Taco Bell Same-Store Sales Fell 4% on Cyclospora Outbreak

Taco Bell's same-store sales fell 4% in Yum Brands' fiscal third quarter as a cyclospora outbreak linked to iceberg lettuce kept diners away. The parent company still beat Wall Street's profit expectations, reporting adjusted earnings of $1.56 per share against the $1.49 analysts surveyed by LSEG had penciled in. Revenue matched estimates at $2.05 billion, up 4% year over year.

Net income came in at $1.62 billion, or $5.92 per share, up sharply from $397 million, or $1.41 per share, a year earlier. The headline figure includes gains from divesting Pizza Hut; strip those and one-time items out, and the adjusted number is that $1.56.

The recovery is already underway. CFO Ranjith Roy said on Tuesday's earnings call that Taco Bell's same-store sales are up about 1% so far in the fourth quarter, and up 3% in the four weeks ended Friday versus the year-ago period. "Since the end of September, Taco Bell U.S. has been outpacing the [quick-service restaurant] industry on same-store sales growth," CEO Chris Turner said in a statement.

What pulled the quarter down?

Yum completed its exit from Pizza Hut during the quarter. It closed the sale of the chain's mainland China business to Yum China on Aug. 7 and sold the rest of Pizza Hut to LongRange Capital on Sept. 1. Third-quarter results include Pizza Hut only up to those dates.

Excluding Pizza Hut, Yum's same-store sales were flat for the quarter, dragged by Taco Bell's 4% decline. Executives had previously said the weekend of July 18 saw the worst sales impact, with trends improving since. The company counts Taco Bell as a "growth engine."

The rebound has a clear shape: heavy users are back to normal, while traffic from "medium" and "light" customers has recovered to roughly 95% of prior levels, Roy said. Loyalty helped. Taco Bell leaned on weekly Tuesday deals for rewards members once the outbreak took over headlines. To court more casual diners, it has turned to star power, including a collaboration with pop star Olivia Rodrigo on a pink-colored Mountain Dew Baja Blast.

How did the rest of the portfolio do?

Taco Bell's much smaller international business posted 5% same-store sales growth. KFC ticked up 1%, helped by system sales growth in China and Europe. The U.S., now KFC's third-largest market, shrank 6%.

KFC's home-market problem isn't new. Like Restaurant Brands International's Popeyes, it has struggled against a wave of new competitors and more budget-conscious consumers. The U.S. represents only about 5% of KFC's operating profit, but it carries symbolic weight for Yum investors.

The chain tested a fix during the quarter: popcorn chicken, which sold out in many restaurants. Yum said the limited-time item wasn't enough to offset last year's successful Hot & Spicy Wings and Potato Wedges promotion.

Turner laid out a broader plan for KFC on the call. He wants the chain to become "the most modern chicken QSR," and said it will roll out buzzy promotions, a new brand identity, and a wider menu with upgraded sauces and more beverages.

The takeaway: one contaminated lettuce shipment cost Taco Bell a quarter of momentum, but the loyalty file and a 3% four-week sales snapback suggest the damage was temporary. The harder question for Yum is KFC's U.S. slide, where a sold-out menu item couldn't beat a wing promotion from last year.