(Reuters) - Yum Brands Inc missed Wall Street expectations for quarterly profit on Thursday, as the fast-food chain operator spent aggressively on promotions to revive sluggish sales at its Pizza Hut restaurants.
The miss on fourth-quarter earnings cast a shadow on a strong beat on global comparable sales that was driven by robust performance at KFC and Taco Bell.
Pizza Hut has launched a slew of promotions, including $5 value meals, in recent quarters, but has struggled to attract diners to its stores in the face of more compelling offers and marketing from rivals such as Domino’s Pizza Inc.
Analysts have also said Pizza Hut has been losing favor with younger customers, especially students, and is working to modernize its delivery services to cater to tech savvy consumers.
“For both the U.S. and international (Pizza Hut) business, sustainable improvements in sales growth will remain a slow build as we update and reposition the asset base and make the messaging more distinctive,” Chief Executive Officer Greg Creed said on a conference call.
Pizza Hut, which replaced rival Papa John’s International Inc as the official sponsor of the National Football League (NFL), said the partnership is helping bring attention to its promotions.
“Pizza and sports go hand-in-hand and our partnerships with the players and teams should continue to bring the marketing to life,” Creed said.
U.S. same-store sales at Pizza Hut rose only 1 percent in the fourth quarter, while they were flat globally, largely due to a drop in dine-in sales. The higher spending reduced operating margins at the business to 33.1 percent from 38.8 percent.
Meanwhile, Taco Bell recorded its strongest growth in same-restaurant sales in seven quarters. Worldwide same-store sales rose 6 percent at the business, easily topping estimate for a 4.35 percent increase, according to Refinitiv estimates.
Yum has been taking the U.S.-centered Taco Bell’s burritos and tacos menu overseas to replicate the success with its KFC business.
The company’s global comparable store sales rose 3 percent and topped estimates of a 2.48 percent increase.
Yum, which maintained its profit forecast for 2019, said net income fell 23 percent to $334 million in the three months ended Dec. 31.
Excluding one-time items, Yum earned 40 cents per share, widely missing estimate of 95 cents.
Total revenue fell 1 percent to $1.56 billion, and came in below expectations of $1.59 billion.
Shares of the company fell as much as 3.2 percent to $91.50 before regaining some ground to trade down nearly 1 percent.
Reporting by Aishwarya Venugopal in Bengaluru; Editing by Sriraj Kalluvila