Louisville, Ky.-based Yum! Brands has found its sweet spot in China, posting 19 percent same-store sales growth in that country in 2011. The company reported results for its fourth quarter and full year 2011, ended Dec. 31, once again proving why it has been aggressive in its foreign market expansion.
Yum reported a 30-percent increase in net income - $356 million versus $274 million the same period in 2010 – during the fourth quarter, lifted largely by its international growth. Revenue in Q4 was up 15 percent.
Worldwide system comp sales grew 11 percent, prior to foreign currency translation, including 33 percent in China, 10 percent at YRI (Yum Restaurants International) and 6 percent in the U.S.
Same-store sales grew 21 percent in China, 3 percent at YRI and 1 percent in the U.S.
For the full year, Yum!'s profits jumped 14 percent to $1.3 billion. Worldwide comp sales grew 7 percent, prior to foreign currency translation, including 29 percent in China and 8 percent at Yum YRI. System same-store sales in the U.S. were even.
Comp sales grew 19 percent in China, 3 percent at YRI and declined 1 percent in the U.S.
The company opened 1,561 new restaurants globally, a company record, including 656 in China and 905 at YRI.
Yum! reported fourth quarter earnings per share of 75 cents, and a full-year EPS of $2.74, up 14 percent. This makes 2011 the company's 10th consecutive year for achieving double-digit growth.
China and YRI
"The highlight of 2011 was again the exceptional performance of our China business ... Clearly, our KFC and Pizza Hut brands in China continued to strengthen their category-leading positions," said CEO David C. Novak. "The macro environment works in our favor in China, considering the consumer class is expected to double over next 10 years, from 300 million to 600 million people. With this as our tailwind, new unit pace will continue there."
Although Yum! continues to experience staggering growth in China, other emerging markets are also providing a lift. YRI opened 905 new units, including 622 in high-growth emerging markets such as India, Russia and Africa.
YRI plans to break out India as a separate division for its 2012 reporting. Novak said India's business right now is similar to where the company was with China about 10 years ago.
Yum! is also in the early phases of its African growth. In 2011, it entered Zambia, Ghana and Kenya, and plans to enter seven more countries this year. Finally, Yum! has made solid progress in both France and Germany, and has increased its TV marketing exposure in both markets.
"The Yum! growth story is about China and a whole lot more. Emerging markets contributed nearly 50 percent of operating profit at Yum! Restaurants International," Novak said, adding that this is just the beginning of the company's potential in these markets. In the United States, Yum! Brands has 60 restaurants per million people. Conversely, it has two restaurants per million people in the top 10 emerging markets.
U.S. Division same-store sales declined 1 percent for the year, including declines of 2 percent at Taco Bell and 2 percent at KFC. Pizza Hut was even for the year.
In the fourth quarter, same-store sales increased 1 percent, driven by growth of 6 percent at Pizza Hut and offset by declines of 2 percent at Taco Bell and 1 percent at KFC.
Despite the lull, Novak is optimistic about Taco Bell's momentum after the chain reversed negative sales during the fourth quarter. Additionally, he said Taco Bell's new breakfast, recently launched in 800 restaurants with plans for broader expansion this year, is reinvigorating the business, as is the new Cantina line, created in partnership with Chef Lorena Garcia.
Taco Bell will roll out its Locos Tacos – with a hard shell made out of Nacho Cheese Doritos – in March. The company also hinted at the gradual expansion of breakfast hours (Taco Bell restaurants that now serve breakfast open at 8 a.m.) and the chain's unit count.
"Long term, we think Taco Bell is a huge opportunity for Yum! We think we can go from just under 5,000 to 8,000 restaurants in the U.S. We're bullish on Taco Bell," Novak said.
Finally, Novak spoke about another initiative taking place in 2012. For the past 15 years, he has led a leadership program called "Taking People With You" and recently published a book with the same title. More than 4,000 people in the Yum! system have participated in the program thus far, and the company plans to get more people involved this year.
Yum! has created training guides that will be made available in 11 different languages. The main objective is to create operational excellence.
"We want this (training) to be a catalyst to drive 'customermania' and improve operational effectiveness to build world class operations. We have pockets of excellence, but we think we can do better," Novak said. "Operational excellence will be our single biggest priority in the next five years. We're excited and bullish about it."
Read more about operations management.