KFC, known for its fried chicken, plans to introduce a new grilled option across the country next year in hopes of lifting lagging sales — a key ingredient in parent Yum Brands Inc.’s strategy for strong U.S. profit growth.
Yum Chairman and CEO David C. Novak revealed plans on Wednesday for a second-quarter rollout of the grilled chicken product during an investment conference in New York.
The company also predicted 15 percent growth in U.S. operating profit next year, a projection that includes $60 million in cost savings from refranchising efforts. Excluding those savings, ongoing operating profit is expected to rise 5 percent next year.
Yum shares rose $1.86, or 6.6 percent, to $29.91 on Wednesday.
The Louisville-based company, whose brands include Taco Bell and Pizza Hut, outlined plans to achieve overall earnings-per-share growth of at least 10 percent next year, excluding special items.
It also predicted continued strong growth in its international business, led by its China operations.
Yum said it expects to open at least 500 new restaurants in its China division next year, compared to a forecast of 550 openings this year. In its international division, new unit openings are forecast to reach at least 900 next year, even or slightly ahead of this year’s pace.
The company said half of its projected 2009 profit growth is already in place, thanks in part to the fast pace of restaurant openings overseas and the expected $60 million in cost savings.
In a research note before the conference, Deutsche Bank analyst Jason West said, “While Yum remains one of the more consistent stories in the consumer space, several headwinds entering 2009 make guidance of ‘at least’ 10 percent EPS growth look optimistic.”
Novak said the fast-food industry is better positioned that other sectors to ride out tough economic times. Yum, with 35,000 restaurants worldwide, has had 20 straight quarters of global same-store sales growth.
But he added, “In times like this, you’ve got to be good. You’ve got to be on your game.”
He said KFC’s slump in the U.S. was performance-related, noting that Pizza Hut and Taco Bell had a good year.
“We haven’t created enough value, we haven’t created enough product news,” he said of KFC. “And as a result of that, KFC has been a drag on our overall performance this year in the United States.”
KFC is pinning much of its hopes for a U.S. turnaround on Kentucky Grilled Chicken, which will hit nationwide stores after the longest market test in KFC history.
“This product will be a major transformational product for us, that it’s not the same KFC,” Novak said.
KFC introduced grilled products in the past but couldn’t sustain an initial sales upturn because of operational or marketing factors, Novak said. He predicted this rollout will have lasting, positive results.
“We have a winning concept,” Novak said.
KFC hopes the grilled chicken will appeal to health-conscious consumers, allowing the chain to “overcome the key barrier of being a fried-only concept,” Novak said.
The chain announced last year that fried chicken at all its U.S. restaurants had zero grams of trans fat per serving after it switched cooking oils.
With the grilled offering, KFC is hoping to replicate the success of Pizza Hut’s introduction of a pasta line this year that Novak said has turned into a $500 million business.
Another KFC initiative planned next year is a national value menu with products ranging from 99 cents to $1.99, Novak said. KFC hopes to compete with other fast-food chains enticing customers with low-price menus.
Yum’s chief financial officer, Rick Carucci, said KFC is hoping for same-store-sales growth of 7 percent next year. Same-store sales are a key indicator of restaurant performance since they measure sales at existing locations rather than newly opened ones.
Carucci also predicted a lessening of U.S. commodity inflation for the company next year.
In 2008, Yum paid $120 million more in commodity costs, about four times higher than a normal year, he said. The company is bracing for a $60 million increase in U.S. commodity costs next year over 2008, he said.
Yum’s brands also include Long John Silver’s and A&W All-American Food.