Yum!(YUM) - 2025 Q4 - Annual Report

Business Operations - YUM operates over 63,000 restaurants across 155 countries, with system sales totaling $68.295 billion in 2025[18] - Approximately 97% of YUM's restaurant units are operated by independent franchisees, with 40% of franchised units in mainland China operating under master franchise agreements[29] - The company has a Master License Agreement with Yum China, its largest franchisee, which is crucial for its operations in mainland China[65] - The company has approximately 61,000 franchise restaurants globally, employing over 1 million people, creating numerous part-time, entry-level opportunities[50] - YUM's KFC division has 33,897 units, with 99% operated by franchisees, while the Habit Burger & Grill division has 384 units, with only 22% franchised[18] - The company does not consider its operations to be seasonal, indicating stable performance throughout the year[43] Financial Performance - System sales growth for 2025 was reported at +4%, with same-store sales growth of +3%[194] - Company sales reached $2,945 million in 2025, a 15% increase from $2,552 million in 2024[196] - Net income for 2025 was $1,559 million, reflecting a 5% increase compared to $1,486 million in 2024[196] - Diluted EPS for 2025 was $5.55, up 6% from $5.22 in 2024[196] - Franchise sales increased to $65,350 million in 2025, compared to $62,914 million in 2024, marking a growth of 3.4%[198] - Core operating profit for 2025 was $2,684 million, compared to $2,572 million in 2024, indicating a growth of 4.4%[201] Strategic Initiatives - The company is reviewing strategic options for the Pizza Hut brand, aiming to complete this review in 2026[17] - The company emphasizes a strategy focused on customer needs, franchisee performance, and leveraging technology for growth[27] - The company has initiated a process to explore strategic options for the Pizza Hut brand to maximize long-term value creation, with no assurance of a successful transaction outcome[72] - Significant expenses are expected in connection with the strategic review of Pizza Hut, which may divert management's attention and disrupt business operations[74] Technology and Digital Sales - Digital sales approached $40 billion in 2025, accounting for nearly 60% of overall system sales[36] - The Byte by Yum! platform was introduced in 2025, enhancing operational efficiency and customer experience through AI-driven solutions[35] - The company is investing significantly in digital and technology capabilities, including AI, but faces risks related to the rapidly evolving legal and regulatory landscape[95] - There is an increasing dependence on digital commerce and delivery platforms, and any failure to effectively implement these initiatives could adversely affect sales growth[96] Risks and Challenges - The company faces risks related to food safety and potential catastrophic events, which could disrupt operations and affect growth prospects[56][57] - The company may face significant tax liabilities related to the Yum China spin-off if the IRS challenges the tax-free status of the transaction[129][130] - The company faces significant foreign currency risks, particularly with fluctuations in the value of the U.S. dollar against currencies like the Chinese Renminbi, which could adversely affect reported earnings[82] - Cybersecurity incidents pose a risk to the company's financial results and growth prospects, with a ransomware attack in January 2023 impacting certain IT systems and resulting in the closure of fewer than 300 restaurants for one day[86] - The company faces challenges due to labor shortages and increased labor costs, which may adversely affect operations and growth prospects[110] Market Environment - The retail food industry is highly competitive, with various types of competitors, and the company does not constitute a significant portion of the industry in terms of system units or sales[44] - The company’s growth may be impacted by franchisee financial distress, which could hinder new unit development and operational profitability[61][69] - The company is subject to evolving ESG expectations, which may increase compliance costs and management focus, potentially impacting financial results[119] Employee Engagement and Culture - The company is focused on building a culture of engagement and opportunity among employees, which is integral to its growth strategy[51][54] - As of December 31, 2025, the company employed approximately 49,000 persons, with about 90% working in restaurants, and 80% of U.S. restaurant general managers promoted from within[49][50] Legal and Regulatory Compliance - The company is subject to numerous global data privacy laws, including the E.U.'s GDPR, which impose strict requirements and significant penalties for noncompliance[90] - Compliance with Payment Card Industry Data Security Standards is critical; failure to do so could result in civil liability and increased costs[89] - Legal and regulatory complexities, including labor laws and health regulations, may adversely affect business operations and growth prospects[123] Capital Structure and Shareholder Returns - As of December 31, 2025, the company's total outstanding short-term borrowings and long-term debt was approximately $12.0 billion[137] - The Company declared and paid four cash dividends of $0.71 per share in 2025, with a new dividend of $0.75 per share declared for March 6, 2026[171] - The Company has remaining capacity to repurchase up to $1.1 billion of Common Stock under the authorized $2.0 billion share repurchase program[172]