But the company said restaurant profit margins in China fell by nearly 4 percentage points, driven by commodity and labor inflation. The company said it raised menu prices after the third quarter ended because of the higher costs.

Yum didn't offer sales and profit projections for 2012, but Carucci said it could be another "challenging year."

"The economic climate is very uncertain," he said. "Inflation could also rear its head, especially in the first half of the year."

Yum's shares fell $1.44, or nearly 3 percent, to $48 in trading Wednesday.