Yum Brands (NYSE:YUM) reported first-quarter financial results on Wednesday. The transcript from the company's first-quarter earnings call has been provided below.
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View the webcast at https://events.q4inc.com/attendee/175585989
Summary
Yum Brands reported a solid start to 2026 with strong top-line performance, driven by integration of new Taco Bell stores, improved KFC margins, and disciplined GNA spending.
KFC showed 6% system sales growth, leveraging a new Global Innovation Pantry and introducing new sauce platforms in multiple markets.
Taco Bell US achieved 8% same-store sales growth, maintaining a strong momentum with a focus on value, innovation, and cultural relevance.
Habit Burger Grill maintained top-line momentum despite inflationary pressures, launching new menu items and partnering with the LA Dodgers.
The company is expanding its digital and technology capabilities, with digital sales reaching $11 billion and a digital mix of 63%.
Yum Brands plans to release 2026 Q2 earnings on July 30, with continued confidence in meeting or exceeding long-term growth targets.
AI and innovation are key focuses, with AI-driven tests and developments being implemented across the brands to enhance growth and operational efficiency.
Full Transcript
Kayla (Operator)
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. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press STAR followed by the number one on your telephone keypad. If you'd like to withdraw your question again, press STAR and one. Please limit all comments to one question. I would now like to turn the call over to Matt Morris, Head of Investor Relations. You may begin.
Matt Morris (Head of Investor Relations)
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 report 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 30th 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 at Yum Brands. We remain committed to our mission to grow iconic restaurant 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 bite. 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 Brands's Q1 results mark a solid start to the 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 GNA 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 and innovation and expanding its sources platform, building on insights and best practices from Saucy by KFC. The platform includes globally deployable dunked 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 sauce platforms in 2026 including South Africa, India, Germany, the UK, France and the Middle East. In parallel, KFC is leveraging its new Global Innovation Pantry which helps markets replicate successful proven menu innovations. For instance, KFC UK is off to a very strong start with a 7% increase in Q1 same store sales growth and is seeing strong Momentum to start Q2 driven by the PickleMania menu, which featured four pickle topped items. Picklemania is the most successful limited time offer in KFC UK history. The UK 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 Tumbak Kimjipot bowl 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 one of its first prefabricated restaurants in Chile. These stores are assembled in a 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 builds. 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 US reported 8% same store sales growth meaningfully outperforming the industry. This is Taco Bell's eighth consecutive quarter of US Same store sales growth ahead of the industry on a two year basis. Taco Bell's US 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 Lux 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 multi year 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 and on factors including good for dinner, good for large groups and good for healthier options. These expanded perceptions show that Taco Bell is driving not only short term sales momentum, but importantly long term brand strength. Taco Bell is 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 Moss 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, Devonte Adams, Ariana Maddox, Benson, Boone Yeet, Fernando Mendoza, Jason Sudeikis, DJ Pee Wee, Mike Towers 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 Moth Live is a powerful example of Taco Bell's unique ability to create a marquee brand moment, amplify innovation at scale and reinforce 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, Habit Burger and Grill, we are pleased with the top line momentum generated from aggressive moves to enhance value, bring new innovation like 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 Habit's home market of Southern California is the new partnership with the LA Dodgers. I had an opportunity recently to experience the amazing new Habit location inside Dodger Stadium and the nearby Dodgers themed restaurant in Echo Park. Yum Brands is also investing smartly in testing bolder bets around innovations to keep our brands ahead of consumer shifts. For instance, through findings from Collider, 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 one. Taco Bell continues to pilot Live Moss Cafe in 38 restaurants and a unique set of Taco Bell style drinks that won't be found anywhere else such as Churro chillers and a sweet empanada and cream chiller. Taco Bell is already leveraging learnings from the pilot to broaden the beverage menu across the entire system with proven successes such as Midnight Baja Blast and Agua refrescas. In fact, 43% of Taco Bell's specialty beverage sales are standalone 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 UK, 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 a loyalty expansion to 20 additional markets, putting the brand on a path to triple its 90 day active user base. Our proprietary Byte by Yum Brands 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 UK 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 in execution. The capabilities in the Byte platform provide Taco Bell UK 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 YUM a powerful advantage. Our global data assets coupled with bytes 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 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 strengths 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 five 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.
Ranjith Roy (Chief Financial Officer)
Thanks Chris and good morning everyone. I'll begin with reviewing our first quarter results before discussing Yum Brands' 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%. Taco Bell US achieved restaurant level margins of 23.9%. We are pleased that despite significant inflation, Taco Bell has again demonstrated its ability to expand US 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 UK 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%, GNA grew 3% and core operating profit grew 10%. Now onto development. We opened 1030 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 is 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 three years as seen on existing UK stores, but this package also improves overall paybacks on new restaurant bills. 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. this time we see no change to our KFC development plans for the year and note that 90% of KFC is 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 US and 16 internationally. In the US 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 two year stacked same store sales growth of 23% in the UK, 18% in Canada and 45% in India. Success in these larger markets is is generating increased interest from new partners to launch Taco Bell in other new markets such as Poland and Germany. Recall Taco Bell entered five 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 UK and Australia markets for KFC are on track to roll out Byte bundles this year representing 2000 incremental restaurant locations native to Bite. Once that rollout is complete and as Chris said in Q1, Taco Bell UK 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 Brands' long term growth. We are embedding AI in our consumer facing technologies and innovations across our restaurant operations. In Q1, Taco Bell US piloted AI driven AB 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 Byte 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 and 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 3.8 times. 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 ex Pizza Hut. When you couple that with the additional debt capacity we generate each year from our profit growth and our four times 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 in 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 returning 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 to 520 million dollars 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 US restaurant level margins for 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 GNA 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 milliin 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 GNA due to the timing of project spend. Additionally, we expect approximately $5 million of non cash closure expenses for habit as we opportunistically optimize our store network by 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 one time HUD 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 determining 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
At this time I would like to remind everyone in order to ask a question, press Star then the number one on your telephone keypad. Please limit all comments to one question. Your first question comes from the line of David Palmer with Evicor. Your line is open.
David Palmer (Equity Analyst at Evercore)
Thanks. 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 by market for kfc. You know China, Canada may be a little bit of slowing on a one and two year basis, but Asia, India, Middle east look very strong if not accelerating. Europe pretty stable. So any, any color as you look around the globe in terms of demand trends as we think about the rest of the year. Thank you. Yeah, thanks David. You know we're pleased with the progression in KFC International. If you look over the last four quarters, we've seen acceleration on a two 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 got plenty of double digit system sales growth markets and we gave a few examples in the speeches. You know UK 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 three to four times their previous pace. In Latin America as the Serrano Group moves into Brazil, we're seeing great things. But if you step back and say what's driving that, you know, Scott Dizvinski 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 things. He's setting a very high aspiration. He's creating some specific targets and then he's building the strategies that will bring that to life. Of course, given 150 markets, that's going to take some time to come to life. But those, those countries that I mentioned are proof points that his strategy is working and we're excited about the momentum ahead.
Operator
And your next question comes from the line of David Tarantino with Baird. Your line is open.
Chris Turner (Chief Executive Officer)
Hi, good morning, Chris. Another question on international, and I guess mine's 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 that there was still a good pipeline for this year. But thinking more into next year, the next few years, are you seeing any, 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'd be great. Thanks. Yeah, thanks. Thanks, David. You know, as we look at our unit development outlook, we have high confidence. We just set a new record for Q1 unit development in KF. The Taco Bell International unit development story continues to grow. If you think about kfc, you know, 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's battling for the future consumer which should lead to higher same store sales growth and higher AUVs. The A is accelerating restaurant economics and the R is reaching the full potential to buy it. But that accelerating restaurant economics is about leveraging those higher AUVs over time and leveraging our scale in supply chain, in prototype design, in 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, you know, we're continuing to see great growth. You look at those system Sales numbers and those same store sales growth numbers that Roy shared. A lot of great things happening there. You know, 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 UK. We're now at 156 and 142 in those two 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.
Ranjith Roy (Chief Financial Officer)
And David, I'll just add to that. If you look at history in 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. KFC 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 and 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.
Operator
And your next question comes from the line of John Ivanko with JP Morgan. Your line is open.
John Ivanko (Equity Analyst at JP Morgan)
Yes, hi. I was curious how you're currently thinking about, you know, the organization post Pizza Hut. You know, you obviously have an opportunity, including the 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, you know, how should we think about, you know, total dollars spent, you know, whether it's G and A's, percentage of system sales, whether we should just revert back, you know, to kind of AI, you know, AI and byte, specifically bending the curve on gna. Just to give us some guideposts in terms of how you're thinking about this potentially big overall efficiency and effectiveness opportunity for the overall YUM gna spend. Thank you. Yeah. Hey. Hey. 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 AI and 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 by VM and that's both across our restaurant footprint, particularly in the US and we'll be expanding more and more internationally, but also in our above store systems. And if I think 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. Being the leader in rolling out a B testing to our digital drive thrus in 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, that are pretty interesting. I was with our GM of KFC UK this week. That team has really embraced AI. 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 UK development team that's helping with permitting and it's taking 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.
Operator
And your next question comes from the line of Dennis Geiger with ubs. Your line is open.
Dennis Geiger (Equity Analyst at UBS)
Great morning guys. I wanted to ask a bit more about Taco Bell's impressive momentum and the outlook for the US with 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 moss cafes, anything More to share on what you're seeing there and sort of the potential for those cafes looking ahead. Thank you. Yeah, 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 does 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, you know, that's grounded in structural advantage. The Mexican category is growing ahead of the overall restaurant space and Taco Bell is 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 event. They 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 experiences, the fastest drive through of any large scale QSR player. And those operations are getting better, as we mentioned. And, and of course, we deliver unbeatable value. The lux value menu that we revamped in Q1 is performing very well. One third 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 menu. So lots of strength. But we're just in, you know, 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 Live Moss Cafe, you know, I think of right now as the seed for broader beverage expansion already across the entire Taco Bell business. I open up my Taco Bell app right now. I can find 15 different specialty beverages available there. Some of those came from Live Moss Cafe, like the Refrescos, but you got dirty sodas, you've got freezes. So already a really distinctive business, coupled with our proprietary NQSR Baja Blast platform through our partnership with PepsiCo. So we're already getting tremendous returns from the Live Moss Cafe investments. We'll continue to see how that pilot goes to see where we take the specific concept.
Operator
And your next question comes from the line of Gregory Frankfort with Gungenheim Securities. Your line is open.
Gregory Frankfort
Hey, thanks for the question. I just maybe clarification. Are you guys disclosing the KFC US 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 Sauce and bringing them to different markets around the world. I guess. 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 US system at some point in 26 or 27? Thank you. Yeah, 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 in a vibrant chicken market. You know, 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 US leadership team is doing to change the trajectory there. Some good moves in Q1, the partnership with Matty Matson 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 with 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 Saucy by KFC similar to Live Moss Cafe. We are already earning a big return on the Saucy 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 sauce 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.
Ranjith Roy (Chief Financial Officer)
Yeah. 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 US from being a sub segment where more details are disclosed to the system sales table. So it's still in the system sales table and restaurant counts. But you know, as we look this quarter, you know, we periodically review our disclosure to ensure that it aligns with drivers of growth and profitability that are most relevant to everyone. You know, following our releases, us KFC's place 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.
Operator
And your next question comes from the line of Andrew Charles with TD Cohen. Your line is open.
Andrew Charles (Equity Analyst at TD Cowen)
Great, thank you. 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? Faring 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 this for the remainder of 2026 following 1Q strength. In the past we've heard about holding 2 year 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 amid gas prices north of $4 a gallon? Yeah, he Andrew first on the Middle east with KFC. Just clarify what Roy shared earlier. You know 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. You know, on Taco Bell. Look, as I mentioned, this is a multi year strategy that the team laid out. Of course they're continuing to refine and elevate that strategy for the long term. But you saw at Live Moss 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 and 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 a 50% digital mix in Taco Bell US 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.
Ranjith Roy (Chief Financial Officer)
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. You know, I'd say more confidence than we had even, you know, earlier this year. And you're hearing that from us. And I see that's not just top line but also on the margin front where we've taken up guidance on margins. Just know, you know, when you think about Q1, what's really impressive is you have not just the backdrop of the consumer, but you 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 point beyond as well.
Christine Chow (Equity Analyst at Goldman Sachs)
And your next question comes from the line of Christine Chow with Goldman Sachs. Your line is open. Yes, thank you so much. And 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 to really focus on driving improvements in unit economics globally. That seems to be central to your raise the bar framework. Thank you.
Chris Turner (Chief Executive Officer)
Yeah, yeah, 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're taking our time to make sure we get that, you know, right. And from an organizational standpoint. But we're not delaying 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. If I took the global supply chain organization which we pulled together over the last one to two 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 drop dollars to the bottom line. For our franchise partners leveraging yum 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, you know, 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 role. We'll share updates when they're ready.
Operator
And your next question comes from the line of Andy Barish with Jefferies. Your line is open.
Andy Barish
Hey, good morning guys. 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, you know, kind of the Taco Bell franchise system is, at least domestically?
Chris Turner (Chief Executive Officer)
I sense a few different parts of 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 in 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 of 128 restaurants out of a worldwide base of 60,000 restaurants that we have. It's relatively small. That said, you know, 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 the 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 UK restaurants and the Taco Bell Southeast restaurants and the results that drives in those markets and the ability to open up white space. There are strategic benefits to the broader system that are way beyond the actual investment that we actually made. And thirdly, you know, it does add mindset and muscle in those markets where, you know, 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'll be for specific reasons where it has maximum impact. We're going to keep our eyes open for the opportunities that provide that
Operator
operator. We have time for one more question.
Jeffrey Bernstein (Equity Analyst at Barclays)
And your final question comes from the line of Jeffrey Bernstein with Barclays. Your line is open.
Chris Turner (Chief Executive Officer)
Great. Thank you very much. Chris, just a question on the broader QSR segment and positioning. Just thinking about it from an industry perspective, I don't think anybody's more knowledgeable on QSR trends with your global portfolio. But in the past US Macro slowdowns, I think most people thought 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 QSR is maybe 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? Thank you, Chair Powell. You know, look, as I look at the US Macro landscape and the US Consumer, I have to look at it through the lens of our business. And our largest business in the US Is Taco Bell. And I think what you're seeing is that when you deliver what consumers want and need, you can win 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 one or two of those things, you wouldn't see these results. It's the combination that is winning with consumers. And of course, they've got the structural advantage that will allow us to sustain that. And we see that in all of our markets around the globe. You know, the consumer has had various pressures across markets 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 incredibly, a 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.
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