Taco Bell Breakfast Boosts Sales Somewhat, But Chicken Doritos Taco Disappoints

2% Sales Bump Misses Expectations

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Yum brands CEO David Novak on Thursday called March 27, the day that Taco Bell introduced its big breakfast push, a day that will go down in history.

On the company's second-quarter earnings call this morning, Mr. Novak said that Taco bell breakfast "is off to a great start and we expect to build off this momentum going forward."

Taco Bell had a record-breaking sales week during the second quarter, thanks to breakfast, which comprised around 7% of sales in the quarter, he said. And Taco Bell's sales in U.S. stores open at least a year increased 2% from the quarter a year earlier.

Wall Street investors and analysts, however, were expecting more.

"Now the big question you're probably asking is, is given the success of the breakfast launch, why did same-store sales increase only 2% in the quarter?" Mr. Novak said during the call. "Keep in mind that during the first two months of the quarter, our media emphasis was almost totally on breakfast. Once we returned to advertising our core business, it was with Spicy Chicken Cool Ranch Doritos Locos Tacos."

That strategy, and product, it turns out, was a dud. "Frankly, this product under performed versus our expectations," said Mr. Novak, adding that it ended up being "too much of a niche product to overlap the 15% growth we've had over the past two years" with the introductions of the original Doritos Locos Tacos and the Cool Ranch follow-up, two of the most popular products the chain has ever sold.

But Mr. Novak said that the recent introduction of the Quesarito -- a burrito wrapped in a quesadilla -- has so far been successful and demonstrates "that when you have great innovation, balance of day, coupled with a strong breakfast line, it's a powerful combination," said Mr. Novak.

Newest breakfast addition
Starting Sunday, Taco Bell will begin marketing its latest breakfast item, the grilled breakfast burrito. TV spots created by Interpublic's Deutsch bring back some of the Ronald McDonalds that were featured in the original ads for Taco Bell breakfast when it arrived in March.

Taco Bell also just last week announced its Cantina Power menu, a modification of the Cantina menu that now includes more protein. That line won't be marketed on TV much; most of the promotion will happen in digital and social media to maximize appeal to millennials.

Mr. Novak believes Taco Bell has a huge opportunity ahead in breakfast sales, noting on the call today that McDonald's "gets about $1 million in sales before we have even opened our doors in the past."

"We're already making money in breakfast, even though we've added incremental labor and food costs are higher," Mr. Novak said.

Sibling brand KFC posted a 2% U.S. sales decline, while Pizza Hut's sales declined 4%. Yum's China division fared well in the second quarter, with a same-store sales increase of 15%, including growth of 21% at KFC -- a vast improvement over late 2012 and 2013, when sales were in decline after inspectors found too many antibiotics in chicken from several suppliers, and consumers backed off after an Avian flu outbreak.

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