YUM! Brands, Inc. Stock

Good morning, everyone, and thank you for joining us. My name is Jeff Bernstein, and I'm the restaurant and foodservice distribution analyst here at Barclays. I should say with news of my plans to retire actually at the end of this month, I'm the outgoing analyst with the next analyst still to be named. But after 25 years covering the restaurant and food service distribution sector, it actually makes me a little sad to be here over these 3 days. I feel like Barclays have thrown me a fantastic going-away party. So thank you all for joining us this morning.

I should just mention that this is Day 2. We're excited to have 14 restaurant and food service distribution analysts here -- distribution companies here over the 3 days. So just as a recap, we did have Cheesecake Factory, BJ's Restaurants and Kura Sushi here yesterday. And today, we've got 10 led by Yum!, but otherwise, we have Bloomin' and Dine Brands, First Watch, Performance Food Group, Restaurant Brands, Sysco, Texas Roadhouse, Wendy's, US Foods and Wingstop and then Performance Food Group all by themselves tomorrow.

We hope you find the conference a good use of time. We get a chance to chat in the halls between meetings. But at this point, I'd love to introduce our first presenting company, which is Yum! Brands. So with us on stage, we have Ranjith Roy, the CFO of Yum! Brands. By way of background, for those not familiar, Yum! is a multinational quick service portfolio comprised of 3 brands: KFC, Taco Bell and The Habit Burger Grill, having recently sold off their Pizza Hut business in a successful transaction earlier this year.

Just for background, Yum!'s long-term annual guidance is for 7% system sales growth, supported by 5% net unit growth and ultimately resulting in 8%-plus core operating profit growth. And again, most recently, the company announced the sale of Pizza Hut ex-China to LongRange Capital and the Mainland China arm to Yum China. So we want to thank you all very much for joining us and specifically Yum!. And I will now kick it off with some questions for Roy, the CFO. Thank you.

Thanks, Jeff.

Thank you very much for joining us. So I had a few bigger picture, maybe consumer questions since we get to look at the world of consumer across your brands. And I know it makes it hard to make generalizations. So I'll just say that upfront. But if you could just maybe think about starting just with the U.S., the health of the consumer, obviously, this is a consumer conference. Like what do you look at to assess the health of the business, obviously, your brands along with just broader macro? And have you seen any changes in trend, whether in age group or income cohort or ethnicity or anything like that over the past year? How would you lay that out?

Yes. Good question, Jeff. Look, obviously, as a brand that has the kind of footprint we do, both in the U.S. and internationally, we got to focus a lot of time on thinking about how the consumer is doing. I'd say, as we think about the past year, there's probably 2 words we use. It's resilient, and diligent or consumers using discretion, resilient because, frankly, I'm sure a lot of analysts in this room were always surprised and heartened by the strength of the consumer, whether that's kind of wages, unemployment being low and so on and so forth and consumer spending holding up.

We're continuing to see that. But it's not just where the consumers are spending. It's in our business to win, it's about how they're spending, when they're spending and why they're spending. And when you actually think about that, we obviously, similar to many others, are seeing more strength in higher-income consumers. And slightly lower growth, I'd say, in households making less than $100,000 a year. And that's something that I'm sure you've seen in a lot of companies that you cover.

But in addition to that, the consumer is making choices. And the divergence in performance in our industry, I think, has never been higher than it is right now, i.e., consumers still need to eat out. Consumers are still going out and using restaurants as an affordable luxury for themselves, but they're making very deliberate choices about what they want and what they don't want. And we're seeing that in the divergence of results, particularly in the U.S.

So when you think about Taco Bell in Q1 and Q2 of this year, Taco Bell demonstrated kind of mid- to high single-digit same-store sales growth, clearly taking share from a lot of other players and benefiting from consumer spending. And a lot of it comes down to really not just the consumer being strong, but us thinking about consumer sentiment, consumer love for our brand, what offerings are relevant, how do we enhance our digital offerings to bring in younger consumers. And as a result of that, we saw transaction growth and dollar sales growth across all income cohorts in the U.S. with, of course, the strength being in the higher income and slightly lower growth in the lower income consumer.

That's impressive resilience because clearly, we have some that are winning and others that are struggling. When you think about food away from home, and I have to be careful to say this because I'm at a staples conference with a lot of food at home peers, but the battle of food at home versus food away from home, we often like to say that food away from home continues to win in that battle versus food at home. But how would you describe that battle and maybe the most recent restaurant industry's push towards more value, how that's helped to continue to sway consumer spend on food away from home.

That's a great question. Like look, the -- we often get the question of food at home and food away from home. And look, as we look at the data, we see the gap in inflation in food away from home versus food at home has narrowed, i.e., over the last couple of years, the restaurant industry in general has started to become more competitive versus food at home. And that means we probably are in a slightly more constructive pricing environment, we think, than in the last couple of years.

But reality is like our business has not changed. So in the U.S. and Taco Bell is the vast majority of our business in the U.S. In the U.S., Taco Bell has always had a value on mentality. I think when you look at the cycle of when people said restaurants took too much pricing, Taco Bell did not participate in that. And so we've always had value. We've had very high value perception, and we continue to have that. But it's not just price, it is overall value, which includes are you relevant? Are you delivering a great experience to consumers? And in some of those areas, we continue to put a lot of effort in to make sure we stay ahead of the game.

Understood. And in terms of questions you get from investors, and I'm sure they cover a broad range. But what do you think you -- questions maybe there's a misunderstanding about Yum! from investors or perhaps questions that you're not getting that you're surprised that you think investors should be asking about Yum!.

Yes. So I've been in my seat 1 year for those of you that don't know me too well. So I have the benefit of CFOs and CEOs before me who've done a very good job telling the Yum! story. And so as a result of that, I think we're a pretty well-understood entity out there. But a couple of questions that I think surprised me as I stepped into the seat. One is, at least in the early months, not so much recently, but in the early months, I get a lot of questions about how is Taco Bell going to lap the lap, i.e., you had a really strong year last year.

How are you going to repeat that this year? Are you going to do more innovation? Is it even possible to beat what you did last year? And I think that it -- we were surprised by that because as we think about the business, Taco Bell has already put out 2030 targets of going from $2 million AUVs that they had in 2024, 2025 to $3 million AUVs. And through the first half of this year, they were already tracking ahead of that. In order to achieve that, you got to have a very solid plan and a multiyear step change in performance, which they were well on the way of doing.

And really, the Taco Bell magic formula is something that is replicable every single year. We just have a brand and an operating model that can do what it does and attract more consumers, more occasions, more frequency every single year for many years to come. And so we have a lot of confidence. We don't really think about it as lapping the lap. We just think about it as like you got to get to $3 million-plus AUVs. And if you back out it from that, of course, you've got to deliver strong same-store sales growth, and you have to lap it.

I'd say the second question more recently that surprises me a little bit is some people ask, hey, KFC Global is obviously a powerhouse in all these different 150 different markets. But you have chicken competitors in the U.S. that are starting to make inroads, whether that's opening in the U.K. or in Singapore or in the Middle East, you've got a few units opening. How do you think about competition? And I think the degree of concern surprises me a little bit because to be clear, we are paranoid about competition.

Every time Wingstop or Chick-fil-A opens 1 unit somewhere, everyone is walking around the hallways of Yum! talking about how we're going to win. But make no mistake, the scale of global KFC is tremendous. Like last quarter, we opened 660 gross new units around the world. We have a presence in 150 markets. In many of those markets, we are the #1 QSR player, period. There is nothing else close to us across the entire industry.

And when you think about the 660 units, that's like opening 220 gross new units every month. 220 gross new units, that's like a mid-market private equity investment. So every month, we are spawning a new mid-market private equity investment all around the world, and we have the ability to replicate that. So the scale advantages we have globally are tremendous. And you couple that with the extreme paranoia in the company that we are not going to be complacent about our leadership. We're going to go and earn it every day, and that includes modernizing the brand, innovating and continuously changing how we do business. I think the combination of that is extremely powerful.

I have to say over the past couple of decades of covering Yum!, the statistics that you just threw out, especially at Investor Days and whatnot of opening up. I mean, this is just KFC with a store every 3 hours around the world somewhere, a new KFC is opening with a new team. And it's hard to understand the spreadsheet that we look at, but clearly, it is a machine.

Yes. The thing that you really have to visit some of these international markets to understand it because I think a lot of us in the U.S. see KFC in the U.S. KFC in the U.S. is not the true representation of KFC anymore. The U.S. chicken market is obviously extremely competitive. We're making changes to KFC to make it more competitive over time. Internationally, KFC is just a beast. And we're so proud of whatever, the number of 70 years of investment overseas that have led to 35,000 restaurants in virtually every country out there where the brand is a leader.

And just one last industry question perhaps is the topic of GLP-1s, which ebbs and flows depending on the quarter or the year, but it would seem like it is a very viable threat to the restaurant industry more so than perhaps others. I'm wondering, just because access is more available, the price is coming down. Do you think the industry and/or Yum! in particular, has been impacted at all? Or is there something that you anticipate over the next few years? Or how do you think about that impact to your business?

Yes. Jeff, GLP-1s, we all know are real. We've been thinking about it for several years now. Because of our scale, we have the benefit -- we talk about Collider, our in-house consumer insights group. They've been studying it for several years now. And alongside a number of other consumer trends, we do put GLP-1s in there as a trend that's out there that we need to adapt to. That's not new to us. We've been adapting to consumer trends and preferences for a long period of time, and we're going to have to continue to do that.

In our minds, even if you can't measure discrete impacts, and as you pointed out, every quarter, people say, like, is it having impact or not, the pendulum keeps swinging. The reality is it is going to have some impact in things like portion sizes, protein consumption, hydration, snacking, usage occasion shifting. And our view is twofold. One, we're not going to over-rotate to any single consumer trends. This is part of a spectrum of consumer trends where the consumer is changing, and we have to adapt to it. This is part of the spectrum.

And secondly, we're not -- and so we're not going to over-rotate to just GLP-1s. And the second part is we got to be flexible and adapt. So when you think about what we're doing in our business from an innovation standpoint, making sure we have enough choices available for consumers to shift over to things that they want. Beverages are a good point. The push we're making on beverages, whether that's Live Mas Cafe which is the store within a store at Taco Bell that we're testing right now or Quench, which is KFC Global's version of enhanced beverages that we are rolling out around the world, you're going to start to see things across our portfolio that adapt to where the consumer is going, but I would put GLP-1s as a factor in a number of factors that consumers care about that we have to adapt to, and we will.

And as we sit here now in September and the fall of '26, if we were to look forward for the next 12 months, is there 1 or 2 initiatives that you'd say Yum! is most focused on that we'll look back on and say, 2027 was the year of something in particular?

2027 is going to be an extraordinarily exciting year from where we're sitting. The biggest thing is really it's going to be the first clean look at our portfolio post the separation of Pizza Hut. If you remember, Yum! used to be Taco Bell, KFC, Pizza Hut and The Habit. Pizza Hut comprised about 10% to 12% of our operating profit. But you can imagine, it took a lot of time, resources and focus to manage it.

With Pizza Hut now exiting the portfolio, I think we're very excited about putting our energy into acceleration of growth. Chris Turner, our CEO, has been out talking about raising the bar, which includes the battle for the future consumer, accelerating unit economics and expanding the reach of Bite. There's a number of work streams underway at the company right now that will start to play out over the course of the rest of this year and 2027. And just the freedom to be able to pursue them with more focus, having a more concentrated portfolio is very exciting.

Right. And as we think about the go forward, as you mentioned, people are often asking about Taco Bell and comp and the comp. Like what's the discussion like between -- for the portfolio between Yum! corporate and franchisees in terms of how to balance in a strategic way, check and traffic and perhaps how to best, like you said, bring in or improve the trends with that lower income consumer.

Check and traffic, I'd say, look, first of all, when we talk about franchisees, we have a great relationship with our franchisees. We're very happy with the franchisees we have. We probably have the best franchisee network in the business. So from a partnership standpoint, we're very pleased. There's a very strong alignment. When you think about check and traffic, I don't think we actually sit around and say, "Hey, how much should we take check up and how much will the impact be on -- " like we don't look at that in isolation.

What we really think about is how do we bring the Taco Bell magic formula to life, which is, first of all, brand buzz. We got to have a young, relevant brand for consumers. Secondly, we got to have strong innovation, which means it's nice to have buzz and cultural relevance, but behind that buzz, you got to have real products that consumers care about. So how do we keep a very strong innovation pipeline going that keeps consumers wanting to come back.

Third part of the magic formula is value, ensuring that we have a strong value platform day in and day out, which means you think about price points we've got a Luxe value menu where we have 10-plus items under $3. I mean you can actually go get a Cheesy wrap at Taco Bell for $1.19. You can get a spicy potato Taco for $1.29, you can get a beef burrito for $2.50. That kind of headline value is just fantastic for us to have.

But what we do with that value is to drive check higher by having then above that a Luxe value menu, which includes a $3 box, a $5 box, $7 box, $9 box. And that allows us to drive some pretty strong check growth while having strong value perception because of the kind of architecture we have. And then lastly, it's digital, right? Like if we can have more digital transactions, and we've grown digital transactions at Taco Bell from a low single-digit percentage about 7 years ago to now it's almost 50% of the business today, and it is trending higher.

If we can drive digital, that results in a better consumer experience, more frequency, better upsell, higher check averages. And so when you talk about traffic versus check, we don't think of it as pricing necessarily driving that. It's all those elements of the magic formula driving more consumers to the brand, which is traffic and each consumer coming in, buying more, which drives check.

Yes. And presumably, having multiple brands, you can talk between brands, the ability for Taco Bell to share some of their successes with KFC on the KFC business. I assume that's a very powerful combination.

The ability to cross-pollinate is very strong. It's not just brand learnings, but also talent. So if you -- one of the exciting things is a change we made a couple of -- like 1.5 years ago at this point, where one of the key leaders in Taco Bell, Scott Mezvinsky, who drove a lot of the thinking behind the Consumer Day and the 2030 targets they set was moved over to the CEO of Global KFC. So you can think about all his learnings in Taco Bell being moved now to rub off on KFC Global. And Scott is on the war path around the world, talking about how KFC -- I mean, KFC is going to do it in a KFC-specific way, to be clear. But there's elements of Taco Bell's magic that can rub off, whether that's bolder marketing, stronger innovation, a greater focus on value, all of those things are coming to life in KFC, and that's exciting.

We kicked it off with Taco Bell in the U.S. being the biggest brand by far. But I think when you reported the second quarter, you had said that trends started the third quarter very strong prior to industry issues around Cyclospora, and you guys talked about steps taken to address the food safety concerns there. I'm happy to say I don't hear as much about that anymore. I was wondering if there's any update you can provide on just how you think about the recovery from something like that and how it's progressing.

Yes. Look, you never want to have food safety and a brand in the same sentence ever. Like we put so much work into trying to ensure that's not the case and earning consumers' trust every day. But far and above the most important thing for us. And so we're proud about a few things, and I will provide a little bit of an update, but we're proud about a few things in going through the last couple of months. Firstly, we're really proud about how our team showed up and did the right thing at the right time.

And so our teams and our franchise partners took proactive action at the right time to ensure that consumer trust was maintained. That's the first thing we're thankful of. Second thing we're thankful of, the way consumers have continued to rally to the brand. So as we mentioned in our Q2 earnings call, when we do measures of brand trust, brand love, brand sentiment online that, as you can imagine, we track rigorously, we feel very good that the long-term health of the brand remains intact and the long-term potential of the brand remains intact.

So we're very grateful for the way consumers have reacted. Thirdly, we are grateful for the way actually the investor community has reacted because -- you mentioned what questions do you get that surprised you? We haven't got a ton. Everyone is concerned about it. They want us to do the right thing, and people have been supporting us in making sure we do the right thing for consumers. And so we're thankful for that.

The net result of that is, as we said in Q2, we saw the most impact the weekend of July 18. And I think we're pleased to say that as far as we can see, the Taco Bell recovery remains on plan. What does on plan mean? As we said in our Q2 earnings, that means sequential -- generally sequential week-over-week improvement in sales trends. And at this point, we see several days with positive sales in the U.S., which gives us confidence in the future. And most importantly, there's not a victory lap yet, but I think we have quite confidence that the long-term potential of Taco Bell remains unchanged.

That's great. The KFC brand, you've mentioned the brand in the U.S. is different than the brand around the world. As we think about the U.S. business, the competition is obviously very intense in the chicken category. How do you think about the biggest opportunities to -- I'm sure it's difficult to say, oh, international is doing great. This is not a representation of what the U.S. business looks like. So what do you think you're most excited about over the next 12-plus months with new leadership and whatnot to turn KFC into the success story, at least in the U.S. that we've seen at Taco Bell?

Yes. Look, we've been very honest about KFC U.S. KFC U.S., the chicken category in the U.S., it's crowded, but it's a large and attractive category overall. KFC U.S. just happens to have a legacy of bone-in chicken dating back to the '80s and '90s in the U.S. And in some ways, we talk about how KFC marketers were almost too successful back in the '80s and '90s, creating the icon of the bucket and focusing on large shared value and families dining together.

That's not where the chicken industry is today in the U.S. We've got 2 decades of kind of steady decline, I'd say, or at least share loss in the U.S. We're on the path of reversing that. One of the first steps we took in that regard was to put new leadership in place. And when you think about the leadership team we have at KFC U.S., Catherine Tan-Gillespie, Tiffany, we hired the CMO from Wingstop. You look at the leadership of the players we put on the field, we put the best players on the field.

Second thing we did was we got alignment with our franchise partners. And so there was alignment on the 2026 marketing calendar and additional investment from the franchisees towards that marketing. It's never easy to line up additional marketing with franchise partners, but we're glad we got that alignment with the franchise system. At this point, we've seen -- we talk about it as green shoots. Green shoots meaning we're seeing some positive same-store sales for several quarters now, which KFC has not had in a while.

But it's still green shoots. We've got a long way to go. This performance is not sufficient to bring KFC all the way around. But you think about the legacy of the brand and the 20-plus years it took to get here, we are not going to turn it around in 4 quarters. But our hope is certainly to do it a lot faster than 20 years.

Yes. Good.

And to be clear, Jeff, the one thing I'd like to remind people is KFC U.S. is materially less than 5% of our operating profit. So when you think about the size of KFC U.S. in our portfolio, we're only going to commit resources, capital, time, effort commensurate with its size in our portfolio.

That surprises me a lot when we get the question of KFC U.S. And I don't -- I ask it only because we are in the U.S. it's what people see. But obviously, having traveled with Yum! around the world, we have seen a much different KFC, which brings me just the rest of world, and it's hard to capture a forum like this. We've been with Yum! to China. It seems like that is a key focal point for the international business. Just wondering, and again, its own public company. So obviously, you can't share much beyond what they've shared. But what are you most excited about specific to the China business more broadly that that's such a powerhouse for the Yum! portfolio?

Look, we couldn't have a better partner than Yum China in China. It is the largest restaurant company in China. KFC is one of the largest consumer brands in China, period. And look, China, they're their own public company. It is a tough macro environment, as everyone knows. It's been a deflationary environment for a time with challenges on consumer spending. But when you think about the penetration of KFC in China, it continues to increase.

And so when you think about the number of new restaurants they're going from -- I mean, back in the day, they used to be in Tier 1, Tier 2, Tier 3 cities. I think at this point, we're talking about Tier 8 and Tier 9 cities where KFC is opening up. And so it's almost -- the deeper and deeper the brand gets penetrated in China and builds density in higher tier markets, we have a lot of confidence that they can continue to do that. The second thing is from -- just from an ops perspective, there is no better operator of restaurants or even any sort of retail concept in China than Yum China. And so a lot of confidence in their future.

When we think about international, most people think about KFC and had historically thought about Pizza Hut and not necessarily Taco Bell so much. And I know for years, it's been let's take Taco Bell overseas. Can you just talk about your confidence in that being the next leg of material growth for the international portfolio till you get Taco Bell, maybe where have you had the greatest success and maybe where you've had your challenges?

Yes. Look, the Taco Bell has been like almost like a quiet growth story inside of Yum!. At this point, we have, I think, about 1,200 stores heading to 1,300 stores in Taco Bell International. Several years ago, we had like 500 or 600 stores. So we've doubled the restaurant count. But I mean, I guess the challenge is like when you're in Taco Bell International and you've got Yum! with 45,000 restaurants like Pizza Hut, a few hundred stores just gets lost in the mix.

However, I will point out, there are a few things that are changing. Historically, I think there was a perception that Mexican-inspired cuisine may not have legs internationally. I think that's changing rapidly. As consumer trends are converging, what's cool in different parts of the world is really converging in all elements of consumers, whether that's, I don't know, fashion, automobiles, if you think about music and other things in culture, trends are converging, the restaurant industry and food preferences are no different.

Mexican-inspired cuisine is becoming cooler everywhere, and we're seeing that. And you can see the evidence in the kind of franchise partners we're attracting in different markets, the number of new markets we're going into and the performance of Taco Bell restaurants in a number of parts of the world, whether that's in the U.K., in Spain, in India, there's a number of key markets that are growth opportunities for Taco Bell, where same-store sales were like double digits in many cases. And we haven't seen that happen consistently for multiple quarters and lapping that year-over-year.

We haven't seen that historically. So something has changed. And I think part of that is where the world is going. Part of that is actions that Taco Bell has taken where they are putting more resources out into the field and taking a closer look at how the brand is brought to life in different markets. Because there's a difference -- what we realized is the difference between KFC and Taco Bell. KFC can go to any market. And as long as you're selling fried chicken, it just works.

And so you could take an entrepreneurial GM, which is what even before Yum! PepsiCo did, they sent entrepreneurial GMs around the world, and you could set up KFC and as long as you sold fried chicken and you kept the brand somewhat consistent, it would work. Taco Bell is a little different. A lot of parts of the world, people don't even know how to eat a taco. They think it's cool, but it requires some education. The magic formula of Taco Bell that works so well in the U.S., it's not as easily understood by local teams and franchise partners.

And so we have to take a closer look at each market and bring that to life and the Taco Bell team is doing that. Take the combination of those 2 things. The world is changing, and we're executing differently. I think the long term -- frankly, I know we've talked about, I think, about $3 billion in system sales in Taco Bell International by 2030. I personally believe the potential is a lot higher and the signs we're seeing point to unlimited potential for Taco Bell in the future internationally.

Very encouraging. Well I know back in the day, it was how you're going to take a Mexican brand that's been Americanized and then bring it around the world, but it seems like it's growing in popularity.

Yes. Look, even in the U.S., you think about it, like people -- part of the reason we're so successful is like we're a category of 1 in the U.S. KFC is a category of 1 internationally in chicken. Taco Bell has the opportunity to be the category of 1 internationally in Mexican-inspired cuisine. And make no mistake, Mexican-inspired cuisine, even in the U.S. is cool, cool now. I mean some of the stats we look at since we've got folks from the staples industry, tortilla chips now outsell potato chips in the U.S. Salsa and hot sauce outsell ketchup. Consumers -- it's not a Hispanic consumer. It is the consumer period thinks this is cool. And that trend is happening around the world.

That's great. Well, we talked a lot about the comp side of things, which tends to be volatile across the industry and across brands. The unit growth, I think, is a story that's perhaps underappreciated. And it seems like the magic number across the franchise QSR world is going to get to 5% unit growth. You guys have consistently been delivering the 5% unit growth. Just want to talk about your confidence, the franchisees' confidence in being able to sustain it on a larger and larger base, especially now you're down to really 2 core global brands from 3. But your confidence in sustaining the 5% in '26 and long term?

Look, KFC, I think we said it in the Q2 earnings. This year, KFC will have a record year of net unit development with more units opened in more markets around the world. We have a lot of confidence when you think about the paybacks KFC is getting. A number of KFC franchisees are publicly traded, so you can actually go in and read the commentary and see what the kind of paybacks are in KFC. In the Middle East, Americana gets $1.5 million AUVs, and they get 2-3 year paybacks. When you get 2-3 year paybacks, it is a no-brainer to keep opening restaurants. Yum China, you brought up, market with thousands and thousands of KFCs, and they still say when they open a new KFC, they get a 2-year payback.

So when you have paybacks like that in very different parts of the world, it is a no-brainer if you have a well-capitalized franchisee, which we do, they are going to open units. It is the right thing to do, and it is going to make the brand much bigger. We have a lot of confidence in sustaining record development. Where is the opportunity for us? I think the opportunity for us is really in other markets where maybe the paybacks are not as phenomenal. I think we brought up places like Latin America, where we recently changed franchisees, number of operational changes, and now unit growth is accelerating. We want to replicate that in places like Western Europe. Historically, we have been under-penetrated in Western Europe relative to some of our competitors.

The good news, and that is what we get excited about, is if we can crack some of those markets, those are some of the highest AUV markets in the world. Our goal is to crack that because a unit opened in Western Europe equals multiple units opened in the emerging markets. Therefore, it is a huge opportunity that we have to go after.

Right. When I think of Yum! in our final couple of minutes, we had always thought of it as a multi-brand portfolio. You have now removed one brand from that.

Yes.

Is the thought process that you need to add another big brand, or are you comfortable if over the next number of years, it is primarily led around the world by KFC and Taco Bell?

First of all, look, the fact that we divested Pizza Hut in the past year should signal to everyone that we are prepared to make bold moves around our portfolio where it makes sense. So if the question is, would we add another brand? Sure. If it makes sense, we will do it. We're open to the idea. That said, it is about discipline in our portfolio. And if you look at the amount of growth opportunities we have ahead of us, we could spend all day right now, accelerating growth at KFC, Taco Bell and Habit, and we wouldn't have much time to spare.

So when you think about adding another brand, I think a huge part of our focus is first, have we really raised the bar in our existing brands. We have a bunch of work to do over the next several months and over the next year. We're going to do that. Our focus is relentlessly on making sure we have a healthy portfolio and maximizing value for shareholders. And in our capital allocation right now, I think we have the ability to do that. We -- our first priority is investing in our current businesses. We'll continue to do that. We've done that historically. We've never starved the businesses of investment. We're going to continue to do that. We're going to maintain a healthy balance sheet. We're going to pay a competitive dividend, and we're going to return substantial capital to shareholders along the way.

I'm glad you mentioned that because we are out of time. But boy, we could talk about Yum!'s portfolio and business for the next hour if we wanted to. So I encourage investors to hit them up on capital allocation and G&A spend and all the other things that we haven't gotten a chance to talk about here, but time is up. So we wanted to thank Yum! and Roy, in particular, and the Yum! team that's taken up the entire first row. So we very much appreciate your attendance here today. We hope people get a chance to meet with management throughout the day today. But again, thank you, Roy, very much for joining us.

Thank you, Jeff. Thank you, Barclays, and thank you, everyone, for showing up bright and early in the morning to see us. Thank you.

Thank you for standing by. My name is Carly and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 2026 Yum! Brands, Inc. Earnings Call.

[Operator Instructions]

I would now like to turn the call over to Matt Morris, Head of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us today. On our call are Chris Turner, our CEO; Ranjith Roy, our CFO; and Dave Russell, our Senior Vice President and Corporate Controller. Following remarks from Chris and Roy, we'll open the call to questions. Please note that this call includes forward-looking statements that are subject to future events and uncertainties that could cause our actual results to differ materially from these statements. All forward-looking statements are made only as of the date of this call and should be considered in conjunction with the cautionary statements in our earnings release and risk factors discussed in our SEC filings. Please refer to today's release and filings with the SEC to find disclosures, definitions and reconciliations of non-GAAP financial measures.

Please note that during today's call, system sales and operating profit growth will exclude the impact of foreign currency. For more details on our reporting calendars by market, please refer to the Financial Reports section of our IR website. This conference call is being webcast live on our website and will be available for replay following the call. Our third quarter earnings will be released on November 3 with the conference call on the same day. Now I'll turn the call over to Yum!'s CEO, Chris Turner.

Thank you, Matt, and good morning, everyone. Before discussing our second quarter performance, I want to address the current public health issue that our industry is navigating in the U.S. First and foremost, the safety of our consumers is our highest priority. We know our consumers place their trust in us. We remain committed to earning that trust each and every day, and it starts with an unwavering commitment to food quality and safety. That commitment is reflected in how we act when issues arise.

Our teams are acting quickly and transparently while keeping the safety and well-being of our consumers as the top priority. That is how we build the world's most loved, trusted and connected restaurant brands. Roy and I will share more on the recent trends in Taco Bell U.S. in a moment. Before we do that, let me provide an update on other parts of the business, starting with Pizza Hut. In June, we completed the strategic review of Pizza Hut and entered into separate agreements to sell the business to Long-Range Capital and Yum China. These transactions will result in a stronger Yum and a stronger Pizza Hut, and we look forward to supporting a smooth transition. The ability of our teams to enter into 2 separate transactions simultaneously while achieving strong performance in our other brands in the context of a turbulent macro environment is a testament to the strength of Yum!'s talent and culture. It also gives me tremendous confidence in our future.

Turning to second quarter results. Excluding Pizza Hut, we delivered 7% system sales growth, 6% unit growth and 4% same-store sales growth. This capped a solid first half of the year with KFC delivering a first half development record. Taco Bell, meaningfully outperforming the QSR industry in same-store sales and Habit delivering 4% same-store sales growth. Just as impressive, digital sales, excluding Pizza Hut in the first half of the year exceeded $17 billion up 25% year-over-year. These results demonstrate the power of our brands and the discipline of our teams while giving us confidence in the Raise the B.A.R. priorities that will shape Yum!'s next chapter of growth. Those priorities are battling for the future consumer, accelerating restaurant unit economics and reaching the full potential of Byte and our broader digital capabilities. I'm excited to highlight how they are coming to life across our brands starting with KFC, which represents 58% of our divisional operating profit, excluding Pizza Hut.

KFC delivered 6% system sales growth driven by 7% unit growth and 2% same-store sales growth. Around the world, KFC teams are advancing our Raise the B.A.R. priorities, beginning with improving menu relevance. The U.K. provided a strong example with the Pickle Mania limited time offer, driving the highest sales week in the market's history and helping deliver exceptional same-store sales growth of 8% in the second quarter. While visiting the team in London this quarter, I was introduced to Pickle Mania Pepsi, and I'll admit, while I was skeptical before trying, it far exceeded my expectations. It was another great example of the kind of bold, culturally relevant innovation that our KFC teams continually bring to market. Asia was also a strong market, delivering 6% same-store sales growth. Japan accelerated by 8 points from Q1, while Korea delivered its sixth consecutive quarter of double-digit same-store sales growth. I had the opportunity to visit both countries last month and spend time in our restaurants with team members.

One restaurant that stood out was the KFC in Takadanobaba, Japan, which has served its community for more than 50 years. It was a great reminder of what makes KFC special. The brand has deep roots with local consumers and continues to evolve its menu and experience to stay relevant in every market. The KFC team is encouraged by recent performance, but believes there is even greater opportunity ahead. To accelerate progress, KFC outlined how it will build on its momentum by setting the standard for modern chicken QSR. As part of the strategy, KFC will modernize the brand and focus on menu innovation surrounding boneless chicken, crave-worthy sauces, a more contemporary restaurant experience and a refreshed brand visual identity. Our consumers will experience new tenders in select markets that are built for dunking, dipping and solo snacking, and expanded sauce pantry of 9 bold sauces unlocking customization and flavor discovery and updated branding across digital and in-restaurant touch points. KFC's aspiration is to have core elements of the strategy live across its top 20 markets by the end of 2027.

Importantly, this is not simply a market-by-market implementation, but a coordinated global effort that is creating momentum across the brand. Teams around the world are rallying behind the strategy, giving the brand a renewed edge as KFC evolves to be more modern and relevant. Additionally, KFC is favorably positioned to benefit from powerful category tailwinds. Chicken is the fastest-growing protein around the world, driven by its affordability, versatility and broad consumer appeal. As the world's largest chicken restaurant brand, KFC is uniquely positioned to capture that demand growth, thanks to its global scale, first mover advantage, market leadership, world-class franchise partners and unmatched operational expertise. KFC benefits from deep local market knowledge, decades of franchisee development and a global network of culinary innovation centers, technology capabilities and operational support teams.

Moving to Taco Bell. I'd like to first focus on Q2 results. Taco Bell represents 43% of our divisional operating profit, excluding Pizza Hut. The team delivered 7% same-store sales growth in the second quarter, meaningfully outperforming the QSR industry for the ninth quarter in a row. Digital sales mix reached 47%, up 5 percentage points year-over-year with more than half of the growth driven by Taco Bell's first-party loyalty channels. Overall, Q2 results reflect the strength of Taco Bell's strategy which combines compelling value, differentiated innovation, cultural relevance and broadening consumer occasions to drive consistent U.S. share gains. Turning to more recent developments. As you would expect, the brand has seen a meaningful near-term sales impact, which Roy will discuss in more detail. We expect the sales impact to be temporary and are encouraged by a few factors. Elevated uncertainty initially weighed on consumer demand.

And since then, consumers have become increasingly aware that this is an industry-wide issue, not an issue specific to Taco Bell. The team's swift and transparent action reinforced trust in the brand. As evidence of those factors, Taco Bell's measures of social sentiment have already returned to pre-issue levels of positivity. Though we are still in the early days of recovery, Taco Bell is leveraging its magic formula, brand buzz, innovation, value and digital. Examples include last week's introduction of the new Pepper Jack Steak Burrito, which showcased the brand's ability to deliver craveable innovation at a compelling price point. Taco Bell also tapped into fans passion for iconic menu items through the last 2 Tuesday drops.

With last week's $1 Enchirito followed by this week's $1 Mexican Pizza offer, which became our 2 highest-performing Tuesday drop promotions in brand history. By connecting directly with loyalty members through the app, the brand turned those offers into powerful fan moments. That is the magic formula at work. As a result, over the last 10 days, we have seen sales trends steadily improving. Taco Bell entered Q3 in its strongest position ever. And I'm confident the brand's core strengths, which have always made it a category of one, will return it to sales growth that meaningfully outpaces the broader QSR industry and fuel momentum well into the future.

Moving on to Taco Bell International. The brand continues to build scale and relevance with strong same-store sales growth across many of its largest markets. The international business continues to replicate the U.S. strategy, introducing locally relevant value, craveable innovation and digital engagement. In the U.K., Taco Bell recently launched Baja Blast, marking the beverages first international launch, an important milestone in the journey to expand what is already the most distinctive brand-specific beverage in QSR. In its first week, the Baja Blast launch helped lift same-store sales by 14%, reinforcing the power of bringing Taco Bell's most distinctive innovation to more consumers around the world.

Across all brands as part of our Raise the B.A.R. priorities, we are building deeper, more direct relationships with our consumers. Loyalty is a critical capability because today's consumers expect personalized experiences, relevant offers and seamless digital engagement from the brands they love. When executed well, loyalty creates better experiences for consumers, stronger engagement with our brands and more powerful demand-driving tools for franchise partners.

Globally, our brands have amazing loyalty programs in many markets. We're very pleased with the distinctiveness and effectiveness of those loyalty programs, but we still have a big opportunity to raise the bar. Our approach is to make existing loyalty programs even more distinctive and to launch, learn and refine in additional markets, recognizing that loyalty will come to life differently based on local consumer behavior and brand needs. To accelerate Taco Bell's owned digital performance, the team is strengthening its digital relationship with consumers through a redesigned app launching in Q3 that delivers a more intuitive and personalized member experience.

New capabilities make it easier for consumers to discover menu items, personalize orders and customize favorites, while expanded build your own Luxe Box functionality and curated offers create more relevant experiences. Together, these enhancements will strengthen engagement with one of the industry's most digitally connected consumer bases.

KFC is rapidly expanding its global loyalty program and by the end of the year, loyalty will be in markets representing over 75% of KFC system sales, excluding China, significantly expanding the brand's ability to engage consumers and drive frequency. This concerted effort to expand loyalty is helping our brands deepen consumer relationships today while building the capabilities needed to win with the next generation of consumers. Beyond our business performance, we had an important leadership update with Tracy Skeans, our Chief Operating Officer and Chief People and Culture Officer, announcing in June her plans to retire after more than 25 years at Yum!. Throughout her career, Tracy has played an instrumental role in shaping our operational excellence model, strengthening our culture, developing our talent and helping position Yum! for long-term growth.

I've had the privilege of working alongside Tracy for many years and I'm deeply grateful for her leadership, partnership and lasting impact on our company. I'm excited to share that Nai De Leon will become our Chief People and Culture Officer, effective November 1. Nai has a decade of experience working for and with Yum!, most recently as our Chief Talent and Centers of Excellence Officer, leading some of our most important organizational and strategic initiatives. Across Yum!, we're also committed to creating positive impact on the communities we serve.

We recently released our annual Global Citizenship and Sustainability Report spotlighting how we are integrating impact and sustainability into our growth strategy. 2025 was a year of progress across many of these efforts. Yum!, our brands and franchisees had a positive impact in the communities we serve, reaching 6.5 million people and providing the equivalent of nearly 47 million meals through donations. Before closing, I want to thank the Pizza Hut team members and franchise partners around the world for the role they have played in building one of the most iconic restaurant brands in the world. Their passion, resilience and commitment have been central to Pizza Hut's legacy, and we are grateful for their partnership.

Yum! will enter its next chapter of growth as a more focused company taking advantage of the long runway for development, category expansion and digital growth across our brands. We are focused on delivering the consistent high-quality growth investors expect from Yum!. As we continue to raise the bar, our message is straightforward. Yum! is built for dependable growth, disciplined execution and long-term value creation. We have clear opportunities to deepen consumer relevance, improve restaurant economics, scale Byte across more of our system and allocate capital to create sustained shareholder value. I'm proud of the progress our team has made this quarter, and I'm confident in our ability to keep building the world's most loved, trusted and connected restaurant brands. With that, Roy, over to you.

Thanks, Chris, and good morning, everyone. I'll begin with reviewing our second quarter results, excluding Pizza Hut. Before discussing the Pizza Hut transaction, Yum!'s balance sheet and liquidity position, recent trends and updated guidance. Beginning with the top line, excluding Pizza Hut, Yum! system sales grew 7%, driven by 6% unit growth and 4% same-store sales growth. Digital sales approached $9 billion and digital mix reached 61%, excluding Pizza Hut, reflecting steady growth across app, loyalty, kiosk and delivery channels. Thanks to Yum!'s technology investments over many years, we've seen steady annual increases in digital mix across brands, with second quarter digital mix for KFC, up 5 points to 67%, Taco Bell up 5 points to 47% and Habit up 9 points to 55%.

Second quarter core operating profit grew 8% even after a quarterly drag of 3 percentage points from quarterly phasing of 2026 refranchising gains and store closure costs at Habit as we communicated last quarter. Taco Bell U.S. achieved restaurant level margins of 26.2%, a 170 basis point expansion year-over-year, reflecting strong sales leverage, P&L cost optimization and a 60 basis point benefit from acquired stores. Yum!'s ex special G&A was $223 million, up 2% year-over-year. On development, excluding Pizza Hut, Yum! opened 720 stores in the quarter. KFC delivered 660 gross new stores across 55 markets in Q2. The Middle East achieved a milestone this quarter, having reached 1,500 KFC restaurants, underscoring the strength of our franchise partners and the attractive KFC restaurant economics, including 2.5- to 3-year paybacks and approximately $1.5 million in average unit volumes.

Other top contributors to KFC's unit growth in the quarter included China, India, Korea, Japan and Turkey. We expect KFC to deliver its best development year ever as franchise partners' confidence in KFC's long-term potential translates into faster store expansion. KFC continues to grow in both developed and highly underpenetrated markets that have a significant runway for unit expansion. Within more penetrated markets like South Africa and Australia, KFC is building greater store density, solidifying its local market leadership position. Within underpenetrated markets, that's considerable opportunity in India, Southeast Asia, West Africa and Brazil which together represent more than 1/3 of the world's population. KFC's restaurant density in those markets is only 1/5 that of its top 25 markets, representing a 20,000 unit opportunity.

Recent progress is encouraging. Notably in Brazil, where KFC achieved over 20% same-store sales growth in each of the past 3 quarters. As personal incomes rise, urbanization continues and demand for chicken grows, KFC believes the markets around the world offer compelling long-term development opportunities and sustainable system sales growth for the decades to come. Moving to Taco Bell development. The brand opened 25 gross units in the U.S. during the quarter. Taco Bell is broadening its development pipeline across both traditional and nontraditional formats while improving build costs, simplifying restaurant design and enhancing unit economics to support attractive franchisee returns. Taco Bell has also expanded equity development opportunities through recent acquisitions with 24 sites registered to date across Georgia, South Carolina and Florida. Across Taco Bell's U.S. equity and franchise estate, we are encouraged that new store registrations are tracking above last year's pace.

Internationally, Taco Bell saw strong same-store sales growth and is building scale in key markets, including India, the U.K. and Canada. The strategy remains unchanged, partner with experienced, well-capitalized franchise partners, strengthened restaurant level economics and build the brand with discipline. Sweden is a prime example. Since Taco Bell returned to Stockholm in November 2025, our local franchise partner has opened 4 more restaurants in rapid succession, including a restaurant that is now the best performing Taco Bell in Europe. With that momentum, the franchise partner plans to open 5 more restaurants in Sweden this year and later expanding into Denmark.

Turning to technology. As part of raising the bar, we are focused on reaching the full potential of Byte, Yum!'s proprietary AI-enabled technology platform. Scaling Byte puts Yum! on a common technology foundation across every channel, simplifying operations and allowing teams in each market to manage menus, pricing, promotions and store hours across all our ordering channels via a single platform. This reduces operational execution risk, increases pricing and promotional agility and leads to a more consistent guest experience. Byte integration also enables our brands to recognize loyalty members regardless of the channel they choose to order from while enabling more personalized experiences over time. This control allows us to innovate more quickly, scale innovations and own the data that gives us greater visibility into restaurant operations without being at the mercy of third parties. Voice AI is a great example of where the connected Byte platform has enabled Taco Bell U.S. to more quickly deploy the technology to over 900 restaurants.

The number of Taco Bell restaurants using voice AI capabilities continues to grow, driven by our franchise partners, further cementing our leadership position in the restaurant industry. Without a connected technology platform, the integration of voice AI into restaurants would be significantly more challenging and costly. Over the long term, we aspire for Byte to power the vast majority of Yum! system sales outside of China, creating greater operating leverage while delivering better experiences for our consumers, restaurant teams and franchise partners. AI is becoming an increasingly important force multiplier across Yum!, embedded in how we build software, serve consumers and operate restaurants. In our restaurants, we are expanding AI-powered capabilities, including enhancements to Byte coach that provide restaurant managers with personalized recommendations on the actions most likely to improve operational performance.

Looking ahead, we see opportunities to evolve these capabilities into real-time AI coaching that helps restaurant leaders make better decisions every day. At Yum!, every corporate employee has access to AI productivity tools with daily usage increasing more than 50% year-over-year. Teams have built more than 400 specialized AI agents to solve everyday business challenges. Collider, our in-house culture-based strategy and branding agency created Yum!'s global innovation database that combines AI, data science and predictive market research to identify opportunities for new menu items across our brands. It includes data on more than 7,000 food, beverage and marketing concepts across 35 countries and helps our brands identify emerging consumer preferences and accelerate innovation. This tool complements our innovation teams with AI giving us the logic while team members bring the magic.

Together, the global expansion of Byte and our growing AI capabilities reinforce technology as an important driver of growth and operational efficiency. Turning to Pizza Hut. As announced in June, Yum! entered into 2 definitive agreements to sell Pizza Hut for $2.7 billion in the aggregate to Yum China and Long-Range Capital with the potential of an additional $75 million in an earnout from Long-Range Capital by 2030. We anticipate both transactions will close in August. Following the close, we will provide certain transition services to Pizza Hut ex China that include enterprise technology and finance, with the majority of those services to be phased out over the course of 2027. For the remainder of 2026, we anticipate $2.5 million in transition services related fees per month which will fully offset Yum! corporate G&A expenses previously allocated to the Pizza Hut division.

Byte will continue to power Pizza Hut ex China under a separate commercial agreement that extends beyond and separate from any transition services. Turning to our balance sheet and liquidity position. During the first half of the year, we repurchased approximately $670 million of shares funded by free cash flow and drawing on our revolver. We currently expect to use a portion of anticipated net proceeds of $2.3 billion expected from the Pizza Hut transactions to pay down our revolver balance, and the majority of the remainder will be set aside for share repurchases with timing subject to market conditions.

Turning to guidance. Our reported results for the first half of the year, excluding Pizza Hut, met or exceeded every element of our algorithm. And coming into Q3, we were highly confident in achieving or exceeding every element of the algorithm for the full year. As we now assess recent trends, Taco Bell's U.S. same-store sales growth quarter-to-date through July 27 is negative 2%. Since the U.S. food safety industry issue became front and center only 2 weeks ago, we saw maximum impact to sales over the weekend of July 18. It is early days, but in the subsequent week, sales declines have moderated materially and we are seeing steady improvement in day-over-day sales trends.

Despite the deleveraging impact of temporarily depressed sales volumes, we believe Taco Bell's third quarter equity store level margins will range between 19% and 21%. These restaurant margins reflect, first, lower but steadily improving sales. Second, investments in promotions to remind consumers of Taco Bell's incredible value; and third, the higher concentration of Taco Bell's equity footprint in more impacted markets. As Chris mentioned, our goal remains to return the brand to its pre-issue trajectory. In closing, we are encouraged by the strength and resilience of our business as well as our progress against the Raise the B.A.R. priorities that support long-term growth. We remain focused on disciplined execution, improving franchisee economics and investing thoughtfully in capabilities that will drive the next phase of expansion.

The Pizza Hut transactions reinforce our commitment to being disciplined allocators of capital with a relentless focus on long-term shareholder value creation. As we look ahead, we have much hard work to do but we remain confident in the future of Yum!. And with that, operator, we are ready to take questions.

[Operator Instructions]

Your first question is from Dennis Geiger with UBS.

Great. I wanted to ask a little bit more on Taco Bell. Very helpful color there, Roy, on kind of what you're seeing of late. But just wanted to get a sense for anything more on the latest trends, as you think about the recovery trajectory, maybe just thoughts on this industry food safety environment in general. Do you see it as unique to other food safety situations? And then just anything else that you're doing to drive folks back if you've shifted plans around? Anything you can share on that front?

Yes. Thank you, Dennis. Why don't I just unpack a little bit the trends we're seeing because that was part of your question, and then I'll turn it over to Chris to talk about some of the initiatives we have in place that we're very excited about. As we reported, we had negative 2% quarter-to-date same-store sales through July 27. Just as a reminder, you may be aware Taco Bell is a period reporter. So quarter-to-date includes a period of normal same-store sales growth from mid-June to mid-July, following which we saw a peak impact on July 18, which is in the second period of the quarter. And since then, we've been seeing a relatively steady recovery.

And to give you a sense, and it's only been 10 days, as you know, a week later, if you take the average sales for the last 4 days, which includes the weekend and the first 2 days of this week, we are halfway back to sales levels of the prior year. So we take some comfort in the early momentum, and we're a few days in. And as we mentioned, our goal is to get back to the brand's pre-issue trajectory.

Yes. Thanks, Roy. Dennis, let me start by just reiterating that our top priority is and always will be the safety and well-being of our consumers. With respect to the consumer sentiment, though, we've seen real improvement as consumers have understood better the nature of the issue and they understand that it is not a Taco Bell specific issue. If you think about signs of that engagement, our letter -- the Taco Bell team's letter to their fans on Instagram and TikTok, it was the highest engaged post of this year, one of the highest of all time. Our measures of online sentiment, as we said, have returned to pre-issue levels of positivity.

There's been no change in our measures of brand love. In fact, in some of those measures, there's even an increase in positivity in brand love. You've seen a significant decline in Taco Bell's share of the conversation related to this issue. And the best proof point is that consumers are coming back to the restaurants on a steady basis. We've seen steady improvement in those sales trends. If you think about what we're doing, we're driving the magic formula. We shared a little detail on last week's Tuesday drop. This week's Tuesday drop. The Mexican Pizza drop this Tuesday generated the most app traffic, the most app transactions, and the most loyalty acquisitions of any Tuesday drop ever. And in fact, we saw positive transaction growth on Tuesday. If you look to the remainder of Q3, you look into Q4, our team is focused on bringing fans back and we're seeing those fans respond well.

In Q4, I'm really excited. You get a lot of elements of the magic formula that will be in place, cultural moments. You're seeing food innovation. I'm excited about [ decades ] being in Q4. We took a vote earlier this year on what international item consumers would most want to see. You're going to see butter chicken in Q4. Of course, value is going to be a core part of how Taco Bell brings the magic formula to life and Taco Bell is known for value and our consumers care about it. There is no brand and no team better equipped to drive a recovery in this temporary sales impact than Taco Bell.

Your next question is from David Palmer with Evercore.

A question on KFC and thanks for your comments on your prepared remarks. It feels like KFC's management has been pretty active and maybe increasingly bullish on the long-term system-wide sales. And I'm just wondering if you might help us sort of imagine what's cooking there. It sounds like digital is something that is working, reengineering the box to help returns for franchisees. So we're seeing 2% same-store sales growth or so, 7% unit growth has been pretty steady. I'm wondering how you're thinking about those? Are those good assumptions going forward? Or might we see upside, particularly on the comps. You made some very bullish comments on Brazil and EM opportunity, but you might have room for improvement in some of the developed markets, which are relatively flat. So just wondering how you're thinking about that.

Yes. Thanks, David. If we think about the KFC business, you know that it's a global powerhouse. And the KFC brands has been growing ahead of the market for many years, and it's based on its structural advantages, it's driven by the fact that we have category tailwinds. Chicken is the fastest-growing protein, projected to be one of the fastest growing categories into the future around the globe. We've got a first-mover advantage in many markets. We've got strong franchise partners.

What you're seeing, Scott Mezvinsky and the leadership team do right now is really bring the Raise the B.A.R. strategy to life. If you think about battling for the future consumer, just a couple of months ago, we introduced the new brand visual identity. You're going to be seeing that come to life in our imaging and as the brand presents itself around the globe. You've heard us talk about leveraging the learnings from Saucy to improve our tender formulation. We're going to have larger tenders, more craveable tenders. We're bringing the range of sauces, drips and -- sorry, sauces, dips and rubs to life to give more flavors to our consumers. You're seeing beverages starting to roll Kwench in the U.K. and Australia. So all of those are about winning the consumer, accelerating restaurant economics.

We've got strong restaurant economics in many markets. We can make improvements though. We want every brand country combination to be moving to that 5-year payback or better over time through leveraging Yum!'s scale. And of course, we'll be increasingly bringing the benefits of Byte and our digital capabilities to markets around the globe and KFC. That will help us power the loyalty programs that we talked about in the speech to life. You put it all together, the aspiration is to drive faster growth. We've had strong unit development.

That same-store sales number, though, our history there, we are dissatisfied with it. And we think we can achieve higher and stronger same-store sales growth and higher and stronger AUVs. So that is our objective in the long run for KFC. It's going to take some time to come to life because you got 150 countries. But you are seeing it start to deliver proof points in markets like the U.K., Korea, Japan and Brazil. We're looking forward to the future.

Your next question is from Brian Bittner with Oppenheimer.

I wanted to dive into the fact that Taco Bell's digital sales are 47% of the business now, which I imagine is way above average versus other drive-through QSRs. Can you help us understand how digital has become so high for the Taco Bell brand? I know you talked about strong first-party, but maybe you can unpack the components of digital mix? And how much has digital been a driver of comps over the last several quarters and years?

Yes, look, Taco Bell has an incredible digital capability. You'll remember that in 2018, we had a 1% digital mix in Taco Bell. So it's a dramatic change to that 47% today. We have a very strong first-party capability in Taco Bell. I really think it speaks to the power of loyalty and the unique nature of Taco Bell's loyalty programs. The Taco Bell fandom wants to be a part of the conversation. We go far beyond just an earn-and-burn type program. The Taco Bell program is about building a real connection with our fans.

If you think about these exclusive offers, the Tuesday drops, the things about the program that make our fans feel really special and connected to the brand. I think that's why -- they want to use the app. That's why they want to use the kiosk, when they're in the store. They want to identify themselves when they're going through the drive-through to ensure that they're part of that loyalty program. Of course, our digital -- Taco Bell has been powered by Byte, and we think it's a real proof point for how Byte can drive performance on both top line and bottom line for our business. It's part of why Taco Bell has grown ahead of QSR for so many quarters now and it's part of how we have kept our restaurant margin so strong for our franchise partners despite the inflation that the industry has seen over the last few years.

Your next question is from Brian Harbour with Morgan Stanley.

I wanted to ask about KFC also, please. I guess, I'm curious like some of this feels like it's more of an evolution for the U.S., but I mean you talk about many of these things being global. So how much of the sort of the product evolution will be brought to other markets. Are there some specific investments that you're asking franchisees to make related to kind of brand image or I don't know if anything with store image is going to change. Like how extensive is this going to be? And I guess, over what time will this evolution occur?

Yes. Let me be clear. When we talk about raising the bar at KFC, we're talking about that as a global initiative. 88% of our KFC system sales are outside of the U.S. That's where the majority of the business is -- the U.K. will actually be our lead market on many of these initiatives. That will be the first to bring the brand visual identity to life. They'll be the first with tenders and sauces. They're one of the lead along with Australia on Kwench.

So it's really the global business where these will be coming to life. And that is what Scott Mezvinsky and his general managers are driving. The reason it will take some time to come to life and the reason it will take some time for us to see the impact is that you've got to bring it to life across 150 countries. We're giving consistent playbooks, but we also know in the KFC business, you've got to tailor those to be relevant to the consumers in each and every market, but this is a global aspiration.

Your next question is from John with JPMorgan.

The question is on G&A and maybe going beyond '26, even '27, obviously, you guys announcing the sale of Pizza Hut is a very big deal, and I think there were some comments on G&A that were held back not knowing exactly what you would do with that brand. So as we have an opportunity to really rethink Yum! and a post Pizza Hut environment once some of the shared services are over, how should we begin to think about whether it's G&A as a percentage of system sales or revenue, or maybe even in dollar terms considering -- especially considering some of the significant opportunities that AI is bringing to enterprise level and also understanding some of the cost recovery that you're getting from Byte.

So as we kind of think about the important question about mapping G&A maybe in '28, which I think would give you enough time to really think about redesigning the organization, how should we begin to think about how you're thinking about that significant opportunity that you may have from an efficiency and an effectiveness perspective.

Thanks, John. I'll take that one. Look, thanks for the question. Look, historically, as you know, we've been good stewards of G&A. If you look over the last 3 years, I think our G&A, you'll find is flat, while we grew units and system sales around the world. Even year-to-date, system sales in the first half of the year are up 7% and G&A, if you back out FX and acquisition related to G&A, G&A has been flat. We expect no change to our disciplined pro forma for Pizza Hut. The 1.7% G&A percent of system sales, we believe, is still relevant, and we will continue to expect operating leverage on system sales growth going forward.

We obviously, as you pointed out, have some work to do next year and the year after as the TSAs roll off, but that is really the smaller question. The bigger question is the one you brought up, and we ask ourselves and where we will be spending time is how do we allocate resources to invest in our teams and our capabilities to raise the bar and drive higher top line growth while staying within the framework and metrics that we think are reasonable and disciplined G&A targets. AI certainly plays a role in that, but there's lots of other things we're thinking through as we look to raise the bar.

Your next question is from Andrew Charles with TD Cowen.

Roy, just on Taco Bell, I appreciate the strong 2Q trends and the new action plan you shared to get back on track to reach $3 million volumes by 2030. But just to further level set the investment community's expectations within that quarter-to-date down 2%, you talked about obviously one period of continued strength. And does that imply trends are somewhere down 20 over the last 2 weeks since publicity started recognizing you saw a nice step up week-over-week from the action plan that you quickly put in?

Yes. Look, first thing on the recent trends, as we shared, look, the peak impact was on July 18. I would say that since then, we've seen a steady improvement in trends and the last 4 days are well within the 20%. So I think if you look at it over the last 10 days, you'll find us on both sides of that. But currently, we're well within that.

Operator, we have time for one more question.

Our last question comes from Gregory Francfort with Guggenheim Securities.

Actually, just -- I wanted to ask about Kwench. I know it's maybe specific, but just maybe what drove this program on the beverage platform globally. Are you -- do you guys maybe under-index on beverages across your system? And in the early indications, early test markets, Australia and I think the U.K. was the other one. How much of a lift are you seeing? Is that noticeable to the overall AUVs noticeable to the comp?

Yes. Look, Kwench is really driven by insights that have come from Collider, the taste of the future consumer, there's an increasing demand for unique crafted beverages. And we want to be there to meet that demand. And as we think about that in the U.S., you've seen us talk a lot about Live Más Café and the pilots that we're leading there in Taco Bell, which are showing a lot of promise on how that's coming to life and how it's serving consumers.

But think about the global breadth of KFC with more than 30,000 restaurants outside the U.S., we need a relevant beverage offering to be able to bring to that next generation of consumers there. Kwench is that. We've got a lot of testing with consumers in a number of markets. It's a manageable CapEx. We've got a couple of different packages depending on the AUVs in a particular market and where we think the consumer demand will be. Obviously, our franchisees wouldn't invest in it unless they believe there's a return. And what we're seeing right now in terms of the impact on same-store sales and incrementality relative to that investment, tells us that this is a go in the U.K. and Australia. We'll continue to learn and refine, but it's all about battling for that future consumer.

So thank you all for your time this morning. If I sum it up, Yum!'s had an incredible first half of 2026. We had great momentum coming into the second half. The Pizza Hut transaction is on track. That will position Pizza Hut for even greater success in the future and it will position Yum! for greater success in the future because of the focus we'll be able to put on our 3 remaining brands. We've talked a lot here about KFC where we're raising the bar across our global business. We're seeing that strategy come to life and we are on track for another year of record development. Taco Bell has been navigating this industry-wide issue, but we have an incredibly strong brand there. We have an incredibly strong team. The sales impact will be temporary, and we appreciate our fans who are coming back and showing their love for Taco Bell. The long-term future of Yum! is incredibly bright. Thank you very much.

Ladies and gentlemen, that concludes today's call. Thank you for joining. You may now disconnect.

All right. We'll kick this off. I'm Sara Senatore, BofA's restaurants analyst. I want to thank everybody who's joined us online, in this room. Today joining me up here are Scott Mezvinsky, CEO of KFC Division at Yum!; and Matt Morris, Head of Investor Relations. We're going to treat this as a fireside chat. So we'll have a little bit of a dialogue here. And then towards the end, I will open it up for questions from the room. So hopefully, we can have a good conversation here. So thank you both for joining.

Yes, thank you.

Scott, okay, you've been in the role for about a year. Maybe you could talk to us about the top priorities you have for KFC and kind of what you've done so far, what's near term and what maybe takes a little longer.

Yes, sure. I mean, I'm really excited to be in this role. I've been with the KFC brand for 17 years, and I was with Taco Bell for 4 years prior to this role. It's a fantastic brand with great franchisees and team members all over the world. We're in 151 countries. So it's a big, powerful brand, $35 billion in sales, total system sales. I'm really excited about where the category is going. Category is going towards chicken. It's the fastest-growing protein all over the world, every continent, in QSR, out of QSR. That gets me excited as someone that is leading a chicken-centric brand. We're the elite. We're the kings of chicken. And so our priority really is to set the standard for the modern chicken QSR. So it's not just that we're in chicken, but how do we make sure that we're as modern and as relevant as we need to be to meet the consumer where the consumer is going.

So that's been #1 priority, is coming in and make clear strategic alignment across the world with our teams and our franchisees. For us, that means we need to have winning chicken products. We need to have the most relevant products. We need -- and formats and flavors. So you'll see bigger, crispier tenders. You'll see more sauces coming to life. You'll see more boneless, in general. We will continue to make sure that we're famous for value because that's important.

Second point of that is making sure that we're the most modern brand. So you may have seen yesterday, as a symbol of that change, we have updated our VisID. So we now have a new visual identity, including new logo, but it's more than just that. It's making sure that we have the right product range. You'll see us going into beverages in a bigger way. KWENCH by KFC is our sub-brand. It's live here in the U.K. You're going to see us communicate in a more modern way, and you're going to see our assets continue to evolve and modernize. So there's a lot of good things happening to make sure that the brand stays modern and relevant to the next generation of consumers.

And then last, which is not new for KFC, it's one of our strengths, historical strength, an area that I think we continue to accelerate, and that's development. And we continue to accelerate growth. We've opened nearly 10,000 net new restaurants in the last 5 years. We think there's opportunity for us to accelerate that pace in a profitable way with our franchisee partners.

Thank you. That's a great overview. As you said, we were in one of your stores yesterday in U.K. I want to ask you about the market because it feels like a real proof point also, Matt. As Matt pointed out, when I said in my initial list of questions, I tend to have a U.S.-centric view. And so this is actually -- it's really important to note, I think you said last night that the U.S. is actually relatively small as a percentage of the -- 13% of sales and even less of operating profit. So I do want to focus on the rest of the world.

U.K. has been very strong. I think it was you said 7% same-store sales. Maybe you could talk a little bit about what distinguishes the U.K., whether it's operations or strategy? And more broadly, are there characteristics that define a lot of your strongest markets?

Yes. The U.S. business is still symbolically and strategically important to us. I started my career in the U.S.. But you're right, the financial materiality is just not that high relative to the rest of our business. So specifically to the U.K., one of the things I'm most excited about is they're probably executing the strategy, the global strategy as well as anybody. They have a strong local team here that's driving that execution with great franchisee partners. It is also the high -- most competitive chicken market outside the U.S. So there's a lot of competitors here. It's probably the most crowded chicken space outside the U.S.

We're still very far ahead in terms of distribution, and we have 1,000 -- roughly 1,000 units here. I don't think there's any other of our competitors that are anywhere close to that. So we have the brand strength, the brand love and the distribution, having been here 60 years, to really take advantage of the opportunities and the trends in chicken.

So specifically, yesterday, it was great seeing you and others in our restaurants. You noticed that we launched new tenders yesterday in the U.K. with a range of sauces, 7 new sauces, more adventurous sauces, more flavorable sauces than we've had before, but even the way they came to the consumer was done in a more exciting way in a bigger, more dip. They also -- a dippable kind of pot. They also had -- they've launched a new sandwich that's fully dunked or dripped, as they call it here. So it's fully sauced. So you're starting to see some of the things I talked about at the beginning come to life in a market like the U.K., which is a highly competitive market, but the results are coming because we are executing at a very high level.

From a communications perspective, they're some of the best-in-class, how they communicate to the consumer, both in above the line, but also from a -- how they connect in culture, how they use their social channels. If you're living in U.K., you probably heard the Pickle Mania that we had, and it went viral with a Pickle Puffer jacket. So that's an example of us just connecting with culture.

So U.K., the team here are fantastic and they're doing a lot of the things that we talk about really, really well. And the proof point, as you mentioned, was 7% same-store sales in Q1 in a category that's not growing nearly that much.

Right. And it's interesting, you mentioned you've been here for 60 years. So it's not as if this is brand new to the market, you've been able to maintain that relevance for a long time. So maybe talk a little bit about other -- perhaps some of the other markets where you've seen something done and also a similar -- I guess, similar success. And also, I think something that was mentioned yesterday was there's a sort of a recipe sharing or idea sharing that happened. So this idea of like sort of global best practices, you can maybe...

Yes. I mean one of the things I'm trying to do as I've come into this role is making sure that we're taking -- there's great ideas that happen all over the world, and I want to make sure we're exporting and amplifying the best ideas. So the encouragement is how do we collaborate as a system, but also maintain enough flexibility that there can be great innovation happening. So the example yesterday was as simple as -- there's WhatsApp group with all of our FIT leaders from across the world, which is Food Innovation and Technology. They're the ones that develop the products.

So they can share best ideas and launch them. Best example of that is in the U.K., the pickle promotion that I talked about started in Canada. So it was an idea that came from Canada, did well in Canada. U.K. took it and made it even better here or built on the success of Canada and did it in their own way, and that will probably travel. So those are examples. I think you'll see more of us collaborations where we get IP properties. In the past, we've done maybe in 1 country or a handful of countries. We really want to make sure that we're doing in as many countries as possible to really leverage the scale that KFC has.

Yes. I think you mentioned with LeBron...

Well, LeBron was Taco Bell example, but it's part of the Yum! family. It's a good example of Taco Bell U.S. did something -- I was at Taco Bell before. Taco Bell U.S. did something with LeBron, and we were able to get the rights for global. And obviously, LeBron is -- well, not obviously, but LeBron is highly relevant in China. And so we were able to use LeBron in China. And historically, we've just been, "Okay, let's get LeBron in the U.S., do whatever the U.S. was doing." Sean Tresvant, who's the CEO, said, "Let's act more like a global brand in Taco Bell" and took the LeBron IP and put it across the world.

Okay. Sorry about that. But again, the best practice sharing.

I love Taco Bell, too, so.

Right. And I'm going to ask you about that a little bit because to your point, you had 4 years of really deep insights developed in there. So let me -- but let me shift a little bit to -- well, the growth algorithm for KFC. So you talked about accelerating unit growth. I think about sort of the long-term average same-store sales growth has been somewhere in that sort of 3% range. I don't want -- I'm not asking you to sort of set out targets, but as you talk about the idea of accelerating unit growth and possibly even just sort of system-wide sales growth in aggregate, what are the -- what are going to be the key drivers of that?

Yes. KFC has always been known as a development machine. I think that's the one thing, KFC International, in particular, of opening consistently a ton of net new units. Last year, it was nearly 2,000 net new units. So we will continue to be a development machine, and we think there's more opportunities to accelerate those numbers. But one of the things I also want to bring to KFC is the same reputation of driving same-store sales. And we want to be both, a same-store sales driving machine and a net new unit development machine. So there's really 4 areas that we're focused on to hopefully accelerate our same-store sales growth from historical levels.

Number one is, what are the consumer use occasions that were -- that we need to go into in a bigger way and how do we -- it could be tenders and sauces is going to make us more relevant for more occasions. It could be more individual occasions versus we're more known for sharing occasions. How do we really get after these occasions in a big way and actually operate differently, too. It's not just about doing an LTO here or there to get after it. It's how do we create sales layers that are sustainable across the world. So that's number one.

Number two is beverages and specifically KWENCH, which you were able to try yesterday. KWENCH by KFC, it's, I think, our first by real sub-brand within the market, within our portfolio on the menu. U.K., again, is a lead market, also helping drive their success. They've launched it in the majority of their stores. They haven't yet turned on the marketing machine. It's doing incredibly well in the U.K. and helping drive some of the results and making us more modern as well.

The third would be loyalty. We're candidly way behind on loyalty. We know we have a lot of opportunity to accelerate the number of loyalty users we have. And what we know about loyalty customers from our own data, from Taco Bell data, from competitor data is loyalty customers access the brand more frequent. So it drives frequency. So there's a direct correlation to loyalty customers and frequency. So we know that there is nothing but upside as we get our act together on loyalty.

And then the fourth is what we're calling retail rigor, which is essentially just the short term, getting value right every day, getting innovation right every day, making sure that when we come to market on the short term, our marketing calendar is as sharp as possible.

And I think one of the other sort of distinctions you talked about, I guess, is this launch and love. So maybe...

Yes. That's great. I think we -- if we're self-critical -- in the past, we would launch things and then leave them. It's like, it's fun to launch and then you don't support it after the launch, you get a big pop in sales once you launch it and then you go on to the next flavor of the month thing. So now I think we need to operate differently in that. If there are big ideas and big categories that we should be in, we need to launch and love, which means we need probably dedicated teams launching these, but then also thinking about a 3-year plan towards supporting it so that it becomes a bigger -- and that can mean not just putting media investment against it. It could also mean innovation, right?

So if you think about KWENCH, KWENCH has a range of products today. We're going to launch it in a big way. But at some point, we probably need to refresh some of the -- bring more excitement and bring innovation towards that range of products and continue to build that sales layer over time and have target objectives from a sales layer, too, not just, "Hey, we're going to launch it and love it," but also have strong KPIs against that, that we'll measure ourselves.

Okay. Thank you. That's -- yes, it's so helpful to hear you talk about kind of the sort of the differences. You're a real expert and to your point, retail rigor. I guess one thing you mentioned was sort of, I guess, expanded dayparts or use occasions. Maybe you could talk a little bit about what you see as the biggest opportunities. I know you mentioned like tenders and sauces. I think you said the U.K. was actually, I think, 70% boneless at this point. Is that an outlier among the -- in the system? Or is there a desire to kind of move in that direction?

We go where the consumer is going. So it's consumer-dependent. We're consumer-centric. And what we won't do is fight the consumer. So we're not going to try to tell the consumer what they like. So we're not going to force chicken on the bone with consumers if they don't want chicken on the bone. Specifically, I think there's many markets that today still have a high chicken on the bone mix, particularly in the emerging world. Then that's great. We have a great product, and the consumer will use them. In other markets, there are some markets we have 0% chicken on the bone. France, for example, we don't even have chicken on the bone. We have wings, but it's 100% boneless if you count wings as kind of a new format towards that. So that's where -- that's all driven by the consumer.

The one thing we are -- as I said, we're not going to do is have rules of you must sell this, you must do that. We don't want to drive complexity for our operators and our franchisee partners just for the sake of having a product range that may be what historically our brand was, that our consumers no longer want. So that will hopefully enable us to drive better execution against what the consumer do want. And the one thing we see across the world is whether you have a high COB, chicken on the bone mix or a low chicken on the bone mix, the younger consumers are gravitating towards more boneless. So for now, I would say boneless is going to be here to stay and become a bigger and bigger part of our menu globally.

All right. And so that -- I think you mentioned -- so you said I think snacking was a big opportunity.

Yes.

Is lunch still an opportunity?

Yes. I mean I think if you look at how -- and this is a broad comment because, again, we're in 151 countries, so there's different dynamics everywhere. But generally, we skew towards dinner and group occasion. And so one of the things that we need to continue to work on is being more relevant at lunch, having a great burger range or chicken sandwich range. I don't know. If it's American audience or a European audience, but chicken burgers and chicken sandwiches is an opportunity for us to continue to increase our relevancy for lunch, and lunch is obviously a big part of the category that we under -- generally under-index in, and we want to get our fair share, if not more than our fair share.

Right. Okay. And so you mentioned -- one thing you did mention also just now is operational complexity. So I wanted to ask you in terms of the sort of the unit, I guess, the performance of the individual units. One of the things that, I think, Chris has talked about is -- and then I think you have echoed for sure is improving franchisee unit economics. So maybe we could talk a little bit about the opportunity there and what the implications might be then for unit growth.

Yes. So first of all, we're 98% franchised. So unit economics is the biggest enabler of development and growth. So we need to make sure that we're always mindful of that. I think 80% of our markets have 4-year paybacks or less. So that's a big driver of our existing growth. Still, there remains -- the needs to remain a focus. There's opportunities for us to get even sharper as I think about, as an ex-finance guy and as an ex-development guy, how to drive sharper unit economics. There's really 3 areas that we work on. One is sales. That's the best way to drive unit economics, is just get sales going and flow through from that. We talked earlier about how we're going to do that and how we can hopefully sharpen or increase our AUVs that will make unit economics easier.

Second would be taking costs out of the middle of the P&L. We have a global supply chain team for the first time to help us enable taking advantage of our scale, and we have local supply chain teams also working really hard every day to make sure that we're buying efficiently, and we don't take from the consumer. So there's just how do we get sharper and sharper on the efficiency of our operations. And then technology can play a role in that, too. We've talked a lot about Byte and the role it can play, but tech in general will help us, I think, from a unit economic perspective, both from driving check in many cases and sometimes also helping ops efficiency. And then third would be CapEx. We're always looking to improve our CapEx across the world, including evaluating where we source our equipment from and what supply chain is from that point of view.

Right. So you can sort of raise the numerator and also lower the denominator to get that.

Exactly, exactly.

Okay, all right. That makes sense. I guess maybe since you mentioned technology, I do want to talk about that. I think it's something that Yum! has invested heavily in and has created an advantage. But maybe -- so maybe let's talk about it just with respect to KFC specifically. Where are we in terms of the Byte rollout? And if you could help us understand here in sort of the broadest terms, Byte was, I think, split into 2 bundles. There's digital and then there's operations. So maybe you can talk us through that a little bit.

Yes. So Byte digital would be e-commerce. So our app, just -- so the U.S. is on that for KFC, for Taco Bell. So Taco Bell U.S., I think, has the full Byte platform and suite, which is the most developed Byte market for us for Yum!. Outside the U.S., for KFC, we're working on 2 lighthouse markets. Australia is going to be the lighthouse market for Byte commerce or the e-commerce, Byte digital. As we get Australia up and running, then we'll expand into more markets, for the smart ops or the back-of-house POS, your kitchen display system, the whole system for making your operations work, that is the U.K. So we're in the process of rolling it out here, again, as a lighthouse market. And those are 2 of our -- both those countries are probably 2 of our top 5 countries in terms of size and scale. And we have teams. We have relatively sizable teams in each of those markets. So as we get those rolled out there, it will make it more easy to roll it out in other parts of the world.

And so remind me, so franchisees have to be on board with this. So is that -- so these are -- essentially, these are franchisees who have seen the use case and are...

Yes. I mean, look, franchisees, these have to have a tech platform regardless. So we believe that a restaurant company building a tech platform for a restaurant company is going to be the most effective way to do this, and the franchisees are buying into that because no one -- if there was a better third-party solution that existed that we could scale globally, we would. It doesn't exist, which is ultimately why Yum! decided to make the decision that we have to do this ourselves because that's going to be the only way to support our franchisees in the most efficient way and take advantage of our scale of our operating tens of thousands of restaurants all over the world.

So franchisees are excited, I would say, but we also -- it is a tech rollout. So it's not necessarily an easy thing that you just go like this. And you can imagine the complexity of transitioning to systems all over the world.

And just how -- why did you sort of -- why did you -- I guess, you mentioned lighthouse of Australia for the digital and U.K. for the smart ops. Is it a function of the operational complexity in the U.K. or maybe just... I mean, just...

I mean, the implemented -- those are 2 different implementations. So what we don't want to do is task one market to implementing 2 things at one time, which would probably not work out well. So we've said, "Let's get one done really, really well. Then we can see what we've learned from that and expand it to other parts of the world," in case of Australia. Then we can kind of come up for air and say, "Okay, now are we ready to go to the back-of-house solution." But to do both together would be difficult, and not even Taco Bell did it that way. Taco Bell in the U.S., they did it module by module versus everything at once.

All right. Great. Yes. Now one thing about covering restaurants is I've had to be a little bit more of a technologist than I -- I mean that's very little. So I want to emphasize on a little, but that's something that we spend a lot of time talking about. And I guess on that -- maybe on that sort of front, as you think about maybe one of the questions that always comes up when people are talking about technology is AI. And so I'll mention -- I know Taco Bell, for example, is AI speaker boxes right now for the drive-thru. But so -- maybe talk about KFC and how AI is positioned there.

Yes. I mean, first of all, I think having a common tech stack is going to allow us to take advantage of all the benefits of AI that exists today that are coming. So that's a key enabler is for us to get on the same tech stack, which is going to be important. The way I look in AI is there's roughly 2 areas of focus for us as a brand. One would be the consumer, how do we make the consumers' journey better, life easier or talk to them in a more convenient way?

The example I use there is, as we get more and more loyalty customer data, there's going to be areas for us to personalize much greater or traditionally, we do A/B testing, which was very manual. It gives you a lot of insights as you do A/B testing. There's no reason why we can't take A/B testing with AI and just really explode that and do that, what I would say, A/B testing on steroids, that's going to allow us to provide a better experience for our consumers in a more personalized way. And ultimately, you could probably have a unique offer for every single consumer in the world based on what they want. I mean that's an extreme example, but you could technically do that.

The second area that I think AI is going to have a lot of benefits for us is to make our team members' lives easier, and that's important. So I use the example of our restaurant general managers. A lot of their activity today would be things that are not team member-facing or consumer-facing. So back-office stuff, labor scheduling, ordering inventory, making sure they're planning the product flow for the day, those are probably the least exciting part of their job. And the things they don't want to do, AI can do that for them, probably ultimately in a more efficient way and allow the RGM to focus more on the consumer and more on his or her team.

And so should we think about the sort of customer-facing technology is more like a top line driver and then like you mentioned team members, is that more back of the house, or maybe that's too artificial of a distinction? Because I guess if somebody is ordering digitally, it's a faster -- maybe...

I think they both can be the top-line drivers. It's more obvious, I guess, the consumer-facing one to show that if you're more relevant for the consumer and/or you figure out how to get them to spend more because you're being more relevant to their order, either they're going to come back more or they're going to spend more on their existing. That's clear top line. If you provide team members more ease, one, it's going to allow you -- enable you to put potentially more -- the consumer is demanding more complexity. I mean they don't say it that way. They want more variety, they want more. There's more channels, more customization, there's more flavors. So that shows up in the back-of-house is complexity.

So as we're able to -- if we don't change how we operate back-of-house, we're not going to be able to meet consumers where they're going. We are through technology, then I think we can provide an even better experience for our consumer, which will show up in top line. And then secondly, if you give the team members more time to spend with the consumer and give -- and you're not always hurried or rushed, they can be friendlier, they can understand the consumer more. That will also, I think, have top line benefits.

Right. Yes. And this idea of, like, AI not replacing people, but rather freeing up time for them to spend the part that creates value, but also presumably they enjoy more, which is interacting with that customer.

Yes, the human to human.

Yes. I guess maybe last question on this or maybe you could just remind us, where is KFC? Where would we as customers see it yet? Is it in that the sort of AI, or is it visible to us, or it's still...

Yes. I mean there's a call center in South Africa, for example, that is leveraging AI. I think there's pockets of it in a lot of places of the world that we're using it in the U.K. to help make our organization more effective. But hopefully, you only see the benefits and you don't realize it's AI. And I think the Taco Bell drive-thru example is a good one. We got consumer -- when I was at Taco Bell, when we implemented it, we got consumer research that said that the AI got more scores, more friendly than the human. And while that was counterintuitive, the reason was -- is the human is trying to do 3 things at once. And so they don't have time to be friendly. They're hurried, they're rushed. So it's not that they aren't friendly people. It's that we were asking them to do too much. So it's an example of how AI can help make the consumer experience better and the team members' experience better.

Right. I actually remember hearing about that or something similar, which is like the part of people like digital ordering, even though it's slower, they feel less -- and so they feel more efficient, but also, to your point, the rush is really somebody -- if they're talking to somebody who is trying to get them through the line, and a computer doesn't do that. Computer is also pretty good at upselling in a way that a human might not be. Is that -- so you mentioned loyalty. You have a loyalty program in the U.K., I think, for -- you said.

Yes. Yes. I mean one of the thing, we're behind on loyalty. So the way I look at the world is it's really through our top 20 market lens. Our top 20 markets, ex China, are 70% of our business, ex China. So when you're 150 countries, you got to focus a bit. So the top 20 is where I look at how are we doing against the strategy overall. And the reality is when I got into this job, over half of our markets didn't have a loyalty program. So that's been a big focus of ours, is how do we make sure we have loyalty programs just to start with. That's a good starting point. U.K. is one of those markets that has a loyalty program, and they're doing a good job with it.

Yes, yes. Okay. So let me shift a little bit. You mentioned...

By the end of this year, all 20 will have a loyalty program.

Okay. All right. That's good. Does the U.S. have one?

Yes. Yes.

Okay.

I get pop-up notices from them all the time.

All right. Then I will need to opt in. I know I have the app, but...

Yes, that's it.

Okay.

Use the app.

Okay. Yes. My older son in particular, is a huge fan.

Great. What's his favorite?

I think he likes -- he actually likes the bone-in. So don't get rid of it.

Yes, it's good. No danger of that in the U.S.

Okay. Good. He likes chicken -- he likes white meat though, which I know is can be hard to find outside the U.S., but that -- he's an American, truly.

Okay. So when -- you mentioned Taco Bell and some of the things they do well, obviously, you were there for 4 years. So maybe -- it represents a lot of the Yum! profitability pool, and it's just been very consistent. So I guess maybe especially because there are probably fewer of them here, maybe just help the audience or us understand kind of what has made Taco Bell such a good -- such a strong performer for so long.

Yes. I mean we talk about being a category of one. It's truly differentiated and uniquely positioned as QSR Mexican, essentially dominates that category, which I think they're 60 years old as well or something like that. When Glen Bell came, there was no -- if you think about the U.S. if you go to the U.S. grocery aisle, there's tortillas everywhere. Salsa is now the #1 condiment. It's over ketchup. These are macro trends that have happened probably in the last 20 years that's very different for the U.S. 60 years ago, that wasn't the case. The Mexican food was not popular as overall. So we've been able to create -- Glen Bell created a fast food category that now the whole macro economy in the U.S. is going towards and actually outside the U.S. as well. They're not as far, but as we look at what's the fastest-growing food across the world, Mexican is up there.

So they are able to participate in that. They're able to be authentic there. But I think more important than just taking advantage of those trends, I think they're a fantastic brand that's been built over a lot of years, a lot of great people that have been part of that brand. They're relevant to culture. They connected culture really well. They're very innovative from a product perspective. A lot of the things that they do well are things that we're trying to do as well with KFC, especially outside the U.S., is how do we connect culturally, be more relevant in culture, how do we lean into innovation, provide more excitement and flavor for our consumers because that's the winning formula, we think.

And you mentioned, I guess, Sean took on his magic formula, right?

Yes.

I guess he's trademarked, but...

Yes, he wanted to use that. I'm licensed, but I can't

Okay. So maybe you can talk about the pillars, I guess, that are -- that underpin it and maybe how they apply or what you see as an opportunity for KFC.

Yes. And so the magic formula for those who aren't as familiar with it as you and I are, is really 4 things: It's brand buzz through product innovation, it's value, it's consumer use occasions and it's digital. So things I've been talking about as well. But I think the brand buzz, in particular, how they do it through product innovation is really something that they do a fantastic job. Best-in-class -- I think they're best-in-class on value as well. They are consistently known for value. They have the top value scores in the U.S. I think they're very innovative in value. So it's not just offering food and a low price when the $5 box has historically been very strong for them, when everyone else in the category went towards -- an example, went towards $5 price point.

And from our lens, we're cost engineering to meet that $5 price point. They came out with the Deluxe Box at $7, which was a way to say, just for a couple of dollars more, you can get what you really want and not have to compromise to get it cost engineered. So they've really hit the value well and consistently, and they've always been known for value. They will continue to be known for value. So those are 2 areas that I think we can take inspiration from digitally. I think they're doing a lot of great things with their app in the U.S. as well.

So there's things that I think KFC is proud of and Taco Bell can take inspiration from, but vice versa, we can take inspiration from Taco Bell as well. And that's a great thing about being part of the Yum!, is that we can learn from each other. We can be inspired from each other. We can connect and talk about these things collectively. Sometimes there's people that move back and forth. So it's really how do we take advantage of 2 powerhouse brands, one really strong in the U.S., one really strong outside the U.S. and grow and learn from each other.

It's a good segue to, I guess, the last sort of general topic I want to ask and then we can open up for questions, but -- which is essentially the competitive advantages that Yum! or KFC -- that Yum! -- being part of Yum! or imbued in KFC perhaps because I know there's -- you talked about how the U.K. is probably most competitive, second only to the U.S. Certainly, I'm sure people here have seen emergence of other U.S. brands in chicken brands. So I guess how -- I guess, first of all, how important is it to be first that you've been first? Is that a big part of the advantage that you have, the scale, you mentioned that? Maybe just talk to us a little bit about what gives you confidence that even as you see some of these other brands emerge in these markets where you're already #1 share that you can sustain that.

Yes. I mean I think there's a lot of competitive advantages we have given we've been building these advantages over the last 50, 60 years, being first helps, but also just developing that brand strength, that brand love that's not easy to do overnight. And we've been doing that really well in most parts of the world for decades. I think there's another thing that is not quite as easily understood, which is if you were to go with a brand X into a new market, you would likely do it with a franchisee partner. Generally, we have some of the top franchisee partners, and we've had them for decades. So we've also being first, not only is helping with the consumer, but it's also helping with the franchise landscape to say, "Here's the person in this country or the group in this country that's absolutely the right partner." And so that's been helpful as well, knowing that we have a great franchise community all over the world.

We've got the infrastructure to support the brand. In addition to taking advantage of our scale, we have 14 business units all over the world that are generally local teams supporting the brand. Here's a good example. We have a business unit here that we've invested in over -- again, over the last 30, 40 years. We have a great team executing. So there's a lot of benefits that we have that are, at best, will take decades to replicate. At worst, it's probably impossible to replicate what we've built over the last 30, 40 years.

Yes. I know this -- the 3C franchise partners is something that gets talked about. And those are committed, capable and well capitalized.

Yes.

And to your point, being first, you kind of -- you can lock up those best-in-class franchisees.

But within that, so capital is usually the one that people are drawn to. Capital is the easy part. There's lots of money. Capability is the one I would say is the biggest -- the hardest to do. And probably the biggest differentiator that we have is, generally speaking, again, everything is generality when you have 150 countries, but generally speaking, we have highly capable franchisees. They are well capitalized, but they also have the capability to execute and not just throw money in it, but make sure it actually works. And then the commitment, is making sure we're aligned together to grow at the same pace and work together. So there's a lot of partnership that happens in the field.

Right. Yes. No, and I think we've seen in some of your peers or competitors, how that has -- there have been hiccups for sure by partnering based on who can -- who's best capitalized as opposed to who's a really good operator.

Yes.

Yes. Ideally, you find both. The one of the things -- so in addition to this, I just wanted to -- I did want to touch briefly on the U.S. because one of the things I think that we've seen is, as you said, that is a very competitive market. And yet, KFC have actually, I think, kind of maybe turned the corner on comp. So while it's relatively small from an operating perspective, symbolically, it's important, and it is such a competitive market. So maybe if you could talk just a little bit about how...

Yes. I mean the first move I made when I got this job was to put in Catherine Tan-Gillespie into the President roles. Catherine is someone I've known for many years in KFC system. She was the global CMO for KFC. So she's a marketer at heart. She knows the consumer really, really well, which is important. She also was a GM of our Canada business, which is the most similar to the U.S., and turned that business around. So I knew she was the right person, and I know it starts with the right team. Just like we have a great team in the U.K., we needed to make sure we had an A team in the U.S. She's rebuilt her leadership team.

And it's early days, but it's very encouraging to see that there's some signs of success. They were going a couple of years of minus, kind of 5 same-store sales. The last 3 quarters have been positive for the first time in 2 years, positive comps. So we're not claiming victory yet, but it's certainly good to see positive same-store sales. And there's a whole comeback plan that I know you know about that Catherine and team have put together, that they're continuing to execute against, that we believe will be what will help turn the brand around.

I see. Okay. So it's -- yes, it's not as if everybody vacated the category. It's...

No, no. Yes, they did not vacate the category. It's still a fast-growing category, yes.

Yes. But she's implemented some, yes, really important changes. I think -- I think we have maybe 5 or 10 more minutes. So I'm opening it for questions for people in the room, but also I will keep asking if we don't have anything. I think one -- okay, so I will ask one question that came up last -- in the meetings yesterday, GLP-1. It's funny, as an American, it seems like the perspective is different. We just don't see it, I think, in the data, and I'll give you sort of leap to talk about it, but it is something that has come up a lot in my conversations since I've been in Europe. So maybe you could talk about the U.S. specifically and kind of what you are or not seeing.

Yes. I mean, you know better than me that GLP-1 usage has been increasing over the last few years. If I take Taco Bell U.S., their same-store sales rate has increased during that same time. So they were gone from kind of mid-comps to the 6%, 7%. So KFC U.S. went from minus 5% to plus 1% or plus 2s. So there's -- we haven't seen in the data a material impact from GLP-1. And I would say we have more in our control on how to move the business than is outside of our control. So there's always going to be some macro trends that we can't do anything about, is how do we lean into them.

So I think one trend that's happening with or without GLP-1 is more protein is what consumer wants. They want smaller sizes, more snackable. So we talked about the snacking occasion is one that we're trying to lean into. Protein is good if you're in the chicken business because that's high in protein. So we can maintain our relevancy across, if folks want more smaller portion sizes and more protein, we can deliver that. It's just staying in touch with our consumer and making sure we meet the consumer where they are. And the benefit of snacking occasion for me is also that you can get a lower price point, sometimes allows consumers access your brand that maybe wouldn't have otherwise, especially outside the U.S., if you can get that price point right.

That's interesting. Right. I mean I think we've seen a little bit of that in the U.S., which is -- it's hard to distinguish how much of these smaller portions are consumers gravitating maybe because GLP-1, but a lot is the value proposition. So it's sort of -- it plays to both of those trends, which is a good.

Question there.

Please.

[indiscernible] What does that mean? Can you comment on that?

Well...

Yes. So the news was made this morning Eastern time that we concluded the Pizza Hut strategic review. So what that means going forward for Yum! is that we have more resources, more management attention to dedicate two of our higher-growth brands. You'll see that the transaction landed in a very good place, Yum! China acquiring their revenue, their royalty stream and LongRange Capital acquiring the rest of Pizza Hut, which is a tremendous operating partner in the private equity space. So I think we landed in fantastic areas for both parts of the business, and it really allows Yum! to unlock shareholder value, both with what we can do with the proceeds, but also the attention on KFC.

And from a KFC perspective, doesn't really change how I operate on a day-to-day basis or how the team operates on a day-to-day basis. Chris, our CEO, has made it clear that Sean and I, Sean is my counterpart at Taco Bell, be 100% focused on our brands, which we have been and will continue to be. So I think that's probably a more question for Yum!, but for KFC. It's business as usual.

I was just looking.

Good timing.

Yes. So okay. So thank you. Maybe I'll close out a little bit. I think we're -- I think we have a few more minutes, but I'll keep it, say -- maybe I'll end with Chris is -- he's new-ish, right? I mean, typically or historically, we've seen people in his role have been Yum! lifers. I guess to the extent that you can or will, maybe you could just talk about like what has that meant in contrast to his predecessors? I guess, what has he done differently? Maybe how would you characterize his leadership style as you think about kind of the strategic priorities, maybe how they've shifted or what we should expect from here?

Yes. I mean I've been around a long time, so I've seen all 4 of our CEOs. All of them are very different, and they all 4 have been very effective. I think Greg Creed added something to what David Novak had done, who was our original CEO and an amazing CEO. David Gibbs added something what Greg Creed did, and Chris is going to add something to what David did or their legacy. So Chris, one, he made a big bold decision very early on, which we just referenced, which I think was not an easy decision to make and very bold. So it shows how he thinks and that he's not afraid.

But I think just on personality, he came from McKinsey originally, so he's got a big, broad strategic mind. He challenges me strategically. He helps make our strategy sharper as KFC and as Yum!. He's very data-driven, which I appreciate as well that there's a lot of data that goes behind all of our thinking and all of our decision-making. So I think I'm confident that Yum! is in a good spot with Chris. We will continue to grow, and it's been great so far in the last, I don't know, 6 to 9 months since he's taken over. It's been a good timing because I'm relatively new in role as well, so we've gotten to grow together in the role.

Great. I think that's a good place to close. Thank you so much for joining us.

Thank you.

Thank you for standing by. My name is Kayla, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Yum! Brands Inc. 2026 First Quarter Earnings Call. [Operator Instructions]

I would now like to turn the call over to Matt Morris, Head of Investor Relations. You may begin.

Good morning, everyone, and thank you for joining us today. On our call are Chris Turner, our CEO; Ranjith Roy, our CFO; and Dave Russell, our Senior Vice President and Corporate Controller. Following remarks from Chris and Roy will open the call to questions. Please note that this call includes forward-looking statements that are subject to future events and uncertainties that could cause our actual results to differ from these statements.

All forward-looking statements are only as of the date of this call and should be considered in conjunction with the cautionary statements in our earnings release and risk factors discussed in our SEC filings. Please refer to today's release and filings with the SEC to find disclosures, definitions and reconciliations of non-GAAP financial measures.

Please note that during today's call, system sales and operating profit growth will exclude the impact of foreign currency. For more details on our reporting calendars by market, please refer to our Financial Reports section of our IR website. We are broadcasting this conference call via our website. This call is also being recorded and will be available for playback. We'd like to make you aware that our second quarter earnings will be released on July 30 with the conference call on the same day.

Now I'll turn the call over to our CEO, Chris Turner.

Thank you, Matt, and good morning, everyone. At Yum!, we remain committed to our mission to grow iconic route brands globally by building the world's most loved, trusted and connected brands. In support of that mission, we recently unveiled our raise-the-bar priorities to drive our next chapter of global growth. These priorities include battling for the future consumer, accelerating restaurant unit economics, and reaching the full potential of Byte. Our world-class franchisees, along with our unrivaled culture and talent, are critical enablers of these priorities, giving us the scale and expertise to win across the 155 countries in which we operate.

We expect raise the bar to come to life over time and the momentum reflected in Q1 across these priorities and key parts of our business is encouraging. Yum!'s Q1 results marked a solid start year with our fundamentals as strong as ever. We are incredibly pleased with the company's top line performance, the integration of new company-owned Taco Bell stores, improved KFC restaurant level margins and disciplined G&A spend. all of which contributed to strong profit growth. To give more context, I'll review Q1 performance and the momentum across our priorities, starting with KFC, which represents 53% of our divisional operating profit. In Q1, KFC delivered 6% system sales growth. To battle for the future consumer, KFC is elevating its menus through high-impact collaborations and innovation and expand its software platform building on insights and best practices from Saucy by KFC.

The platform includes globally deployable, bumped and dripped flavor lineups, enabling faster speed to market and more consistent execution across geographies. Eight of KFC's top 20 markets are reactivating or launching one of these SaaS platforms in 2026, including South Africa, India, Germany, the U.K., France and [indiscernible]. In parallel, KFC is leveraging its new global innovation pantry, which helps markets replicate successful proven menu innovation. For instance, KFC U.K. is off to a very strong start with a 7% increase in Q1 same-store growth and is seeing strong momentum to start Q2, driven the Pickle Mania menu, which featured 4 pickle top items. Pickle Mania is the most successful limited time offer in KFC U.K. history. The U.K. team pulled this concept from KFC's global innovation Pantry after Canada had a successful launch in 2025.

Cultural relevance is essential to drive engagement with the next generation of consumers. And as a result, KFC continues to add more food options with rice bowls, boneless chicken and occasion-led innovation. A great example in Q1 is the [indiscernible] that launched in Korea, which rapidly became a fan favorite and sustained double-digit weekly growth into its fifth week. On top of KFC's distinctiveness and innovation, the brand is driving system sales through industry-leading development with 7% unit growth in Q1 and a record number of Q1 gross builds. KFC added new stores in 45 countries, strong unit economics are a key factor behind this momentum. In partnership with its franchisees, KFC is working to accelerate restaurant economics even further across several key markets.

Recently, KFC brought one of its best franchisees into Brazil, who is innovating its store formats. The franchisee recently opened with its first prefabricated restaurants in Chile. These stores are assembled in the manufacturing facility over 45 days and only require 15 days to assemble on-site. This represents a reduction in construction time of 17 weeks versus traditional bills. This is just one small example of the ways in which we will encourage our teams and franchisees to take bold ideas to improve franchisee unit economics.

Moving to Taco Bell, which represents 39% of our divisional operating profit, Taco Bell's magic formula is firing on all cylinders. Taco Bell U.S. reported 8% same-store sales growth, meaningfully outperforming the industry. This is Taco Bell's eighth consecutive quarter of U.S. same-store sales growth ahead of the industry. On a 2-year basis, Taco Bell's U.S. same-store sales have grown 18% miles ahead of the overall QSR industry. Same-store sales growth in the quarter reflects 3 percentage points of transaction growth with value scores and value mix, both increasing, thanks to the successful launch of the Luxe Value menu. As the Taco Bell leadership team laid out in their 2030 ambitions at Consumer Day in March 2025, the brand has a clear multiyear plan to expand its offerings with long-term targets that reflect persistent market share gains.

As one example of the impact of the strategy, expanded use occasions among light consumers has led to perception gains for Taco Bell on factors, including good for dinner, good for large groups and good for healthier options. These expanded perceptions show that Taco Bell was driving not only short-term sales momentum, but importantly, long-term brand strength. Taco Bell was battling for the future consumer by pairing unbeatable value and innovation with cultural relevance. The power of this combination was on display at its Live Mas Live event last month where the brand unveiled more than 20 menu innovations for 2026. The event was streamed on Peacock with headline-making guest appearances from Doja Cat, Davante Adams, Ariana Madix, Benson Boone, [indiscernible] and many, many more.

Social media mentions and media coverage were 60% higher than last year and Taco Bell believes the event can be even bigger next year. Live Mas Live is a powerful example of Taco Bell's unique ability to create a marquee brand moment, amplify innovation at scale and reinforced its position at the center of culture. Furthermore, Taco Bell's success is fueled by more than value and innovation. Operationally, Taco Bell is executing at a superior level on key measures, including consumer satisfaction and order accuracy. Taco Bell improved its consumer satisfaction scores in every period since March of last year. The brand relentlessly tracks order accuracy in part by monitoring consumer complaints which have declined this year since rolling out operational improvements in 2025.

I am confident that Taco Bell will continue to lead the industry. Thanks not only to value and innovation, but also improved consumer experiences coming to life through superior execution, superior speed and superior digital and loyalty platforms.

At our smallest brand, Abbott Burger and Grill we are pleased with the top line momentum generated from aggressive moves to enhance value, bring new innovation the Baja Crispy fish sandwich to its menu and to elevate brand distinctiveness. The positive impact comes while the team continues working to mitigate the ongoing bottom line impact of inflation, particularly from beef prices. One bold move to enhance brand positioning in habits home market of Southern California is the new partnership with the L.A. Dodgers. I had an opportunity recently to experience the amazing new habit location inside Dodger Stadium and the nearby Dodgers themed restaurant in EchoPark.

Yum! is also investing smartly in testing bolder bets around innovation to keep our brands ahead of consumer shifts. For instance, through findings from Colider, our in-house consumer insights agency, Taco Bell and KFC are leaning into the fast-growing beverage category by introducing highly differentiated offerings.

Starting with Taco Bell. In 2025, 62% of the brand's orders included a beverage, making this an important area in which to increase the pace of innovation and deepen consumer engagement. From the beginning, the team has been intentional from ideation to development to ensure that even the Taco Bell beverage platform becomes a category of warm. Taco Bell continues to pilot Live Mas Cafe in 38 restaurants and a unique set of Taco Bell style drinks that won't be found anywhere else, such as Churo Chillers, and a suite empanada and cream chiller. Taco Bell is already leveraging learnings from the pilot to broaden the beverage menu across the entire system with proven success such as midnight Baja Blast and Agua Refrescas. In fact, 43% of Taco Bell's specialty beverage sales are stand-alone orders without food, proving the opportunity for incrementality is very high.

Similar excitement for beverages is building at KFC. This year, KFC is scaling its Quench beverage platform to the U.K., Australia and Canada and building a pipeline of additional markets for further expansion. On top of better operational execution, buzzworthy innovation and compelling value, our brands are also delivering superior results through our digital channels. This quarter, digital mix increased to 63% and digital sales approached $11 billion/expanding loyalty is fundamental to growing our digital business and broadening consumer appeal. This year, KFC is planning 20 additional markets, putting the brand on a path to triple its 90-day active user base. Our proprietary Byte by Yum! technology platform powers our digital business. A key element of our efforts to reach the full potential of Byte is expansion into new markets. This quarter, Taco Bell U.K. became the first international market to roll out both the digital ordering and Smart Ops bundles.

Shifting to Byte from previous disparate third-party technologies provides the business with a single unified platform, enabling greater agility and consistency and execution. The capabilities in the Byte platform provide Taco Bell U.K. with more integrated digital and restaurant experiences and greater opportunities for personalization on digital channels and in the restaurant. In addition, use cases for AI continue to multiply, reinforcing the value of Yum! owning our digital ecosystem. This gives you a powerful advantage. Our global data assets, coupled with Byte's reach allow us to scale new AI features quickly for consumers. We also benefit from AI-driven efficiency gains within our digital and technology teams, benefits about which Roy will share more in a moment. All of our bold ambitions from redefining beverages to earning the right to host star-studded streamed innovation events are made possible by our people and our franchisees. We remain unified by our pursuit of accelerating growth into the future.

As a testament to that, right now, in our Plano office, nearly 500 KFC marketing, development and franchise leaders and GMs from around the globe are gathered for KFC's marketing planning meeting and Development Summit sharing insights and best practices, showcasing what's working locally and how it can scale globally, all in service of raising the bar in our largest brand. Stepping back, what encourages me most is that the first quarter results reflect the strength we believe matter most. We have incredible brands that our consumers love. Our brands are benefiting from strong long-term consumer consumption trends in the categories in which we play. Specifically, Mexican and chicken are projected to grow well ahead of the overall limited service restaurant market over the next 5 years.

We have world-class franchise partners who are experts at navigating dynamic environments. We have proprietary digital and technology capabilities that create seamless experiences for consumers and enable more productive restaurant operations for our franchisees. We are still early in 2026, and we know the environment remains dynamic, but our teams are executing with focus. Our brands are staying close to the consumer and we remain confident in the opportunities ahead as we raise the bar.

With that, Roy, over to you.

Thanks, Chris, and good morning, everyone. I'll begin with reviewing our first quarter results before discussing Yum!'s balance sheet, liquidity position and guidance for the year. Beginning with the top line. In the first quarter, Yum! system sales grew 6%. We grew new units by 5% and same-store sales globally at 3%. Digital sales approached $11 billion with digital mix reaching a new high now at 63%. The Taco Bell U.S. achieved restaurant level margins of 23.9%. We are pleased that despite significant inflation, Taco Bell has again demonstrated its ability to expand U.S. company-owned margins. KFC restaurant level margins were 10.3%, up 100 basis points year-over-year, driven by a 240 basis point increase in U.K. restaurant margins.

Ex special G&A was $284 million and was up 4%. Franchise and license expense was $43 million, $9 million higher year-over-year, primarily due to the investment in marketing and innovation testing as part of the Hut Forward program. Excluding Pizza Hut, Yum! system sales grew 7%, G&A grew 3% and core operating profit grew 10%.

Now on to development. We opened 130 new stores in the quarter. KFC opened 648 new stores, driven by a strong start in China and development across 45 countries. As we focus on our raise-the-bar priorities, you can imagine we are actively prioritizing ways to further accelerate unit economics, including optimizing restaurant build costs and introducing new equipment suppliers and specifications. Additionally, KFC's creativity around innovation is playing a role in accelerating unit economics. The brand's new beverage platform, Quench provides attractive refit ROI with paybacks under 3 years as seen on existing U.K. stores. But this package also improves overall paybacks on new restaurant builds. Our innovation and growth mindset continues to help us identify, attract and support world-class franchise partners who are eager to join our system and take advantage of these opportunities.

We expect further momentum in KFC markets that have recently transitioned franchise partners, including in Turkey, Italy and Japan, where total units are up 9% year-over-year. While the Middle East conflict creates uncertainty globally, the impact on development has thus far been relatively minor and has included short-term delays to obtain government permits and procure equipment in select markets. such as the UAE and Turkey. At this time, we see no change to our KFC development plans for the year. and note that 90% of KFC's development outside of China is contractual through development agreements with our well-capitalized franchisee base that believes in the brand.

Moving to Taco Bell. The brand opened 30 gross units in the first quarter, including 14 in the U.S. and 16 internationally. In the U.S., the brand has a long-term opportunity of 10,000-plus stores, representing over a decade of future growth and capturing exciting new opportunities such as college campuses and airports. In international markets, Taco Bell total international system sales were up 16% in Q1. This is backed by strong performance in many key markets, including 2-year stacked same-store sales growth of 23% in the U.K., 18% in Canada and 45% in India. Success in these larger markets is generating increased interest from new partners to launch Taco Bell in other new markets such as Poland and Germany. Recall Taco Bell entered 5 new markets last year and plans to expand its market count further this year.

Shifting to technology. We continue to raise the bar on modern QSR technology and digital experiences with Byte by Yum!. As we mentioned on our previous earnings call, the U.K. and Australia markets for KFC are on track to roll out by bundles this year, representing 2,000 incremental restaurant locations native to Byte once that rollout is complete. And as Chris said, in Q1, Taco Bell U.K. became the first international market to onboard both the Byte digital ordering and smart ops bundles, demonstrating the platform scalability across markets and brands. Within Byte and beyond, our digital and technology leaders are focused on the myriad ways we can adopt AI, which can be a powerful enabler of Yum!'s long-term growth. We are embedding AI in our consumer-facing technologies and innovations across our restaurant operations.

In Q1, Taco Bell U.S. piloted AI-driven A/B testing in the drive-thru with plans to roll out the technology nationwide this year. This new feature can dynamically change the layout content and visuals on a car-by-car basis. allowing the brand to generate insights more quickly and make more effective national adjustments. Whether it is voice AI in the drive-thru or AI-driven dynamic menu boards, the seamless rollout of these new tech features has been made possible due to the physical and digital assets we have developed and deployed over the years. including the underlying integrated by technology and the physical investments in digital menu boards that we and our franchisees rolled out over several years. Similar AI-driven enhancements will be tested and scaled across our brands to drive loyalty adoption and growth. Beyond consumer-facing technologies, as Chris mentioned, Yum! is also uniquely positioned to capture efficiency improvements from AI that will accelerate productivity within our enterprise.

We are currently building an enhanced version of the Byte Kitchen Display System, with an overall team that is half the size of what it would have been in the past, enable us to accelerate the pace of technology innovation substantially and expand the pipeline of value-added digital and technology initiatives our team members can work on. We are excited about the potential that AI provides to our business.

Next, I'll provide an update on our balance sheet and liquidity position. For the quarter, gross capital expenditures totaled $75 million. Our net leverage ratio ended the quarter at approximately 3.8x. During the quarter, we repurchased approximately 1.2 million shares for a total of $185 million. As a reminder, we generate a run rate of approximately $1.8 billion in operating cash flow [indiscernible]. When you couple that with the additional debt capacity we generate each year from our profit growth and our 4x net leverage ratio expectation, that is a run rate of over $2.5 billion of cash generated annually that we expect to grow at a healthy clip each year going forward. We are disciplined around our priorities and the use of this capital to maximize shareholder value through: first, prioritizing strategic investments in the business; second, maintaining a strong and flexible balance sheet third, offering a competitive dividend; and fourth, looking any remaining excess cash to shareholders.

As we refinance upcoming maturities, we will have the ability to upsize debt offerings and return substantial excess capital to shareholders. And subject to financing market conditions, we intend to do so. For this year, we expect our full year interest expense to fall in the range of $510 million to $520 million, excluding any potential debt issuances. More broadly, as we look ahead to the balance of the year, we remain very confident in our ability to meet or exceed each component of our long-term growth algorithm when excluding Pizza Hut. We now expect Taco Bell U.S. restaurant level margins to be between 24.5% and 25.5%, reflecting better top line momentum and higher margins than originally planned from the acquired Taco Bell stores. As we shared last quarter, full year ex special G&A growth, excluding Pizza Hut, is expected to be up mid-single digits.

As a reminder, amortization of reacquired franchise rights is anticipated to increase $30 million this year, largely due to the acquisition of franchise stores by Taco Bell in Q4 2025. To help model the shape of the year, we expect Q2 to reflect high single-digit growth year-over-year ex special ex Pizza Hut G&A due to the timing of project spend. Additionally, we expect approximately $5 million of noncash closure expenses for Habit as we opportunistically optimize our store network by making a small number of closures in subscale markets.

Turning to Pizza Hut. The brand saw strength across many international markets. Note 11% system sales growth in the Middle East and 8% system sales growth in both China and Latin America. Pizza Hut's Q1 core operating profit growth was in line with our guidance, and we expect Q2 core operating profit of approximately $70 million. Both Q1 and Q2 core operating profit includes expense related to the onetime Hut forward investment that we previously disclosed. With regard to the strategic options review for Pizza Hut. That process has progressed since our last earnings call, and we remain on track to complete the review in 2026. As previously communicated, the objective of the review is to create value for Yum!, Pizza Hut and its franchise partners by determined the optimal approach to capitalize on Pizza Hut's structural advantages. Its strong brand equity, experienced franchise partners and meaningful scale.

In closing, Yum! delivered a strong start to 2026 with core operating profit growth, excluding Pizza Hut of 10%. We are only in the early innings of executing against our raise-the-bar priorities that will help refine Yum!'s next chapter of growth. We are excited for the journey ahead. And with that, operator, we are ready to take questions.

[Operator Instructions] Your first question comes from the line of David Palmer with Evercore.

I always enjoy getting some color from you on global demand trends and what you're seeing out there. It looks like as we look at the system sales results and market for KFC, China and Canada may be a little bit of slowing on a 1-a-year basis, but Asia, India, Middle East look very strong, if not accelerating, Europe pretty stable. So any color as you look around the globe in terms of demand trends as we think about the rest of the year?

Yes. Thanks, David. We're pleased with the progression in KFC International. If you look over the last 4 quarters, we've seen acceleration on a 2-year same-store sales basis. in each of those quarters in KFC International. Lots of good things happening. As you said, if you look across those markets, you've got plenty of double-digit system sales growth markets. And we gave a few examples in the speeches. U.K. is at the lead of bringing to life a more vibrant consumer proposition, leveraging innovation, expanding consumer use occasions Korea. I was with the Korea team from KFC earlier this week.

They have doubled their system sales over the last few years. They've reached the highest rate of unit development last year, nearly 3 to 4x their previous pace in Latin America as the Serono Group moves into Brazil, we're seeing great things. But if you step back and say what's driving that. [indiscernible] has now been in the business for a year. He, of course, was part and parcel of building the Taco Bell strategy that we laid out last year and he's bringing the same thing. He's setting a very high aspiration. He's creating specific targets and then he's building the strategies that will bring that to life. Of course, given the 150 markets, that's going to take some time to come to life, but those countries that I mentioned are proof points that his strategy is working, and we're excited about the momentum ahead.

And your next question comes from the line of David Harentino with Baird.

Chris, another question on international. And I guess mines more focused on the franchisee appetite for unit growth given all the geopolitical issues that are out there. And I know you mentioned on the call that there was still a good pipeline for this year. But thinking more into next year or the next few years, are you seeing any signs of pause related to the unit growth, either for KFC or Taco Bell. I know Taco Bell International is a big opportunity for you. So if you can comment on that as well, that would be great.

Yes. Thanks, David. As we look at our unit development outlook, we have high confidence. We just set a new record for Q1 unit development in KFC. The Taco Bell international unit development story continues to grow. If you think about KFC, as we mentioned on the call, we're actually with our KFC franchisees and our development leaders here this week in Plano. We're talking about the elements of the raise the bar strategy. Of course, the first part of that is battling for the future consumer, which should lead to higher same-store sales growth and higher AUVs that [indiscernible] is accelerating restaurant economics and reaching the full potential to buy. But that accelerating restaurant economics is about leveraging those higher AUVs over time and leveraging our scale and supply chain in prototype design. And the scale that Byte provides us to improve unit economics.

And that will ultimately help us to broaden the number of markets from which we get strong unit development. We have incredible unit economics in our biggest unit development markets today. China, India, Middle East, but we know there is so much white space that we can get to if we can improve paybacks in broader markets. Europe is a prime example of that. our team and our franchise partner in Italy has shown us that, that is possible. If we go to Taco Bell International, we're continuing to see great growth. If you look at the system sales numbers and those same-store sales growth numbers that Roy shared, a lot of great things happening there. It was in 2021 that we had 100 units in Spain, we're now at 180 units today. 2022 is when we had 100 units in India and the U.K. We're now at 156 and 142 in those 2 markets. Canada will probably be the next market that gets to 100 units, and we're adding new markets all the time. So we're pleased with the progress there. Our long-term aspiration is to sustain or even accelerate our pace of unit development.

And David, I'll just add to that. If you look at history and KFC, there's no more consistent unit developer than KFC global over time. because it's underwritten by a really strong investment case in many markets around the world and amazing well-capitalized franchisees. So if you look in times of disruption in the past, 2021 and 2022, you had a lot of supply chain disruption grew net new units, 8% and 11% in those years. In 2024 and 2025, you're talking about the Middle East crisis and its aftermath. We saw 7% net new unit growth in both years. when you exclude the impact of Turkey and Russia exits. And as for the current conflict, its relevance to unit growth, the entire Middle East represents less than 150 units in our current pipeline. And as of today, our partners in that region expect no change to plans. And so we have a lot of confidence in KFC, both based on track record as well as what we're seeing on the ground.

And your next question comes from the line of John Ivankoe with JPMorgan.

I was curious how you're currently thinking about the organization post Pizza Hut. You obviously have an opportunity include use of modern AI to really rethink your organization from a top-to-bottom perspective. It's really an opportunity, if you will, for Yum! to kind of restart itself and how it thinks about managing the business from the store level all the way up. So how should we think about total dollar spent, whether it's G&A as a percentage of system sales, whether we should just revert back to kind of AI and Byte specifically bending the curve on G&A, just to give us some guidepost in terms of how you're thinking about this potentially big overall efficiency and effectiveness opportunity for the overall Yum! G&A spend.

Thanks, John. Of course, the Pizza Hut process, as we said, continues to progress well. We'll share more once we conclude that process. But if I step back and think broadly about the impact of on the organization. We're very pleased with the progress we're making. Of course, it is enabled by the fact that we have gotten to more consistent platforms through Byte by Yum! that both across our restaurant footprint, particularly in the U.S., and we'll be expanding more and more internationally, but also in our above store systems. And if I talk about our philosophy as it relates to AI, first and foremost, we want to use AI to drive growth.

That's what's exciting in our business, and you're going to see us have use cases, like the one we mentioned, be the leader in rolling out AB testing to our digital drive-throughs and Taco Bell is all about driving growth and getting a better consumer experience out there faster. We're also going to use AI to elevate our team members, whether in the restaurants or in our above-restaurant roles, we want to help make our jobs easier and allow people to be more productive and do things faster. And so just a couple of examples from an org standpoint that are pretty interesting. I was with our GM of KFC U.K. this week. That team has really embraced they now have 10 different AI agents that are playing roles in the organization.

For example, there's a virtual team member on the KFC U.K. development team, that's helping with permitting and it's taken care of a lot of the basic analysis and fact gathering, which is speeding up our applications for permits on new units there. Our corporate learning and development team has a virtual team member Judy, who is doing some great work in helping us build training programs, getting those out faster and being more productive in how we do it. So we're really pleased with the progress. More to come there, but we're going to use it to drive growth and make our jobs more productive and easier for our team members.

And your next question comes from the line of Dennis Geiger with UBS.

I wanted to ask a bit more about Taco Bell's impressive momentum and the outlook for the U.S. Taco Bell. Chris, you gave a lot of good color in the prepared remarks. But could you touch a little bit more on how the brand generates these strong results even in this particularly difficult consumer environment? And the second piece, just as it relates to the dynamic around the Live Mas Cafes, anything more to share on what you're seeing there and sort of the potential for those cafes looking ahead?

Yes, thanks a bunch. Look, the Taco Bell team has continued to put up quarter after quarter of great results. It's an amazing business. And if you dig into why this Taco Bell continue to perform. It's really about delivering what consumers need in any environment. It's not just one thing. It's multiple things. that's grounded in structural advantage. The Mexican category is growing ahead of the overall restaurant space and Taco Bell was a category of one in that space. We also have a business model there that allows us to deliver value while also ensuring high margins for our franchise partners. So structural advantage is one piece, and then you got a great strategy. .

Sean and his team laid that out very clearly last year at the Consumer Day, raised their aspirations. They set a very specific target to strive for $3 million AUVs by 2030, and then they laid out an actionable strategy to bring that to life, and we are on track with that strategy. They're doing a great job executing it. Of course, that strategy covers ensuring we have a culturally relevant brand. We mentioned some examples of that. Craveable innovation that is broadening the consumer use occasion. So it's given more consumers, more reason to come to the brand more frequently. And that is driving transaction growth at all income levels. It's allowing us to expand with families with children.

We also have very easy experience, the fastest drive-through of any large-scale QSR player and those operations are getting better, as we mentioned. And of course, we deliver unbeatable value the WEX value menu that we revamped in Q1 is performing very well. 1/3 of all Taco Bell tickets have an item from the value menu there, and people are really building meals with a lot of variety using the value made. So lots of strength but we're just in the starting stages of the strategy that Sean laid out. So we're very excited about future continued momentum in Taco Bell. As we go to beverages, the Lomas case, I think of right now, as the seed for broader beverage expansion already across the entire Taco Bell business, if I open up my Taco Bell app right now, I can find 15 different specialty beverages available there.

Some of those came from Litmos Cafe, like the Refrescas. But you got dirty sodas, you've got freezes, already a really distinctive business, coupled with our proprietary QSR Baja Blast platform through our partnership with Pepsi Care. So we're already getting tremendous returns from the Litmos Cafe investments. We'll continue to see how that pilot goes to see where we take the specific concept.

And your next question comes from the line of Gregory Francfort with Guggenheim Securities.

I guess maybe clarification. Are you guys disclosing the KFC U.S. and international comps anymore? And then my question is on Saucy and the thought process. I think, Chris, you made some comments about taking elements of Saucy and bringing them to different markets around the world. Are you viewing this as maybe a testing hub for the rest of the system? And do you expect to maybe bring some elements of it into the U.S. system at some point in '26 or '27?

Yes, thanks. Let me start with the KFC business. It is a strategically important business for us. It's our biggest brand. It's our home market and a vibrant chicken market. We've said over the last few years, we've been dissatisfied with the trajectory of performance in that business. And we're very pleased with what the U.S. leadership team is doing to change the trajectory there. some good moves in Q1. The partnership with Matty Matheson, which is increasing relevance to a broader consumer set. We are, of course, still serving the core.

We have the build your own bucket, $20 value offering in Q1 and as we came into Q2, we've rolled out a revamped value construct the $7, $9, $11 options. So lots of good things happening there, and they are -- they have a big pipeline of innovation that they are working. That ties to say KFC. Similar to Live Mas Cafe, we are already earning a big return on the SAC investment across the global business. So if you were in our marketing planning meetings here in Plano this week, you would see how the Saucy learnings are leading to tenders innovation globally to soft innovation, the way -- the process that we use to identify the specific sauce formulation that will resonate with consumers in any market and even concept inspiration. Christophe Poirier, who developed the Saucy concept is now the KFC Global Chief Concept Officer. So we are leveraging Saucy in a big way in terms of powering the broader KFC business.

Yes. And in terms of your question on the disclosure. Look, we're always focused on providing the appropriate level of transparency and disclosure. If you noticed in our press release, we've moved KFC U.S. from being a subsegment where more details are disclosed to the system sales table. So it's still in the system sales table and restaurant counts. But as we look this quarter, we periodically review our disclosure to ensure that it aligns with drivers of growth and profitability that are most relevant to everyone following our releases. U.S. KFC is placed on our disclosure now is reflective of its scale in the overall Yum! portfolio, where it currently comprises materially less than 5% of Yum! operating profit ex Pizza Hut. And of course, we'll continue to focus on it strategically. But from a disclosure standpoint, that's where it landed.

And your next question comes from the line of Andrew Charles with TD Cowen.

Quick clarification on the question. So the clarification is, does the KFC development guidance for the year reflect the ripple effect of the Middle East conflict and what we're hearing about LPG shortages in some international markets outside of the Middle East? Or are you just speaking to the direct Middle East region, fairly okay? And then Roy, my question was about just helping to level set investor expectations on Taco Bell. What do you believe to be the most instructive way for investors to think about for the remainder of 2026 following 1Q strength. In the past, we've heard about holding your stack steady. Is that a fair way to think about how the remainder of the year should progress for Taco Bell? Or is that overly simplistic mid gas price is north of $4 a gallon?

Andrew, first on the Middle East with KFC. Just to clarify what Roy shared earlier. We are confident in global KFC unit development on this year and beyond. As he mentioned, the Middle East represents mid-single-digit percentage of our total unit development plan in KFC. There have been some supply chain implications on equipment, so the lead times may be a little longer and some costs may be a little higher but our franchise partners in the region are doing a really nice job navigating that situation. And of course, their first priority is keeping team members safe and keeping consumers safe in this environment, but they're doing a great job navigating the business.

So overall, no change to KFC's unit development outlook. On Taco Bell, look, as I mentioned, this is a multiyear strategy that the team laid out. Of course, they're continuing to refine and elevate that strategy for the long term. But you saw a Live Mas Live, the innovation agenda for the year that's going to come to life. It is incredibly exciting. It continues to add and build new consumer use occasions. There are other elements of the strategy that are helping us to retain these consumers who we are attracting to the brand. If I just take loyalty and digital. We're now approaching an 80% digital mix in Taco Bell U.S. and our loyalty program continues to grow. We had 30% growth in loyalty sales year-over-year and it's because the loyalty program is resonating with consumers, and it's helping people to engage with the brand more and more frequently. So a broad range of drivers that will drive the strategy going forward, we're confident in Taco Bell's continued strength.

And I think on your question around the remainder of the year. Look, we're not going to give quarter-to-quarter guidance. But I will say from our prepared remarks and what you're hearing in our voice, we have confidence in Taco Bell momentum I'd say, more confidence than we had earlier in this year and you're hearing that from us. And I'd say that's not just top line, but also on the margin front, where we've taken up guidance on margins. Just now, when you think about Q1, what's really impressive is you have not just the backdrop of the consumer, we have the backdrop of inflation. We launched a rebrand of our value platform and expanded restaurant margins at the same time. And so that gives us a lot of confidence in Taco Bell as we look towards the remainder of the year and to Chris's point beyond as well. .

And your next question comes from the line of [ Christine Cha ] with Goldman Sachs.

Congrats on a great quarter. A few quarters ago, I think you mentioned plans to appoint a Chief Scale Officer. And I think I'd love to hear your latest thinking on how you intend to align and incentivize the organization and leadership to really focus on driving improvements in unit economics globally that seems to be central to your raise the bar framework?

Yes. Yes. Thanks so much. Look, we've got an amazing leadership team in our business. Of course, we're powered by the best talent and culture in the industry. We do still intend to add that Chief Scale Officer role. We've taken our time to make sure we get that right from an organizational standpoint, but we're not being our focus on the scale benefits that can come from those teams. The teams that would sit underneath that leader are in place today, and they are doing great work. I took the global supply chain organization, which we pulled together over the last 1 to 2 years, we've got an incredible team there. They are focused on the international sourcing across markets -- they are bringing great leverage.

They're going category by category with specific goals for how to dollars to the bottom line for our franchise partners, leveraging young scale. They've already got many, many wins on the board and many more to come. So we are focused on that. And of course, our brand leaders as part of raise the bar, have specific efforts that they are taking on in conjunction with that to ensure that we're accelerating restaurant economics. So lots of good work happening there as we move further on filling that rollable share updates when they're ready.

And your next question comes from the line of Andy Barish with Jefferies.

Just back on Taco Bell kind of if you wouldn't mind sharing sort of philosophically your thoughts on equity ownership, obviously, the deal in the 4Q, and I think there was a small cleanup deal in Australia in the 1Q or early 2Q. And just kind of -- how should we think about where kind of the Taco Bell franchise system is at least domestically?

I sense a few different parts to that question. The first one I'd say is like about -- you talked about the equity portfolio in Taco Bell. Can you clarify, is it about our equity ownership or about our franchise base? .

No, no. It's about your philosophy in terms of being opportunistic in buying more Taco Bell stores.

Got it. Okay. Look, we love being an asset-light business. We continue to have amazing franchise partners around the world and KFC Taco Bell, who run world-class restaurants. Historically, we made, as you know, opportunistic acquisitions that are relatively small. If you think about the Q4 Taco Bell acquisition we made, 128 restaurants out of a worldwide base of 60,000 restaurants that we have is relatively small. That said, these strategic acquisitions, we view them as providing a number of benefits.

First, there's a financial benefit. When you think about the returns we get buying at reasonable multiples and driving growth in those restaurants itself, we can drive returns that materially exceed the hurdle rates we have for investment. Second, the strategic benefits. So you think about some of the acquisitions we made like the KFC U.K. restaurants and the Taco Bell Southeast restaurants and the results that drives in those markets and the ability to open up Byte space that are strategic benefits to the broader system that are way beyond the actual investment that we actually made. And thirdly, it does add mindset and muscle in those markets where you have to run a restaurant, and you have to think like an operator, and that provides broader benefits. So look, I'd say there's a number of benefits that we see from those and we're going to do it selectively and strategically. And when we do it, it will be for specific reasons where it has maximum impact, we're going to keep our eyes open for the opportunities that provide that.

Operator, we have time for one more question.

And your final question comes from the line of Jeffrey Bernstein with Barclays.

Great. Chris, just a question on the broader QSR segment positioning. Just thinking about an industry perspective. I don't think anybody is more knowledgeable on QSR trends with your global portfolio. But in the past, U.S. macro slowdowns, I think was built that QSR was well positioned, retaining the lower income with value, inheriting trade down from above. But it does feel like this go around is increasing investor concerns that QSRs may be losing the lower income with less value and not inheriting from above. To be clear, clearly, you're not seeing that at Taco Bell, but just wondering as you look across the QSR segment more broadly, I guess more of an industry question, do you think QSR positioning has changed at all? Or should QSR again be the beneficiary in the more challenged macro?

Look, as I look at the U.S. macro landscape and the U.S. consumer, I have to look at it through the lens of our business. And our largest business in the U.S. is Taco Bell, and I think what you're seeing is that when you deliver what consumers want and need, you can [indiscernible] with consumers in any environment. And Taco Bell is bringing that combination that we mentioned earlier, a culture leading brand, craveable food with great innovation an easy experience that is enabled by digital and technology and, of course, leading value. And I think if Taco Bell were just bringing 1 or 2 of those things, you wouldn't see these results.

It's the combination that is winning with consumers. And of course, they've got structural advantage that will allow us to sustain that and we see that in all the markets around the globe. The consumer has had various pressures across market for a number of years now, and we continue to prove that when you deliver what consumers want and need, you can win with those consumers.

So thank you all for making time for the call. We appreciate you being here. We've got a great start to 2026. Really proud of the performance that our teams are delivering. Our largest brands are performing well, enabled by structural advantage, strategies that are working and an incredibly scaled digital presence that will continue to grow over time. That's leading to growth and sustainable market share gains, all while we raise the bar for the future. Thanks so much.

This concludes today's conference call. You may now disconnect.

Hello, everyone, and thank you for joining us today for the Yum! Brands 2025 Fourth Quarter Earnings Call. My name is Sami and I'll be coordinating your call today.

[Operator Instructions] I will now hand over to your host, Matt Morris, Head of Investor Relations, to begin. Please go ahead, Matt.

Good morning, everyone, and thank you for joining us today. On our call are Chris Turner, our CEO; Ranjith Roy, our CFO; and Dave Russell, our Senior Vice President and Corporate Controller. Following remarks from Chris and Roy we'll open the call to questions. Please note that this call includes forward-looking statements that are subject to future events and uncertainties that could cause our actual results to differ materially from these statements.

All forward-looking statements are made only as of the date of this call and should be considered in conjunction with the cautionary statements in our earnings release and risk factors discussed in our SEC filings. Please refer to today's release and filings with the SEC to find disclosures, definitions and reconciliations of non-GAAP financial measures.

Please note that during today's call, system sales and operating profit growth will exclude the impact of foreign currency. Our fourth quarter results reflect the comparison against an extra week in 2024 for business units that report on a period calendar basis. However, all figures discussed on this call exclude the impact of lapping that additional week.

For more details on our reporting calendars by market, please refer to our Financial Reports section of our IR website. We are broadcasting this conference call via our website. This call is also being recorded and will be available for playback. We would like to make you aware that our first quarter earnings will be released on April 29 with a conference call on the same day.

Now I'll turn the call over to our CEO, Chris Turner.

Thank you, Matt, and good morning, everyone. Yum! delivered another year of outstanding results at KFC and Taco Bell with our fundamentals stronger than ever at both brands. Looking back at 2025, Taco Bell again gained market share, outperforming the QSR industry with exceptional 7% same-store sales growth and KFC delivered record-breaking unit development while hitting an incredible milestone in opening its 30,000th international restaurant.

Both Taco Bell and KFC delivered 10% divisional core operating profit growth, a strong outcome that speaks to the durability of Yum!'s portfolio and the skillful execution of our team. And these great results build on multiple years of compounding success as best highlighted by Taco Bell system sales being up nearly 40% and KFC international units being up over 30% since 2021.

What excites me most as I've stepped into the CEO role is not just the strength of our results, but the clarity in how we will continue to grow, building on our strengths and elevating our ambitions. The combination of our global scale, unrivaled culture and talent and world-class franchise partnerships create a unique and unbeatable competitive advantage.

Our digital capabilities continued to be a powerful sales driver in 2025 as we reached new milestones with digital mix approaching 60% and digital sales growing 20% year-over-year. We saw growth across all digital channels, including mobile apps, loyalty programs, first and third-party delivery and kiosk ordering. Investments in the Byte by Yum! platform, our loyalty ecosystem and AI-driven personalized marketing all underpin this incredible top line momentum.

These early wins reinforce our digital and technology strategy. Owning our core digital and technology platforms gives us an edge over the competition. Yum! scale uniquely positions us to develop common platforms and deploy them across brands and markets, creating a scalable foundation for the next wave of digital innovation. As we move into 2026 and beyond, I'm eager to build on what's working and in collaboration with our leaders, thoughtfully apply the insights and ideas generated in my conversations with franchisees, team members, investors and employees.

Our recipe for good growth remains unchanged. Everything we do at Yum! Brands is in service of our mission to grow iconic restaurant brands globally that are loved by our consumers, connected through people, systems and technology and trusted everywhere we operate. All of our work is powered by our unrivaled culture and talent, which remains our greatest strength and most important differentiator.

Looking forward, we are raising the bar with clear priorities to drive the next chapter of growth for Yum!. This means setting bold aspirations and delivering industry-leading performance. We have 3 core priorities. The first is battling for the future consumer with the goal of meaningfully lifting average unit volumes over time.

Second, accelerating restaurant-level economics for our franchisees, which will enable sustained industry-leading unit growth across our brands; and third, reaching the full potential of Byte, leveraging our technology and digital capabilities to create more connected experiences for our consumers and more profitable growth for our franchisees. One clear example of what raising the bar looks like in practice is Taco Bell.

The brand is relentlessly innovating for next-generation growth with clear 2030 ambitions, including reaching approximately $3 million in U.S. average unit volumes, expanding to 3,000 international stores and delivering 25% to 26% U.S. restaurant level margins. This reflects a deliberate multiyear journey focused on battling for the future consumer, including expanding digital and loyalty and new category entry points, which together will drive higher frequency, stronger check and increasing traffic across daypart.

Combined with leveraging our scale, these initiatives improve 4-wall economics and create a more attractive, repeatable growth model for franchisees, which in turn accelerates new unit builds. Byte continues to support this progress by enabling more personalized engagement, stronger operational execution and improved restaurant-level economics. Together, these efforts demonstrate how bold aspirations, disciplined execution and a clear strategic road map can deliver durable growth and attractive returns.

Another important capability that supports how we raise the bar across the portfolio is Collider, which has been our in-house consumer insights agency for over a decade. In December, Collider published its 2026 Food Trends Report, which highlighted 3 clear shifts in consumer behavior. First is what we call the Me, Me, Me economy, where consumers are increasingly over-indexing on customization and crave-worthy food.

Second is choice therapy, where consumers reclaim a sense of agency through small intentional choices, often expressed through sauces and add-ons. And third is Vibe mapping, reflecting the importance of delivering affordability that feels good and connects emotionally. These insights shape how we think about menu architecture, innovation platforms and brand expression across the system, all with the aim of giving consumers what they want, staying ahead of the competition and taking share.

Now let me turn to our full year results. At KFC, which represents 51% of our divisional operating profit, the brand delivered a strong year with 6% system sales growth, resulting in an impressive 10% core operating profit increase. We delivered exceptional results in the U.K. market, KFC's largest equity estate, where relevant limited time offers paired with disruptive value drove a 10% increase in same-store sales in Q4 and high single-digit same-store sales growth for the year.

Our results were strong in the Middle East, where same-store sales growth was high single digits in the fourth quarter, building off of the 13% comp growth we experienced in the fourth quarter last year. As we move into 2026, KFC's CEO, Scott Mezvinsky, is leaning into his previous experience at Taco Bell and leveraging findings from Collider to reengineer the menu and calendar, continuously evolve and modernize the brand and accelerate net new unit development.

On the menu and calendar, KFC will increase the pace of its marketing windows while upgrading its limited time offerings through partnerships to enhance the brand's cultural relevance. We'll also invest in high confidence platforms that drive frequency and check growth, including beverages, sauces and tenders. Leveraging learnings from Saucy by KFC, the team has developed more than 20 sauces, creating a scalable platform that allows us to move innovation from limited time offers to always-on proposition.

We are also rolling out our beverage platform, KWENCH to approximately 3,000 stores this year, while refining our tender offerings by adjusting portion sizes and tailoring crispiness to consumer preferences. Similar to Taco Bell's successful and robust testing platform, the KFC team launched a global innovation hub in September, a centralized database of historical products, tested ideas and Collider concepts that will meaningfully shorten development cycle.

The team will pair its higher innovation cadence with profitable low price point products, compelling individual value offers and expanded daily menus designed to drive traffic while protecting margins long term. At Taco Bell, which represents 38% of our divisional operating profit, the brand continues to fire on all cylinders with full year system sales growth of 8% and core operating profit growth of 10%.

At Taco Bell U.S., our momentum continues to be driven by sustainable market share gains. Importantly, that growth is broad-based with increased penetration among higher income consumers, families and younger guests. Key growth drivers this year included innovation-led buzz with National Taco Day and Baja Blast Pie, $5, $7 and $9 Luxe boxes, Decades 2.0, returning favorites like Cheesy Dipping Burritos and Nuggets and Fries.

Looking ahead, the 2026 marketing calendar builds on this momentum by broadening our core platforms while leaning into key themes that we know resonate with consumers. We're focused on unlocking more growth potential on the road to achieving our 2030 goals by leveraging our magic formula, including driving brand buzz through 26 new and tested innovation launches, dominating on value with the new Luxe value menu and optimized $5, $7 and $9 boxes and expanding and innovating off our core platforms across beverages, fries, Cantina and Crispy Chicken.

Digital remains a powerful growth lever and is expected to drive nearly 1/4 of Taco Bell average unit volume growth in 2026. At Taco Bell International, in 2025, we achieved 5% same-store sales growth with standout performance in Canada, the U.K. and Spain. This included fourth quarter double-digit same-store sales growth in Canada, where we successfully launched Crispy Chicken.

We achieved over 15% system sales growth in Europe, where we launched the Live Mas Club in the U.K., laying the foundation for deeper loyalty and e-commerce integration. The team is committed to strengthening its position as a distinctive and culturally relevant brand, reinforcing its food leadership by scaling craveable platforms and testing future menu icons across key markets, leaning into value as a core traffic and relevance driver and building digital engagement through locally relevant platforms and partnerships.

Turning to the Pizza Hut strategic review that we announced last quarter. The process is proceeding as planned. And as of now, we intend to complete the review of options this year. We are pleased with the Pizza Hut team's dedication through this process, including their work with franchise partners to strengthen near-term results. Given the ongoing nature of the process, at this time, we cannot share further details on the strategic review.

As I look back on 2025, I am proud of our teams around the world who make our iconic brands loved by consumers, trusted by all stakeholders and connected to the communities we serve. Last year, we expanded access to education, skill building and employment opportunities for more than 400,000 people. In partnership with our franchisees, we donated more than 4 million pounds of food and supported communities and team members affected by disasters around the world.

I extend my heartfelt thanks to all the individuals who made these efforts possible. demonstrating how we lead with heart, which is what makes this company truly special. That's the power of Yum!, serving up good wherever we operate. As we close, we have iconic global brands with clear growth runways and a commitment to raise the bar.

I want to emphasize that our brands are executing with discipline, guided by insight and grounded in purpose. Most importantly, we have exceptional people, franchisees, team members and leaders around the world. This gives me tremendous confidence in our ability to navigate change, take share and deliver consistent long-term value for our shareholders.

With that, Roy, over to you.

Thanks, Chris, and good morning, everyone. I'll begin with our fourth quarter and full year results before discussing Yum!'s balance sheet, liquidity position and guidance for the upcoming year. Beginning with top line, we grew our Q4 system sales 5%, driven by 3% unit growth and 3% same-store sales growth. System sales were led by strong Taco Bell same-store sales growth, record high KFC international unit openings and robust digital sales growth.

Our digital sales topped $11 billion and grew 25% year-over-year, raising digital mix 9 points higher to nearly 60%. For the full year, Yum! overall system sales grew 5%, led by our 2 largest brands, Taco Bell at 8% and KFC at 6%. Q4 company restaurant margins were 16%. Taco Bell U.S. delivered 25.7% restaurant level margins, a 50 basis point expansion year-over-year on 4% same-store sales growth at company-operated restaurants.

Full year Taco Bell U.S. restaurant margins ended at 24.4%. Despite higher beef prices year-over-year, full year margins at Taco Bell U.S. expanded, thanks to strong top line and transaction growth. For KFC, Q4 restaurant level margins were 12.7%, a 60 basis point expansion year-over-year, driven by an improvement of 150 basis points in our U.K. store margins and nearly 350 basis points in our U.S. store margins. Q4 ex special G&A was $337 million, up 5% year-over-year.

Reported G&A of $377 million included $40 million of special expenses primarily related to the Pizza Hut strategic options review. For the year, ex special G&A was in line with our guidance, up 5% year-over-year at $1.15 billion. As a result, Q4 core operating profit grew 11% and ex special EPS was $1.73. For the year, Yum! core operating profit grew 7%. Excluding the Pizza Hut division, core operating profit grew 10%. Yum! ex special EPS for the year was $6.05, up 10%.

Moving on to development. We opened over 1,800 new units in Q4 and over 4,550 new units for the year. KFC led unit growth with over 1,100 units opened in Q4 and nearly 3,000 units opened in the year. This is a record pace for KFC's gross unit openings and spanned 105 different markets. Were it not for the Turkey closures in the first quarter of 2025, KFC would have set a net new unit record in 2025.

As you may well know, many of our franchisees set their development plans more than 12 months in advance. So the record-setting unit growth in 2025 on the back of a challenged same-store sales environment in 2024 is a testament to the global appeal of the KFC brand, its attractive restaurant paybacks and our advantaged franchise system. Building upon an already strong system, the KFC team is prioritizing further improvement in paybacks and setting bold goals to drive attractive long-term growth for the KFC brand.

A strong network of franchise partners is key to our mission, and we continue to see franchise partners achieve greater scale, advance operational capabilities and invest in growth. To that end, on Jan 1 this year, 2 of KFC's publicly traded partners, Devyani and Sapphire announced an intent to merge, creating one of the largest food and beverage companies in India. This will bring together 2 already strong partners, enhance Devyani's supply chain, technology and development capabilities and accelerate growth in one of the largest underpenetrated markets globally.

Similar advantages and scale are being realized in other parts of Asia, where the Carlyle Group, which acquired KFC Japan in 2024, has now doubled down to acquire KFC Korea, underscoring the attractiveness they see in the KFC brand and the long-term white space opportunity. Carlyle has been clear about their intentions to accelerate KFC's growth across Asia as is evident in Japan, where the pace of net new unit development increased by nearly 70% in the past year.

We are incredibly excited to see our sophisticated, well-capitalized franchise partners around the world gain greater scale and further strengthen their capabilities. which, combined with the enormous white space, provides even more reason to believe in the store development opportunity ahead. To illustrate this point, consider Thailand, an emerging market where we have approximately 24 KFC restaurants per million consuming class population today and where we continue to see strong unit growth.

We have many other large markets where the future potential is even bigger. As examples, India has only 5 and Brazil recently under new management has only 2 KFC restaurants per million consuming class population today. Turning to Taco Bell development. We opened 228 new units in Q4, our second highest Q4 ever. We continue to see a very attractive development runway, anchored by a clear target of reaching at least 10,000 units in North America and 3,000 units internationally.

Taco Bell entered 5 new markets in 2025 and opened 155 gross units internationally, up almost 40% from the prior year. Development occurred in 26 countries, including 10 units or more in each of India, the U.K., Thailand, Brazil, Spain and Canada. International expansion is supported by analytics-driven store development plans and strong top line growth, leading to improved franchisee economics, all of which reinforces our confidence in Taco Bell's global growth trajectory.

Moving to technology. As Chris mentioned, last year was an important year for our technology initiatives. We consolidated our portfolio of leading technology solutions into a single restaurant technology platform unveiled as Byte by Yum!. The Byte platform is the only multi-brand, multi-market QSR technology platform built by restaurant operators for restaurant operators. We think about Byte's evolution in chapters.

Chapter 1 was about building, integrating and proving the platform in the U.S. Chapter 2 now focuses on product excellence and accelerating adoption across our global system. To make this adoption easier, we've simplified Byte into 2 interconnected core bundles, the SmartOps bundle and the digital ordering bundle. The SmartOps bundle includes Byte point-of-sale, menu and kitchen management and is in over 7,000 restaurants at year-end.

The digital ordering bundle includes web and app ordering, menu and third-party marketplace integrations and is in nearly 18,000 restaurants at year-end. When including the 2 bundles plus more narrow a la carte offerings, at least 1 Byte product is live in approximately 38,000 restaurants globally. In 2025, Byte Digital ordering bundle expanded to 5 new markets and processed over 370 million digital transactions, representing over 60% growth year-over-year.

In 2026, we will deploy SmartOps in KFC U.K. and digital ordering in KFC Australia, marking an important next phase of expansion. Byte's benefits are widespread and include operational and consumer-facing impacts. For example, we've delivered up to a 75% reduction in aggregator ordering failure rate through the digital ordering bundle. Within the SmartOps bundle, we've had restaurants see up to a 10% increase in consumer satisfaction and up to an 85% reduction in stock-outs.

Such improvements directly support sales conversion, consumer trust and restaurant efficiency. Over time, these improvements will continue to contribute to higher same-store sales growth and stronger unit economics in support of our Raise the Bar ambitions. Furthermore, as the pace of technology change accelerates, our ability to own our data and key strategic components of our technology stack provides a differentiated competitive advantage to stay ahead.

For example, at Taco Bell, we are advancing intelligent drive-thru capabilities and our next-generation kiosk experience, both designed to improve throughput, accuracy and guest engagement. Now on to Pizza Hut. Looking back at 2025, Pizza Hut saw a 1% same-store sales decline globally for the quarter and the year. We were pleased with continued momentum in Pizza Hut International, where same-store sales were up 1% with strength in the Middle East, Latin America and Asia.

Pizza Hut globally opened over 440 gross units in Q4 and nearly 1,200 gross units in 2025 across 65 countries, representing the fifth highest gross new builds in 7 decades and a sign of brand health and strong franchise partners. This was partially offset by a few specific franchise situations that resulted in elevated Q4 store closures. As Chris shared, the strategic review we announced in November is progressing according to plan.

We have aligned stakeholders on a targeted program in the U.S., Hut Forward that represents a bridge to a longer-term acceleration of the brand. This program includes alignment on a vibrant marketing program, modernization of certain technology and franchise agreements and Yum! providing a onetime contribution to marketing support, along with the approval of some targeted closures of underperforming units. We have confidence in our Pizza Hut team and the steps they are taking.

To help set expectations on key Pizza Hut business metrics for 2026, from a unit standpoint, we expect strong gross openings globally, which are seasonally in the back half of the year. In the first half, in the U.S., we expect approximately 250 targeted closures of underperforming units tied to the Hut Forward program, which will result in a decline in global Pizza Hut units in the first half.

We expect Pizza Hut Q1 core operating profit to be down approximately 15%, driven by the Q1 impact of the onetime Hut Forward marketing support investments that will be recorded in franchise and property expenses and G&A growth due to integration costs related to recently acquired stores in the U.K. Next, I'll provide an update on our balance sheet and liquidity position as it stands today.

Our capital priorities remain unchanged: maximize shareholder value through strategic investments in the business, maintain a strong and flexible balance sheet, offer a competitive dividend and return excess cash to shareholders. For the year, net CapEx was $293 million, consisting of $78 million in refranchising proceeds and $371 million in gross CapEx. We also completed a 128-unit Taco Bell acquisition for $668 million in Q4.

When combining dividends and share buybacks, we returned approximately $1.35 billion to shareholders in 2025. Our net leverage ended the year at approximately 4x. Subject to market conditions, we expect to hold our net leverage at approximately 4x moving forward. Turning to 2026 outlook. When excluding the Pizza Hut division, we are confident the rest of our portfolio will meet or exceed every component of our long-term growth algorithm, including delivering over 5% net new unit growth.

We expect Taco Bell U.S. restaurant level margins of between 24% and 25%, excluding Pizza Hut, ex special G&A will grow mid-single digits, which includes the incremental overhead assumed with the Q4 Taco Bell U.S. store acquisition. Amortization of reacquired franchise rights, which we record in unallocated company restaurant expenses will increase by $30 million, again, reflecting the Q4 Taco Bell U.S. store acquisition.

We expect interest expense to fall in the range of $500 million to $520 million for the full year when excluding any potential debt issuances. We expect our tax rate to be in the range of 22% to 24%. In closing, we are encouraged by the strength and resilience of our business, significant white space opportunity, strong unit economics, highly capable franchise partners and clear growth drivers.

In 2026, we are focused on Raising the Bar across all our businesses and completing the review of Pizza Hut strategic options, positioning Yum! for its next phase of growth and long-term value creation. With that, operator, we are ready to take questions.

[Operator Instructions] Our first question comes from Dennis Geiger UBS.

Appreciate all of the detail and the color on the call. Very helpful. Wondering if you could talk a little bit more about some of the comments around accelerating the long-term growth.

If there's anything to elaborate on sort of opportunities to accelerate an already strong growth profile, perhaps any high-level color on sort of a potential -- what a potential increased focus on the Taco Bell and KFC businesses post strategic review, what that could do as far as the growth and maybe strengthening that growth even further?

Yes. Thanks, Dennis. As we look forward, the business has momentum coming out of 2025, continuing into 2026. As we look at 2026, you've got a lot of great things happening across our 2 big businesses in KFC and Taco Bell. Of course, on the unit development side, KFC delivered a tremendous 2025. We had record gross unit openings for the full year and in Q4.

That tells you that paybacks are strong. Our franchisees are strong in KFC International. And with our Raise the Bar strategy, we're looking to accelerate restaurant economics over the coming years, which will help us to broaden and sustain that strong development pace. Taco Bell, we had strong same-store sales in both U.S. and international. International, 5% same-store sales growth last year. We got back to pace on net new unit growth in Taco Bell.

We can continue to build on that in Taco Bell International. So we feel good about the development trajectory. As we go to the same-store sales side and building to overall system sales, really excited about what the KFC global team is doing. You saw acceleration on a 2-year basis from Q3 into Q4 on KFC. Scott Mezvinsky and his team, of course, are taking a page from the magic formula playbook at Taco Bell. Scott spent many years there.

And you're seeing that come to life in our marketing plans for 2026 and beyond. They're focused on elevating marketing, things like the partnerships that we had with Stranger Things in the U.K., which led to a plus 7 last year in the U.K. in KFC. New category entry points. We talked about expanding beverages, for example, rolling KWENCH out to nearly 3,000 stores this year.

Elevating our innovation. We talked about tenders and ensuring we've got the right sizes, the right formulations across markets to resonate with that next generation of consumers and of course, expanding flavors through sauces. Loyalty, we'll continue to take loyalty to more markets in KFC. And underneath all of it is leveraging our scale to help franchisees to deliver the right value across markets. In Taco Bell, it's continuing the momentum.

The plan is working. We've laid out, Sean, at the event early last year, the path to 2030. We are on or ahead of that plan to get to approximately $3 million AUVs. We talked about some of the excitement drivers for this year. I'll just highlight a few that I'm really excited about. The biggest value launch in the brand's history earlier this year with the Luxe value menu, tremendous items at $3 or less.

Our loyalty program continues to grow 23% more members last year. That's 23% more members where we can have a direct relationship. And then finally, I'll highlight the strength relative to the industry. Taco Bell continues to play in a category of one. You sum it all up with the profit plan, we'll continue to be balanced on how we manage G&A.

You look at 2026, we were already confident in our ability to deliver the algorithm even before you take into account those Taco Bell store acquisitions. With that, it just raises our confidence in our ability to deliver or exceed the long-term growth algorithm ex Pizza Hut as we go into next year.

Our next question comes from David Palmer from Evercore ISI.

I wanted to follow up on the prospects for reacceleration in KFC Global Development and maybe the potential for higher franchise revenue and profitability from the composition of growth in the future as hopefully, the non-China unit growth accelerates. There's been some slowdown even beyond the Turkey closures. I'm wondering if you could give us some reasons to feel confident that you can get back to '23 levels of KFC International growth ex China.

And I know you've talked about some European markets, for example, having a higher profitability per store and that are also underpenetrated. So I'm wondering if there's maybe also a little thing there where your composition of growth could really be a positive for franchise revenue and the profitability of that revenue.

Yes. Thanks, David. If we focus on KFC global development, you're hitting on some really important points, and they tie back to the raise the bar strategy, badly for the future consumer, which ultimately should result in higher AUV growth and accelerating restaurant economics for our franchisees, which, of course, is the lifeblood of unit development.

To your point, we have really strong paybacks in a number of markets where we get the most development today, China being our biggest development market. But we expect to grow units in all of our markets around the globe. Every country, 150-plus countries that KFC is in. And of course, you do that by in markets where the paybacks aren't as strong, how do we accelerate those? And that's what Scott Mezvinsky and team are focused on.

It starts with reaching the consumer and driving AUV growth. The second piece of that is leveraging our scale to help our franchisees continue to improve margins. So we have focused goals on how over the next few years do we systematically improve paybacks. As we do that, we will unlock white space in those markets. To your point, many of those markets may have higher AUVs than some of the places where we get the most development today.

They may also have higher royalty rates. So both of those help to build the economic picture over the long term. Just to give you a few examples of when we get focused on markets, how we can accelerate, let's start with Korea. We've done a lot of work transformation in that market with our partner. In 2023 and 2024, we had 5 and 6 net new units. Last year, we accelerated to 39. Italy, we were doing low double digits, 12 units in 2023, brought in a new partner, got focused on driving growth there.

We've done 35 and 34 units each of the last 2 years. Japan, we were doing mid-30s development, new partner focused strategy. We've elevated that to 69 units last year. So you've got these examples of how when we lean in, we can unlock development. As I look forward, I'm really excited to see what happens in Brazil. We have plenty of other markets where Scott Mezvinsky and his team are focused on unlocking that white space that we know is out there.

Our next question comes from David Tarantino from Baird.

I guess my first question is sticking with the theme on unit development. I guess if I look at your business, excluding Pizza Hut and some of the turkey closures you disclosed earlier last year, your unit development would have been comfortably above 5%. I think it would be around 6% for the remaining business.

And I just wanted to ask how you're thinking about that growth rate for, I guess, the 2 big brands and whether your commentary this morning is meant to signal that you think you might be able to accelerate that pace? Or are you just talking about perhaps trying to continue that type of pace of growth in the KFC and Taco Bell businesses?

Yes. Thank you. Happy to cover that. Look, we're very pleased with the unit development momentum we have around the world, both in terms of near record development in KFC, accelerating development in Taco Bell, and this covers multiple markets around the world.

Now you guys have pointed out around things around the acceleration and so on and so forth. If you tie that to what Chris Turner just covered in terms of raising the bar, the natural outcome of that is accelerating development over the longer term. I think also as you think about -- you pointed out how does that flow through to our growth algorithm look, we had a couple of factors in the last year.

One, you pointed out, Turkey closures that obviously have an impact on flow-through of net new units to system sales. The other is we are big believers in the Yum! China strategy. They're going after consumers with models that have strong paybacks, delivering positive transactions and same-store sales growth, but with mathematically lower AUVs. We're fully supportive of that strategy.

But when you couple that with accelerating development as we unlock higher AUV markets around the world, along with the higher royalties we have relative to the advantaged license fees we get from -- we provide to Yum! China, you get the double whammy of accelerating growth over time, and we're focused on going after that opportunity.

Our next question comes from Jon Tower from Citi.

I was hoping maybe you could discuss Taco Bell's comp growth in '25 and specifically, maybe how much of it was traffic driven? And then digging into that a little bit, breaking down how much was increased guest frequency rather than dragging -- bringing in new guests.

And then specifically, where these new guests are coming from with respect to demographics? Are you starting to hit more at the higher income level in '25 and how that sets up for next year?

Yes. Thanks, Jon. Look, really healthy growth in 2025 in Taco Bell U.S. If you dig into it, we had strong same-store sales growth. Our numbers would say we were 5 or more points ahead of the category taking share. If you look at transaction growth, our data would say we were nearly 5 points ahead of the category. So bringing more consumers on more occasions to our restaurants. That transaction growth was driven by penetration and frequency.

And to your point, it happened with a broad range of consumers. We saw transaction growth at all income bands, but we did bring more higher income consumers into Taco Bell. We saw transaction growth with younger consumers and with consumers with families. In fact, from a penetration standpoint, we saw the highest penetration growth in the 18- to 24-year range. So think about battling for that future consumer.

Taco Bell is showing us a great example of how to do that. With that kind of growth relative to the category, I think we're taking share broadly from a broad range of competitors. It tells us that the Taco Bell marketing and value are really resonating. The new category use occasions that the team has added are very well fit to consumer needs. And of course, as we bring those new consumers in, we're working hard to get them into the loyalty program, which helps us to build a relationship with them to keep them coming back for the long term and to continue to build frequency over time.

I'm really excited. Just wait, watch for announcements around this year's Live Mas Live event whenever we have that, I think we'll all be really excited by what Sean and the team share. When you sum it up for Taco Bell, they're doing a few things together. They have a really cool brand that is incredibly relevant in culture. They are providing craveability.

They're providing tremendous value and a convenient experience. Some other brands can do 1 or 2 of those things, but Taco Bell does all 4 of those things incredibly well. That's why they're winning and it's proven by their results.

Our next question comes from Christine Cho from Goldman Sachs.

Great to see the Byte initiatives really moving to the next level. Could you help us understand the current adoption of Byte in the U.S. specifically to kind of get a sense of the outcomes from the step 1? What are some of the primary areas of adoption? How does the pace of progress compare with prior years and feedback you're getting from franchisees? And lastly, Roy, could you share any latest thoughts on the tech-related G&A into 2026?

Thanks, Christine. I'll take both those questions. Look, as we mentioned in the prepared remarks, the U.S. market is where Byte has the highest penetration today. I would say that most of its components are active in the Taco Bell U.S. system. And you're seeing that not just in how it works in making the restaurant operations efficient, but also in consumer-facing technologies that enable the marketing teams to drive better outcomes on the top line.

We're also fairly penetrated, I'd say, in the Pizza Hut system in the U.S. We need to do more penetration, and we plan to do more penetration in KFC over time. Obviously, from a deployment perspective, the focus is on expanding into selected international markets, proving it out and then scaling because a massive opportunity in the years ahead. In addition, we're not taking our eyes off the ball in terms of maintaining and upgrading technology where it's already deployed.

That includes various initiatives, both between the Byte team as well as the Taco Bell's technology teams. And we're continuing to make investments in that respect. Our investments are going to be prudent as we deploy and update technology, and we'll continue to bend the curve on G&A. But to be clear, we are still investing in technology on behalf of our system, and it's an important component of us raising the bar. All of this is incorporated into our confidence in delivering the algorithm or above this year.

Our next question comes from Jacob Aiken-Phillips from Melius Research.

I just wanted to continue off of the Byte question a little bit. I appreciate you breaking it down into some more easily communicable parts. But -- so internationally, you're making strides. And I'm just curious what's currently the gating factor for further international expansion? Are new restaurants that are opening up internationally coming with Byte components?

And then any color you can give on the time line once it's implemented in a restaurant and when do you start seeing the benefits? And how does that mature?

Yes, Jacob, as we talk about reaching the full potential of Byte, of course, part of that is where we have Byte deployed, how do we continue to innovate and stay ahead on behalf of our franchisees of the competition. But the other part of reaching the full potential of Byte is taking it to more of our international markets. We introduced it to our international franchisees last year.

The steps that are involved, you have to be thoughtful as you deploy. You certainly evaluate the Byte benefits relative to the technology systems that are currently in those markets. Then once you've aligned with the franchise partners on the upside from implementing Byte, you then think through the implementation plan, and you want to be very thoughtful, particularly on the SmartOps side. You want to be very thoughtful about how you implement the restaurant, how you work through the change management with the team members.

So it's a process. That's why this will be a journey that takes time. We talked about a couple of the big markets and deployments that we'll be focused on this year. So this will be a steady expansion, but we look forward to getting Byte into more and more markets so that our franchise partners can benefit from it and our marketing teams can leverage the Byte capabilities to better connect with consumers.

Our next question comes from Jeffrey Bernstein from Barclays.

Just curious about, Chris, your views on life beyond Pizza Hut. I know there's no color to share just yet. But your thoughts on the existing portfolio's ability to achieve the prior long-term algorithm. It sounds like you're framing it as the potential upside as you focus on the 2 core brands. But as you think about willingness to consider adding another global brand or whether you prefer to focus on accelerating your 2 core brands where seemingly you have momentum.

And then just a clarification, Roy, I think you said potential upside to your long-term algorithm across 2026. Just want to make sure that includes -- we should be assuming upside to the potential 8% plus core operating profit growth target for this year?

Yes. Thanks a bunch. As we think about the business for the long term, right now, we've got to complete the review of strategic options in Pizza Hut. So our primary focus right now is driving performance in all 4 of our brands. Our teams are laser-focused on that. And then, of course, we have a set of team members that are focused on that review of strategic options. And that is where the focus is right now. As we conclude that process, we'll share more on the long-term thoughts on the evolution of Yum!'s strategy, but that's where our focus is now. Clearly, as I said, all 4 of our brands, we want to perform exceptionally well. We want them to be growing. We want them to be taking share. The 2 biggest brands, Taco Bell and KFC, we've talked extensively about our confidence based on the momentum last year coming into this year.

And as we implement the Raise the Bar strategy, we believe that, that should improve all elements of the algorithm. That's why we are doing it. It will improve our ability to deliver or to overdeliver on elements of the algorithm. That's why we are doing Raise the Bar.

Battle for the future consumer, how do we increase our relevance to the next generation of consumers while remaining relevant to our core consumers who love us so much, accelerating restaurant economics that is the lifeblood of unit development, as we talked earlier, allows us to broaden the base of development, unlock white space in a broader set of markets.

And then, of course, reaching the full potential of Byte, where we've deployed, ensure we operate with excellence and continue to innovate with our franchisees and in new markets where we haven't deployed yet, how do we take Byte there so that more markets can enjoy the benefits of it. That's why we're doing to Raise the Bar. It's why we have confidence in the long-term trajectory of the business.

And to clarify around the specific question around guidance to 2026, look, I hope you're hearing from the prepared remarks and our Q&A. Our guidance is around 2026, but this team's confidence is about the long-term potential of the business is extremely strong. Our guidance is specific to ex Pizza Hut. We obviously give specific Pizza Hut specific guidance separately, so you guys can model it out.

And yes, based on the strength that we're seeing in Taco Bell, lapping the lap, KFC in Q4 beginning to lap the lap globally, we're continuing to see momentum in 2026. And the combination of factors allows us to have confidence that we're going to meet or exceed every element of the algorithm in 2026, including the 8% operating profit growth, ex Pizza Hut.

Operator, we have time for one more question.

Our final question today will come from Brian Bittner from Oppenheimer.

As it relates to Pizza Hut and just the positioning of the U.S. portfolio, you did talk about closing 250 units in the first half as part of this program. Do you anticipate this to encompass the totality of the units you think you need to close? Or is there a reason to think that number could grow? Just what do you think the optimal number of stores for Pizza Hut to operate in the U.S. is as you position this brand moving forward?

Brian, I'm happy to take that. Look, as we said in the last earnings call, we are taking focused short-term actions on Pizza Hut focused on the execution of the strategic review. In that context, tremendously happy with the progress the team has made.

And as we talk about the Hut Forward program, which is where the closures come from, we think it's -- the Hut Forward is all focused on early 2026. The 250 stores that we mentioned is a very small portion of the 20,000 unit estate that Pizza Hut has globally, and it is the right answer for the brand as we move through the strategic review.

Great. Thanks, everyone, for your time this morning and really good questions. Just in closing, I'll note a couple of things. Our 2 big brands, Taco Bell, incredible momentum, the category of one with a plan that is working and the momentum continues. KFC, global structural advantage, development momentum that continues and a real focus on accelerating AUVs over time, leveraging the best of the Taco Bell magic formula, Scott and his team.

All of that's powered by Yum!'s distinctive strengths, which are talent and culture, digital and Byte, scale and a global franchise base of the best franchise partners in the business. All of that sums up the confidence entering 2026, and we're looking forward to Raising the Bar. Thanks so much.

This concludes today's call. We thank everyone for joining. You may now disconnect your lines.

Hello, everyone. Thank you for joining us today for the Yum! Brands 2025 Third Quarter Earnings Call. My name is Sammy, and I'll be coordinating your call today. [Operator Instructions]

I would now like to hand over to your host, Matt Morris, Head of Investor Relations, to begin. Please go ahead, Matt.

Good morning, everyone, and thank you for joining us today. On our call are Chris Turner, our CEO; Ranjith Roy, our CFO; and Dave Russell, our Senior Vice President and Corporate Controller. Following remarks from Chris and Roy will open the call to questions.

Please note that this call includes forward-looking statements that are subject to future events and uncertainties that could cause our actual results to differ materially from these statements. All forward-looking statements are made only as of the date of this call and should be considered in conjunction with the cautionary statements in our earnings release and the risk factors discussed in our SEC filings. Please refer to today's release and filings with the SEC to find disclosures, definitions and reconciliations of non-GAAP financial measures.

Please note that during today's call, system sales and operating profit growth will exclude the impact of foreign currency. For more information on our reporting calendar for each market, please visit the Financial Reports section of the IR website. We are broadcasting this conference call via our website. This call is also being recorded and will be available for playback. We would like to make you aware that our fourth quarter earnings will be released on February 4, with the comment all on the same day.

Finally, I want to express my appreciation to those investors who have willingly shared their perspectives on our strategy and communication. Your thoughts are important to us. I will make myself available to listen to your views as well as share those with our management teams.

Now I'll turn the call over to our CEO, Chris Turner.

Thank you, Matt, and good morning, everyone. With this being our first call since David's retirement, I want to recognize his exceptional leadership over the past 5 years as CEO and his many strategic contributions throughout his remarkable 36-year career at Yum!. David will continue to serve as a trusted adviser through next year. On behalf of our team members, employees and franchise partners, I want to sincerely thank David for the lasting impact and strong foundation he's built as we carry Yum! into the future.

As I take on the role of CEO, I spent the last few months meeting many of Yum!'s stakeholders, including many of our leaders, Board members and largest franchise partners to better understand where Yum! is leading the industry and where Yum! has even greater potential. I've spent time in our restaurants, serving our consumers and listening to team members and general managers.

Finally, I've met with many of our top shareholders to hear how Yum! can unlock even more value. Speaking with our incredible team has reinforced how important a strong culture and performance mindset are to driving robust results. Yum! invest meaningfully in our talent and gives employees opportunities to work across functions and brands, providing Yum! with the most experienced and tested leaders in the industry.

Combining the best leaders with the world's most loved, trusted and connected restaurant brands is a winning formula. It's no surprise that few companies are executing at our level with Taco Bell delivering industry-leading 7% same-store sales growth and KFC on track to add nearly 3,000 new restaurants on a gross basis around the world, which would set a new record for annual gross development for the brand. It is also clear there is a consistent theme that success in our industry depends on anticipating and adapting to changing consumer needs. That's a tremendous opportunity for a company like Yum! that already benefits from scale, talent and the ability to innovate.

With this in mind, I see 3 areas where I'll focus additional energy to raise the bar on our growth. First, we're a consumer-first business, and we must stay as relevant to the next generation of consumers as we are to our core. Second, franchisees are the lifeblood of our system, and we can do more to leverage our global scale to strengthen their store level economics. Third, Yum! has pursued a differentiated technology strategy that gives us unmatched operational agility and control. I want to extend those advantages across more restaurants to benefit consumers, franchise partners and team members alike.

To this end, I recently announced a series of leadership changes. These included expanding the role of Taco Bell's CEO, Sean Trasvont, to include that of Yum! Chief Consumer Officer, with responsibilities that will include oversight of Colider, Yum!'s in-house consumer insights agency. Jim Dauch, Global Chief Digital and Technology Officer, Pizza Hut, was promoted to Yum! Brands Chief Digital and Technology Officer and President of Byte by Yum. Ranjith Roy, who goes by Roy, Yum!'s Chief Strategy Officer and Treasurer, was promoted to Chief Financial Officer. Roy had previously spent more than 15 years with Goldman Sachs leading investment banking relationships for restaurants, food and tech businesses.

We also intend to add a Chief Scale Officer to Yum!'s leadership team, who will focus on leveraging Yum! scale to maximize franchise returns and drive stronger restaurant profitability. We also announced this morning that we have commenced the process to explore strategic options for the Pizza Hut brand. Our objective is to maximize value for Yum! and position Pizza Hut and its franchise partners for greater success.

Pizza Hut holds key structural advantages, strong brand equity, experienced franchise partners and meaningful scale, which give it a unique opportunity to reclaim the leading position in the highly fragmented pizza market. We believe a different approach, including, but not limited to, a sale of the business would allow Pizza Hut to realize its full potential.

More broadly, I'm encouraging the brand teams to play more offense through bold actions, particularly when we see opportunities to accelerate development. In that spirit, we announced our plans to complete the acquisition of 128 Taco Bell restaurants located across the Southeast U.S. in the fourth quarter. Buyout opportunities of this scale are unusual to come by in the Taco Bell system.

This acquisition provides our team with an opportunity to improve and accelerate Taco Bell profitability, expand strategic leadership within the Taco Bell system and unlock significant unit development in the region. Of course, this acquisition provides immediate and significant EBITDA growth at an attractive multiple in the context of the Taco Bell system. I want to reiterate that there is no change in strategy regarding our asset-light model.

Now let me turn to our third quarter results. Yum! delivered another strong quarter with system sales up 5% and core operating profit up 7%. Between KFC and Taco Bell, we've delivered 5% unit growth, 7% system sales growth and 11% segment operating income growth. At KFC, which represents 53% of our divisional operating profit, we delivered 14% core operating profit growth, driven by 6% unit growth and 3% same-store sales growth.

Several KFC international markets are delivering exceptional results, including the U.K. market, with same-store sales up 9% on 6% transaction growth; and South Africa, delivering 7% same-store sales growth on record use engagement. Several markets like South Korea and Brazil posted double-digit transaction growth within the quarter.

Turning to the U.S., which represents 12% of our KFC global system sales. We have taken bold steps over the last 18 months to reengineer our strategy, bolster our talent and pilot new approaches. The new President of KFC U.S. Katherine Tan Golsby has been driving KFC's comeback plan with new marketing tactics and products focused on increasing consumer relevance, which have led to a 2% growth in same-store sales this quarter. There is still a long journey ahead, but we're pleased with Q3's momentum.

As a separate plank in the strategy, we're excited about the continued progress to refine and thoughtfully expand the Sassy pilot in the Southeast region. Let me briefly touch on KFC's unit development, which remain broad-based and energized by strong franchise engagement.

I recently made a trip to Italy to visit our new franchisee where I saw firsthand how critical having the right 3C partner is in driving powerful change. Since joining our system in 2023, our franchisee, COB, has doubled the number of stores and improved AUVs to $2 million. I was pleased to be there when the team unveiled its Italian flagship restaurant featuring 2 floors in Rome, with prime real estate between the Spanish Steps and the Trevi Fountain.

Similarly, our new franchise partner in South Korea is delivering unbelievable results. That team reported the third consecutive quarter of double-digit sales and traffic growth, and is set to have 5x the net new unit growth they had in 2024. Our strongest partners are expanding into new and adjacent markets as is the case in Brazil, one of KFC's largest underpenetrated growth market.

Our highly capable 850 unit Latin American partner, Juan Carlos Serono, is building commissaries and piloting more efficient asset formats, laying the foundation for sustainable scale, growth ahead.

Finally, I recently returned from China, where our largest partner, Yum! China, runs the most efficient and advanced restaurant operation in the world, leading to significant market share wins over the competition. Overall, KFC's development pipeline remains robust. White space remains abundant and our well-capitalized, capable and committed franchise partners remain growth hungry.

At Taco Bell, which represents 36% of our divisional operating profit, same-store sales grew 7%, reflecting continued progress on the journey laid out at the Taco Bell Consumer Day to drive $3 million average unit volumes by 2030. Innovation, distinctive value offerings and digital engagement drove this remarkable performance.

In the U.S. Taco Bell introduced innovation-led buzz like the Tony Hawk and Bad Birdie collaborations, compelling value like the $3 Grilled state Brito, and expanded its beverage platform with the launch of Refresco's and Baja Blast midnight.

Digital mix hit another record and digital sales grew 28% year-over-year. Next year, the U.S. team will add more weeks of crispy chicken, fries and beverages to expand everyday occasions, balanced with a refreshed cravings value menu and elevated guest experience.

Turning to Taco Bell International, same-store sales growth accelerated again with momentum building as the team executes against its magic formula and strategic priorities laid out at the Taco Bell Consumer Day in March. This quarter, the team expanded to 2 new markets, Greece and Ireland.

During my trip to Europe, I stopped to visit our largest international Taco Bell franchise partner, Ignacio Mora Feger, and his amazing Taco Bell Spain team. I saw firsthand how the team keeps building relevance and scale.

Shifting now to our goal of building the world's most trusted brands. Stepping into the role of CEO has been both humbling and energizing. I couldn't be more excited to start this next chapter of Yum!'s growth with a renewed focus on what makes us extraordinary led by our people and our culture. Our commitment to trust and connection extends beyond our restaurants. It's reflected in how we show up in our communities.

In September, we celebrated Community Impact Month. Employees at all 3 of our U.S. campuses volunteered to help more than 15,000 people in communities across the United States. Our teams bought childhood hunger, packing more than 6,000 weekend meals for kids who need the most, donated blood with the American Red Cross, prepared food with local food banks and packed hygiene and laundry kits for those in need. Hundreds of volunteers touch thousands of lives. That's the power of Yum!, serving up good everywhere there's a KFC, Pizza Hut, Taco Bell and the Habit Burger and Grip.

1 month end as CEO, and I'm inspired by the commitment to excellence across our system, from our franchise partners to our restaurant teams and leaders. Together, we are building on Yum!'s solid foundation to continue delivering strong, sustainable growth and going forward, we will be laser-focused on accelerating growth around the world, backed by our 2 biggest brands, KFC and Taco Bell.

With the dedication of our people, power of our brands and a clear strategic vision, I am confident that we are entering an exciting new chapter of growth and long-term value creation for Yum! and our stakeholders around the world.

With that, Roy, over to you.

Thanks, Chris, and good morning, everyone. I'm excited to share our results today and to connect with many of you in the months ahead. It is an honor to transition to the CFO role, having served as Yum!'s Chief Strategy Officer and Treasurer. My connection with Yum! goes back more than 15 years. I partnered with Chris during my time at Goldman Sachs, where I was Yum!'s strategic adviser. And prior to Chris, I partnered with David Gibbs, Greg Creed and David Novak during their tenures, giving me a deep appreciation for Yum!'s enduring brands, franchise partners and talent.

Prior to joining Yum! during my time as CFO at Gold Belly, I guided the company from being a tech start-up to being a capital-efficient high-growth retailer, reinforcing my belief in the power of evolution. It's an energizing time to step into this role as Yum! strengthens its position as the global franchisor of choice. The QSR industry is evolving rapidly, scale and technology are defining success around the world, and these shifts play directly into Yum!'s strength. I look forward to continue working with Chris to advance our strategic priorities and drive sustainable growth for our franchisees and shareholders.

I'll start with third quarter results before discussing Yum!'s balance sheet and liquidity position, the Taco Bell store acquisition and guidance for the year. During the third quarter, we grew system sales 5%, with 3% unit growth and 3% same-store sales growth. Digital sales are growing quickly across our markets, with Yum! reaching $10 billion in digital sales and digital mix of approximately 60%.

On restaurant level margins, Taco Bell U.S. delivered 23.9% margins ,50 basis points higher year-over-year despite a 1 percentage point headwind from double-digit beef inflation. Taco Bell's restaurant margins benefited from strong top line growth fueled by among many factors, the expansion of Taco Bell's category entry points like Crispy Chicken and Refrescas.

Beef inflation will remain a headwind through year-end, though we take some comfort and big prices declining 10% since exiting the third quarter. For KFC, the team delivered 13.7% restaurant-level margins. 120 basis points higher year-over-year, driven by significant improvements in both KFC U.K. and KFC U.S. margins.

Moving on to expenses, ex special G&A was $268 million, up 7% year-over-year as we lapped lower incentive compensation accruals in the third quarter of last year. Reported G&A of $282 million included $14 million of special expenses. And finally, third quarter core operating profit grew 7%, leading to ex special EPS of $1.58, up 15% year-over-year.

Moving to development. We opened 1,131 gross new units globally, a Q3 record with KFC opening 760 units or a store every 3 hours. KFC's momentum remained broad-based and energized by strong franchise engagement. China, India, Thailand, South Korea and Mexico led the way each demonstrating the strength of our lay book and the scalability of our brand. Overall, KFC's development pipeline remains robust. White space remains abundant and our well-capitalized, capable and committed franchise partners remaining growth hungry.

At Taco Bell, development accelerated this quarter with 74 gross unit openings, well above Q3 levels of last year. Taco Bell International continued to build momentum, adding 27 gross new units and successfully launching 2 new markets, Greece and Ireland. On the back of accelerating sales, we remain on track to deliver 100 international net new units this year, reflecting energized franchise partners, compelling brand marketing and improving unit level economics around the world. Early development plans for next year offer promising signs of further unit growth.

At Pizza Hut, we built 289 gross units this quarter. We delivered gross builds across 31 countries, with strength in China, the U.S. and India. We've been pleased with Pizza Hut's gross unit openings as the brand is a leader in new builds within the pizza category globally in all but 1 quarter over the last 4 years. However, gross bills have been partially offset by elevated closures through Q3, largely isolated to a reduction in footprint in a small number of markets, including Turkey. These closures were largely tied to specific franchisee matters impacting operational execution.

Turning to technology. as we continue to work on making our restaurants more connected to drive growth and operational excellence across the Yum! system. Jim Dash, our new Chief Digital and Technology Officer, will help accelerate the next phase of our transformation, but our focus remains the same, building the industry's leading restaurant technology platform that enhances guest experience, simplifies operations and strengthen franchisee economics built around easy experiences, easy operations and easy insights.

I'll provide a brief update on the progress across these 3 pillars. Within easy experiences, we're creating more frictionless engaging consumer journeys across our brands. At KFC, global digital sales mix reached 63%, supported by kiosk adoption and aggregator partnerships. Bite Commerce, our scalable and global web and mobile app ordering platform continue to unlock the creativity of our digital marketing teams by enabling viral promotions or daily drops that drive high transaction velocity, such as Pizza Huts $2 personal pan Tuesday offer this quarter.

BiteCommerce expanded to Pizza Hut, Canada, Kuwait and France this quarter, building on earlier launches in Pizza Hut, U.K., Mexico and Peru. Finally, Bite Connect, a product that streamlines order and menu integration with third-party delivery partners has expanded to KFC U.S. Taco Bell U.S. will add this service next year.

Under easy operations, we are simplifying restaurant operations and giving teams better tools to deliver fast, accurate and friendly service. Bite Coach, which delivers AI recommendations to our store managers, was deployed to an additional 4,000 KFC restaurants internationally this quarter, bringing the total to more than 28,000 restaurants across the Yum! system. Beginning next year, we'll add further AI capabilities to Bite Coach to provide restaurant general managers, individualized guidance to help improve store level performance based on inputs from a combination of operations, consumer feedback and store audit data.

Within Easy Insights, our data and analytics capabilities are providing better visibility and faster, more actionable insights across brands. In addition to building more AI capabilities into the BiTE ecosystem for our franchisees, consumers and restaurant general managers, we are also excited about using AI at the enterprise level to build Bite in a more efficient manner. Currently, 1/3 of our developers are regularly using AI developer tools and realizing significant productivity gains. By early 2020, substantially all of our BiTE software developers will be using AI tools to write better, safer and more efficient code for the BiTE platform.

Next, I'll provide an update on our balance sheet and liquidity position. Our capital priorities remain unchanged, maximize shareholder value through strategic investments in our business, maintain a strong and flexible balance sheet, offer a competitive dividend and return excess cash to shareholders.

Net capital expenditures for the quarter totaled $73 million, reflecting $21 million in refranchising proceeds and $94 million in gross capital expenditures. We expect our net leverage ratio to end the year at approximately 4x, consistent with our commitment to hold leverage at approximately 4x.

As announced in September, we completed successfully a $1.5 billion issuance of Taco Bell senior secured notes with a weighted average coupon of just under 5%. Proceeds were used to repay 2026 debt maturities and to prefund our Taco Bell acquisition.

During the quarter, we repurchased approximately 244,000 shares for a total of $36 million, bringing our year-to-date repurchases to $372 million. As Chris shared, similar to the successful KFC U.K. acquisition last year, we saw an exciting opportunity to invest in the business and acquire 128 Taco Bell U.S. stores in the fourth quarter. The total cash outlay is expected to be approximately $670 million, largely financed with cash on hand.

In 2026, we expect the stores we're acquiring to contribute approximately $70 million in incremental EBITDA and add 1 point to Yum!'s operating profit growth after the impact of depreciation and amortization, including reacquired franchise rights. Due to timing and modest transition costs, we don't expect this deal to contribute to core operating profit in 2025. Additionally, the Taco Bell team can step up U.S. equity development in this market beginning in 2027.

Over the long term, we anticipate profit growth for this estate to exceed Yum!'s long-term growth algorithm. As Chris mentioned, while retaining our asset-light strategy, we are investing where we see outsized strategic benefits and financial returns.

Now let me share our latest outlook for the balance of the year. As you heard from Chris, both KFC and Taco Bell are taking share from our competition. We expect KFC to achieve record gross unit openings on a full year basis and Taco Bell to deliver strong international development.

At Taco Bell U.S., despite the impact of beef inflation, we expect our full year restaurant level margins to fall within our guidance at 24%, with global reported margins landing slightly below the U.S. level.

We expect Q4 ex special G&A to grow by a mid-single-digit percentage rate year-over-year, finishing the year in line with our full year guidance. To summarize, KFC and Taco Bell, which make up roughly 90% of our divisional operating profit continued to perform exceptionally well with sales momentum that has continued into Q4. Together, we expect these brands to be on track or ahead of our original full year plan for unit growth, sales growth and core operating profit growth.

This performance is further backed by a strong execution of BiTE and disciplined G&A management across the enterprise. Below the line, we expect full year interest expense to land in the range of $505 million to $515 million, incorporating the impact of our recent debt issuance. Lastly, at current rates, we expect FX to represent approximately a $15 million tailwind to reported operating profit in Q4.

Finally, turning to our Pizza Hut Division. We remain focused on strengthening business performance. That said, as we prepare the business for a potential transaction, our Q4 results may see some impact from actions involving isolated franchisee situations, taking this and Pizza Hut's year-to-date performance into account. Full year 2025 Yum! performance may land slightly below our algorithm. We will record expenses tied to the strategic options review as a special item, since this is an active process, we will not be providing further comments on the status of our review.

In closing, we remain focused on continuing to deliver relevant value, distinctive innovation and rapid digital transformation. The combination that keeps us resilient regardless of macro conditions. We are confident in the strength of our strategies, the agility of our franchisees and the power of our business model to drive sustainable growth over the long-term.

With that, operator, we are ready to take questions.

[Operator Instructions] Our first question comes from David Palmer from Evercore ISI.

Great. Congrats to everybody on their promotions and appointments. It's cool to see Sean getting more responsibility and a ways you're bringing back the band together with Sean and Scott probably touching base more on the global KFC brand.

I wonder how you're thinking about the opportunities and must get rights for KFC now that perhaps Pizza Hut may not after this review, be the focus area or the problem area that it was for the company, KFC might be a focus area for Sean by default.

And so I just wonder, maybe it's worth giving a little bit of a review of what he will be. And Scott will be thinking about for that brand. What U.S. chicken market is competitive, but KFCs begin -- it looks like a bit of a turnaround, what can solidify that turnaround, and it looks like the U.K. is doing great. Canada slowed a bit. any sort of review of KFC would be helpful.

Yes. Thanks, David. Obviously, KFC, our largest global brand and an incredible powerhouse, in particular, outside of the U.S., where we've seen tremendous growth over many years, modern, vibrant, relevant QSR brand in so many markets, opening a new restaurant every 3 hours. That's the sure sign of health in a restaurant brand.

And you talk about the leaders there. Scott was the President of Taco Bell U.S. working closely with Sean right before our Taco Bell Investor Day earlier this year. Sean -- Scott made the move over to take the CEO position in KFC Global. So you can be assured that he is bringing many of the big ideas around brand relevance from Taco Bell, digital growth and relevance to consumers, food innovation. He is bringing many of those ideas over.

And of course, that Taco Bell Investor Day highlighted how Taco Bell was focused on driving AUV growth. They laid out a plan from $2.2 million to $3 million in 2030 and Scott was part and parcel of building that plan. So you can imagine he's going to be thinking the same way in KFC globally, sustaining the unit development momentum and continually ensuring our brand is relevant to consumers. You saw the numbers in KFC U.K. this quarter, plus 9% same-store sales, really incredible results there.

Turning to the U.S. We did a lot of work over the last couple of years. The KFC brand, we want to be on a better trajectory in the U.S. we really assessed what it would take. We did a lot of testing and investigation. We think it starts with brand relevance. And that's why we put Catherine Tan, one of our biggest marketing thinkers previously, the Global Chief Marketing Officer for KFC into that role.

Early days on the turnaround, but we're pleased with the green shoots. You saw them take a different approach to social marketing with the launch of spicy wings and wedges, we got great engagement, brought a lot of new consumers who hadn't engaged with the brand in more than a year to KFC. So a long journey ahead, but we're pleased with the progress in KFC U.S.

Our next question comes from Dennis Geiger from UBS.

Great. Congrats, Roy and to the others on well-deserved on. Wanted to ask a bit more about the sizable outperformance at Taco Bell, in particular, relative to the industry. And perhaps maybe sort of any early look into how you're thinking about how that momentum rolls into next year, given, I think, Chris, some of the comments you made about what sounds like more weeks of crispy chicken fries, beverages, seems like some news on the cravings menu, maybe the guest experience. Any additional insights as we kind of look to next year at that momentum continuing?

Yes. Look, the Taco Bell business continues to take share in the U.S. A lot has been written about the consumer. We're not seeing consumer pullback in the Taco Bell business. We do think the consumer in the U.S. is cautious, but incredibly resilient. And the consumer is telling us that in Taco Bell, they are looking for 3 things: first, craveable food; second, a convenient and easy experience; third, unbeatable value. And Taco Bell provides the combination of those 3 in a way that no other brand can.

So if you look across Q3, you saw Crispy Chicken, you saw Nacho Fries, you saw beverages with BAHA Blast midnight. So you add those to the tremendous core that we have, the cravability is clear. Convenience fastest drive-through experience in QSR Voice AI, stores were up 14% from the previous quarter, continue to drive the digital journey at Taco Bell, which supports a convenient experience. And then, of course, Taco Bell has always provided the best value in QSR.

And the cravings value menu, you can find plenty of items below $2, $3 tremendous items or go to the Lux Cravings Boxes $9, the only value meal in QSR, where you'll find strong innovation. So it's that combination, coupled with the Taco Bell Buzzy brand that is resonating with consumers and delivering what they need. And as a result, we saw growth across all income bands, and we saw more younger consumers and more families coming into the brand during Q3.

Looking forward to Q4 and beyond, it is really that broad-based set of strengths. All of those drivers and those factors that give us confidence as we look to 2026 for the brand again, we are on track or ahead of our plan that Sean laid out to get to $3 million AUVs by 2030, and you'll continue to see those layers come to life in 2026.

Our next question comes from Danilo Gargiulo from Bernstein.

For supporting this hiding economy. I wanted to ask you a question on your strategic priority. I mean you mentioned strengthening the Franchise store level economics, and in a moment, we were seeing a deterioration of forward EBITDA in the restaurant space and potentially even more labor headwinds coming in with the tighter labor migration policies.

I mean, it could be quite meaningful to see stabilization and improvement into the formal economics or your own franchisees. Now usually, the best results are coming when incentives are aligned and responsibilities are set. So I was wondering if you can share, first of all, what goals you have in mind in terms of like the hard EBITDA growth for your own franchisees, the time line for that and how you're planning to incentivize your teams along that? And then finally, what kind of levers do you see to strengthen the franchise P&L.

Yes. Thanks, Danilo. The lifeblood of our system and our unit development growth is franchisees and strong unit economics. We have a large number of markets where we have incredible paybacks. You'll hear our franchisees talk about 2- to 3-year paybacks in our biggest development markets. So we want to sustain the incredible returns that we see in those markets.

But we've got other markets where there is white space opportunity for unit growth that we can unlock by getting stronger unit economics. And we think the keys to doing that are leveraging Yum!'s global scale.

Now look, we do a good job leveraging our scale in many places today. Our partners in the U.S., leverage our purchasing scale across all 4 of our brands in the U.S. But globally, we can do more to leverage our supply chain scale. That's why you see our Yum! global supply chain team coming together using that scale to help drop dollars to the bottom line for our franchise partners.

Our BiTE acceleration can be a part of this. We know we've got to get Bite into more international markets faster. That helps to drive both top line and bottom line growth for franchise partners through the productivity that Bite enables. And so those would be the kind of levers.

And this is also in part why we announced the creation of the Chief Scale Officer role to give us a focused leader who is helping to make it easier for our franchisees to plug into that scale around the globe. So that's our focus and the outcome should be strengthening or accelerating unit growth over the long term by unlocking those white space opportunities.

Our next question comes from David Tarantino from Baird.

Chris, my question is about your strategic outlook. And I was curious to get your thoughts on how you envision the growth profile for Yum!, if you were to sell the Pizza Hut business. Do you think this leads to a faster ongoing growth profile for the company?

I know we can do the math on that looking backwards, but just wanted to get your thoughts on how you think about it looking forward. And if you could also, as part of the answer comment on whether you would be interested in making any other portfolio move longer term, such as maybe adding another growth assets to the portfolio?

Yes. Thanks, David. Look, you're always going to remain laser-focused on growth in all of our markets around the globe. Our 2 biggest brands, KFC and Taco Bell, nearly 90% of our global divisional operating profit, they are the ones that drive the bulk of our growth, and they will continue on the trajectory that they're on now.

KFC will remain a strong unit developer. We think all of the scale initiatives that we just talked about will help us to unlock additional growth there. And then, of course, we talked earlier about Scott and his focus on driving AUVs and same-store sales growth using many of the levers that were employed at Taco Bell day in and day out in the U.S.

Taco Bell U.S., we just talked about the drivers of its strength in Q3 and beyond. Taco Bell International, plus 6% same-store sales growth in Q3, you dig into some of those markets we're seeing tremendous same-store sales stream in a number of Taco Bell international markets. And of course, I was on the ground in Spain just a few weeks ago, our largest Taco Bell international market, where we see the continued evolution and building scale in that brand outside of the U.S.

So I think all of those things lead to that journey toward accelerating Taco Bell International unit growth. So those are all the factors underpinned by BiTE that should allow us to continue to sustain or accelerate growth in those 2 big brands.

From a portfolio standpoint, it's our job to constantly think about the portfolio. Obviously, we announced the strategic review today. No other changes at this time. We're going to be focused on completing that strategic review.

Our next question comes from Andrew Charles from TD Cowen.

Yes. Great. Taco Bell obviously continues to be stellar performance this quarter. Just love an update on Litmos Cafe, now that you've integrated this into one of your stores. And in particular, what needs to happen for that to be rolled out more broadly?

Yes. Yes. We're excited about the bold bets that we made across brands last year. A couple of those focused on the growing beverage space. Quench across 3 markets in KFC. We'll continue to add new markets there. But on LVMOS Cafe, we think there's a big opportunity for Taco Bell to both strengthen its attachment on beverages, but through [indiscernible] Cafe, add a new consumer use case, which is the destination beverage visit.

We started with 1 LimasCafe in San Diego. As of now, we have 13 that are open. We are headed toward about 30. That's our pilot group. We are seeing good consumer response in these stores. We're very pleased with how Litmos Cafe is performing. Of course, we want to see it at scale with those 30 units. But assuming we get the kind of results that we expect to see in that pilot, you could expect us to lean in to [indiscernible] Cafe growth around the system. That's one of the drivers of the long-term growth plan for Taco Bell.

We are already getting benefit for the entire system from LivMasCafe. So the Refresca that we talked about in Q3 across the system, that was a lift and shift from the piloting that we did in the first LivMas Cafe. So we will also be working to bring benefit from the [indiscernible] Cafe effort to the entire system even before the rollout of the cafe.

Our next question comes from Christine Cho from Goldman Sachs.

Chris and Roy congrats on your new roles. You did reiterate your long-term goals, but is 5% kind of still the right anchor as you think about the underlying unit growth ahead. What are some of the major factors that you're watching for that could impact the pace of expansion going forward? And where do you see kind of the most notable white space opportunity globally, both in a market and a brand perspective?

Yes. From a development perspective, our development trajectory remains strong. So far this year, we've had 95 countries with development versus 90 at this point last year. KFC gross is ahead of where it was at Q3 last year. So gross development, I think the top sign of health in a franchise system, and we said we're on track for a record year this year in KFC gross development.

Taco Bell net new units are up almost 30% versus last year. So it reflects the trajectory that we have in Taco Bell both in the U.S. and internationally. Of course, we want to sustain and accelerate on both fronts. The lifeblood of this is strong unit economics. And as we shared earlier, we think through stronger unit economics in markets with white space we can sustain and/or accelerate that path. We shared a couple of examples of where unlocks have occurred in KSA. We talked about Italy.

This demonstrates when you get focused on having the right partner and focused on AUVs and unit economics, you can get an unlock. In that market, we got a couple of competitors that have significantly more locations than we do. But in the 2 years since we changed the partner, we've doubled the unit growth on a great trajectory. We're now opening the flagship location, which will further sustain.

Korea is another example. We shared the example in South Korea, where a change in partner has dramatically changed the pace of unit growth. When you step back, we shared, for example, at KFC, we think there can be at least 75,000 KFC's around the globe. Honestly, there's white space opportunity in the market for KFC.

I'll also add Christine, on the Taco Bell -- we make a lot -- we talk a lot about KFC development. But on the Taco Bell side as well, if you look at what happened in the most recent quarter, acceleration in same-store sales growth globally, which gives us a lot of these and the pipeline that we see for Taco Bell International in 2026 and beyond. And you look at the acquisition we're making in the Southeast United States because we actually see opportunity for white space for Taco Bell in the U.S. and this is a step that we're [indiscernible] taking in that direction.

Our next question comes from Brian Bittner from Oppenheimer & Co.

Chris, I'd just like to go back to the announcement of initiating the review of strategic options for Pizza Hut. I know you can't obviously speculate on the potential outcomes. But can you maybe walk us through the catalysts that culminated and the company making this announcement today? Is it as simple as you stepping into the CEO role and this being a part of your vision to unlock value? Or was this something in the works for a while? Just additional thoughts on the steps that got us to today's announcement on the formal review would be helpful.

Yes, Brett, we are always evaluating what is best for each part of our business. Let me start by reiterating a few things about Pizza Hut. It is an iconic global brand that has incredible strengths. It's got the best tasting pizza in QSR. It's got a global footprint well north of 100 countries. It has an amazing set of franchise partners in markets around the globe. It's got meaningful scale.

And that's translating to strong performance in a number of our Pizza Hut markets. In fact, if you look at gross development, if you go back over the last 4 years, Pizza Hut has had the highest gross unit development in the pizza QSR space in every quarter for the last 4 years, except for one. So there's a lot of amazing strengths that Pizza Hut has.

That said, we're always focused on what is best for the brand and what is best for our franchise partners. And in that spirit, we do think the business can be positioned for even greater success in the future. And in some markets, there may be a multiyear effort that is required to reposition it as the leading pizza brand in those markets. And it's possible that those efforts may best be done under a different structure potentially under outside ownership.

And so that's what we'll be testing as we go through the review of strategic options. And that's why we're initiating that now. It's obviously been a very thoughtful process that has led us to this announcement.

We can't speculate on the exact timing of how this plays out. We'll evaluate all of the options on all of the pads, and we will share more as we have something definitive to share. I know there's going to be lots of questions about that process. But at this time, we just can't provide further comments.

Our next question comes from John Ivankoe from JPMorgan.

The purpose of the large Taco Bell franchisee in the Southeast and your specific mention of them being mature and having growth opportunity in the market, got me thinking about some of the large refranchising that happened 2025, even 30 years ago when you guys came out of you go way back when.

And just a question of -- it's one thing we kind of have the best growing current franchisees over 20 to 30 years, but maybe thinking about some generational test that could potentially happen for the next 5, 10, 20 years in terms of really restarting growth. We're driving growth in a number of your different businesses, not just around the U.S., but also around the world.

So -- the question really is what kind of opportunity that we may have maybe taking some of these very successful legacy businesses that have just been in business for so long, 20, 30 years, maybe finding some other partners that are committed not just to running a great business, but growing a great business from a unit perspective. Do we have opportunity to optimize.

Yes. John, let me start. We remain an asset-light business that grows through franchise partners. Our franchisees are the lifeblood. They do an incredible job, operating around the globe 1,500 franchisees, the vast majority who are well capitalized, capable and committed to our brands.

So let me just start with that context. What you've seen here is an opportunity in a geography where we thought our data would say there's an opportunity for a lot more Taco Bell stores. And so we thought this was an opportunity to make this acquisition, we can help to unlock unit development in the region. And of course, it comes with the immediate EBITDA lift as we look to 2026 and immediate operating profit growth as we go to 2026, and it solidifies our operational capability, which already is very strong in Taco Bell U.S.

Of course, that's an important part of how the overall business operates. We do -- I'll just give 1 example. Innovation testing. In our equity estate is really, really strong and a really important part of our food innovation process at Taco Bell. So I think this is a unique opportunity.

There are other instances where we are initiating some bold actions through our equity stores. In Sauce, we took on the first store. We'll be moving to a little over 10 units and we're making those investments because we think that's the right thing to do to understand and pilot that concept.

And then, of course, as part of the [indiscernible] Cafe journey, we're -- we've invested in a few of the Litmos Cape expansion stores. So it's a very strategic use of that capability. But at the broadest level, we remain asset light, and we will grow through our franchise partner.

Operator, we have time for one more question.

Our last question today will come from Jeffrey Bernstein from Barclays.

Great. Roy, I just had a question for you. In a franchise model like this, a lot of the focus comes down to the G&A spend. I'm just wondering how you think about that line item. It's currently, I think, 1.7% of system sales. I think you're among the leaders in terms of managing it at a very low level.

I'm just wondering your thoughts on the biggest opportunity to either double down on certain investments, maybe spend a little bit more versus perhaps curtailing elsewhere. Just wondering how you think about that G&A line item.

And I guess that just obviously you're new to the role, but as we think about 2026, is there any reason why the long-term core operating profit growth target of 8% would not be reasonable as we think about it today. So just love to get your broader thoughts.

Jeff, that's a great question. 4 weeks into the role, I will admit that I don't know exactly where all the G&A is varied, but I will tell you my observations on how we've managed G&A in the past and the limited amount of change that we see from our strategy going forward on G&A.

First of all, I'd observe our G&A growth overall in the past 2 years has been minimal and very disciplined. Second thing I'd observe is we're on track for mid-single-digit G&A growth this year, including incentive comp resets. So we've been very disciplined this year on G&A. Third, I think we'll continue to be disciplined as we navigate through the strategic review process. And as that process plays out, we'll come back with more guidance. But at this point, you should expect no change to our discipline on G&A, which we've been managing, while making investments into the business in terms of growth.

Great. Okay. Well, I think we're at the end of the call. So thanks, everyone, for joining. I'll just close with a couple of thoughts. I want to reinforce, Yum! remains laser-focused on growth, powered by our iconic global brands. Yum! provides our investors with exposure to KFC, the leading growth brand across international markets, which delivered 14% divisional operating profit growth this quarter.

Combined with Taco Bell, one of the most exceptional brands in the U.S. which is providing durable, defensive long-term growth via sustainable market share gains. We will continuously raise the bar. We're going to keep our brands relevant. We want to elevate franchisee unit economics to unlock even more development and we'll continue to deploy BiTE. And all of that is underpinned by the best talent, the best franchise partners in the industry. In short, we're tremendously excited about our future. Thanks, everyone.

This concludes today's call. We thank everyone for joining. You may now disconnect your lines.