By Neil J Kanatt
July 30 (Reuters) – Yum Brands said quarter-to-date U.S. comparable sales at Taco Bell fell 2%, as a cyclospora outbreak linked to the chain weighed on customer traffic and kept some consumers from eating at its restaurants, overshadowing upbeat quarterly results.
Shares of the company, whose Taco Bell chain was first linked to the outbreak earlier this month, were up 4% in premarket trading after CEO Chris Turner said he expects the demand hit at the chain to be temporary.
Yum echoed peer Chipotle Mexican Grill, which warned the current quarter could be its toughest of the year as the outbreak dented consumer confidence in eating out. Chipotle had previously said products linked to the outbreak were not used in its menu items.
The outbreak, seen as the largest foodborne illness outbreak in the U.S. in recent years, has become a closely watched test of how quickly restaurant chains can regain customer trust after a food-safety scare.
Brand and crisis-management experts have said lasting damage to the chain is likely to be limited if the illness is contained swiftly and communication remains transparent.
“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,” Turner said on a post-earnings call.
Foot traffic at the chain has declined every day since July 13. Visits were down 20.8% on July 23 compared with the average for Thursdays between January 1 and July 6, according to Placer.ai data.
Taco Bell has been Yum’s primary growth engine, drawing customers with its value-focused Tex-Mex offerings at a time when budget-conscious consumers have been cutting back on discretionary spending, making the traffic slowdown particularly significant for investors.
Still, executives reassured investors that the company’s “swift and transparent action” had helped reinforce trust in the brand and that they saw early positive trends at the chain.
For the second quarter ended June 30, Taco Bell same-store sales rose 7%, compared with 4% a year earlier.
The outbreak also marks the first major test for CEO Chris Turner, who took the helm in October last year.
Yum reported a 3% rise in comparable sales, in line with analysts’ expectations and up from 2% growth a year earlier.
The company, which is set to sell its Pizza Hut chain in a $2.7 billion deal, also posted 2% same-store sales growth at KFC.
Yum’s quarterly adjusted earnings per share of $1.62 beat estimates of $1.58, according to data compiled by LSEG.
(Reporting by Neil J Kanatt in Bengaluru and Waylon Cunningham in New York; Editing by Anil D’Silva)
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