LOUISVILLE, KY. — Overcoming significant headwinds from a more “cost-conscious consumer” and the temporary closing of more than 200 restaurants around the globe because of the Middle East conflict, Yum! Brands, Inc. enjoyed strong second-quarter operating profit growth and higher sales. Net income was lower reflecting one-time charges, a higher tax rate and lower investment income.

In the quarter ended June 30, Yum! Net income was $367 million, equal to $1.30 per share on the common stock, down 13% from $418 million, or $1.49 per share, in the second quarter of 2023. Net sales were $1.76 billion, up 4% from $1.69 billion. During the 2024 quarter, Yum! spent $17 million more than the year before on efforts to accelerate its “digital, technology and innovation capabilities.”

Core operating profit in the second quarter rose 10%, and the company is expecting full-year growth of 8% or greater. In an Aug. 6 call with analysts, David W. Gibbs, chief executive officer, said commodity inflation has been lower than anticipated, helping the company’s franchisees “navigate recent sales volatility.”

He said profitability also has been helped by “robust increases in digital sales, progress leveraging our scale, continued deployment of our proprietary technology ecosystem and efficiency improvements in our cost structure.”

In trading Aug. 6 on the New York Stock Exchange after Yum! issued its financial results, the company’s shares traded as high as $139.87, up $6.55, or 4.9%, from the Aug. 5 close.

Operating profit of Taco Bell in the second quarter, Yum!’s largest US business, was $250 million, up 10% from $228 million the previous year. Sales were $666 million, up 7%. Yum! said Taco Bell US gained market share during the second quarter while KFC International, its largest non-US business, enjoyed strong unit growth. Combined, the two businesses generated 7% operating profit growth in the quarter.

“Taco Bell is a clear standout in today's environment, not only achieving same-store sales growth well ahead of the QSR category, but delivering restaurant-level margins near a record high,” Gibbs said. “In addition, Taco Bell’s same-store sales grew mid-single digits across all income cohorts, proving that craveable innovation even at a higher price point wins with today’s consumers.”

Gibbs said Taco Bell’s 5% same-store sales growth bested the US quick-service restaurant industry by a wide margin.

“Taco Bell executed its winning formula this quarter through introducing a variety of compelling innovations such as the Cheez-It and Secret Aardvark fries,” he said. “The second quarter also reflected sales contribution from the Cantina Chicken menu, our foray into an elevated chicken offering and a new platform to innovate around.”

Asked by an analyst to elaborate on Taco Bell’s success versus other QSR chains, Gibbs cited the value menu, with 10 items.

“They’re not like junior-sized versions of a core item,” he said. “They’re unique. They stand in their own right. They’re incredibly craveable. That has served us well, and it really put a moat around when it comes to value. In addition, we have onetime offerings like the Luxe Box at a $7 price point, which is an incredible amount of great tasting food for that price.”

Meanwhile, Taco Bell continued growing its digital sales “at a breakneck pace,” he said.

Looking forward, Gibbs said Yum! Is “laying the groundwork for another promising year in 2025 as evidenced by the expansion of drive-thru voice AI technology at Taco Bell.”

Gibbs and Christopher L. Turner, chief financial officer, both referenced the Middle East conflict numerous times on the call.

“Consumer sentiment relating to the conflict in the Middle East continued to pressure system sales growth in the quarter,” Turner said. “The recovery trajectory we observed in Q1 for the Middle East, Malaysia and Indonesia, flattened in Q2. And while hard to precisely quantify, we continue to observe conflict-related impacts in a broader set of markets.”

He expressed concern certain stores may never reopen in the wake of the conflict.

“There are approximately 210 restaurants currently temporarily closed across the Middle East, Malaysia and Indonesia,” Turner said. “While there are plans in place to reopen some of those restaurants starting later this month and throughout the second half of the year, there is risk that some could close permanently pending the future trajectory of the conflict’s impact. These stores have not been producing royalties while temporarily closed, but our reported unit count would be negatively impacted if these stores were to permanently close.”

Responding to an analyst asking for more details about geographies where stores were closed because of the conflict, Gibbs declined to offer specifics.

“You can imagine the types of markets that would be further impacted,” he said. “It's not a precise science. We just know them from the stories that we’re hearing from the field, some of the data that we see trade area by trade area in markets that the impact is a little bit broader than just the Middle East and Indonesia and Malaysia, but very hard to measure.”