Taco Bell shows early recovery months after cyclospora scare

What happened and how bad it was

In July and August, Taco Bell's US results suffered after regulators connected its lettuce supplied by Taylor Farms with a wider cyclosporiasis outbreak that sickened thousands. Sales fell more than Yum expected after the illnesses, but since late September the chain has pulled ahead of competitors on same-store sales growth.

On the earnings call, CFO Ranjith Roy said Taco Bell's comparable sales are up 1% quarter to date. TD Cowen's Andrew Charles said the pace of the rebound matters more than the third quarter itself and added, "We are pleased by the return of Taco Bell US comps to outpacing the quick-service category."

How customers are returning

Roy said visits from heavy Taco Bell users have returned to pre-outbreak levels, while lighter users are at about 95% of their earlier frequency. He did not detail prior visit habits.

Yum Chief Executive Officer Chris Turner said loyalty members came back at roughly twice the rate of nonmembers, helped by in-app offers that lifted membership 25% in the third quarter from a year earlier. "The recovery to date, I think, has been one of the fastest if you look at sort of the history in the restaurant industry recovering from an event like this," Turner said.

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The business and what it means for your portfolio

Yum needed a swift rebound at Taco Bell, which has been its top-performing US brand lately. Following a recent divestment of the struggling Pizza Hut, the company is even more reliant on Taco Bell, which has leaned on discounts, merch drops and celebrity tie-ins such as Olivia Rodrigo to win back diners.

Elsewhere, KFC's comparable sales missed estimates in the third quarter as US weakness offset international growth. Companywide comps were flat from a year earlier, while adjusted earnings per share topped expectations. Yum shares rose up to 3.4%, and as of Monday's close they were up 4.2% this year compared with a 10% rise for the S&P 500. The bottom line: watch Taco Bell's comp momentum and Yum's increasing dependence on the brand to gauge the next leg for your exposure.

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