YUM! Brands Inc. (YUM) Q4 2021 Earnings Call Transcript

YUM! Brands Inc. (NYSE: YUM) Q4 2021 earnings call dated Feb. 09, 2022

Corporate Participants:

Jodi Dyer — Vice President, Investor Relations

David Gibbs — Chief Executive Officer

Chris Turner — Chief Financial Officer

Analysts:

David Tarantino — Baird — Analyst

Jared Garber — Goldman Sachs — Analyst

Sara Senatore — Bank of America — Analyst

Dennis Geiger — UBS — Analyst

David Palmer — Evercore ISI — Analyst

John Ivankoe — JPMorgan — Analyst

John Glass — Morgan Stanley — Analyst

Presentation:

Operator

Good morning and welcome to the Fourth Quarter 2021 Yum! Brands, Inc. Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Jodi Dyer, Vice President, Investor Relations. Please go ahead.

Jodi Dyer — Vice President, Investor Relations

Thanks, operator. Good morning, everyone. And thank you for joining us. On our call today are David Gibbs, our CEO; Chris Turner, our CFO; and Dave Russell, our Senior Vice President, Corporate Controller. Following remarks from David and Chris, we’ll open the call to questions.

Before we get started, I would like to remind you that this conference 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 announcement and should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC. In addition, please refer to our earnings releases and relevant sections of our filings with the SEC to find disclosures and definitions of non-GAAP financial measures and other metrics that may be used on today’s call as well as reconciliations of non-GAAP financial measures.

Please note that during today’s call, all system sales and operating profit results exclude the impact of foreign currency. We will no longer be providing an update on February store closures as we ended Q4 with less than 1% of our stores temporarily closed. As a reminder, temporary store closures only include stores that were fully closed as of the end of the quarter but have or are expected to reopen. For more information on our reporting calendar for each market, please visit the Financial Reports section of our website.

We are broadcasting this conference call via our website. This call is also being recorded and will be available for playback. Please be advised that if you ask a question, it will be included in both our live conference and in any future use of the recording. We would like to make you aware of upcoming YUM investor events in the following.

Disclosures pertaining to outstanding debt in our restricted group capital structure will be provided at the time of the Form 10-K filing. First quarter earnings will be released on May 4, 2022, with the conference call on the same day.

Now, I’d like to turn the call over to Mr. David Gibbs.

David Gibbs — Chief Executive Officer

Thank you, Jodi. And good morning, everyone. As we reflect on 2021, I couldn’t be prouder of the collective accomplishments of our world-class franchise partners and collaboration of our global teams, guided by our Recipe for Growth and Good. While the last two years have been the most challenging operating environment we’ve ever navigated, we exit 2021 stronger than ever with over 53,000 global restaurants.

Compared to 2019, we’ve nearly doubled our digital business, system sales have grown over $5.5 billion and operating profit has grown over $200 million. Additionally, since 2019, we’ve added another iconic brand and closed on three technology acquisitions, all while launching our global unlocking opportunity initiative with a $100 million commitment over five years investing in equity and inclusion, education and entrepreneurship, the cornerstones of our Recipe for Good.

In 2021, we opened 3,057 net new units, driven by 4,180 gross unit openings with meaningful contributions from each of our brands, marking the strongest growth year in our history and setting an industry record for unit development. To put that into context as the world’s largest restaurant company, we opened a new restaurant on average every two hours. This speaks to the health of our business, iconic brands, capable committed and well-capitalized franchise partners and strong unit economics. This is yet another significant development milestone on our ongoing growth journey, providing customers with access to our brands through a variety of restaurant formats and on and off-premise ordering channels.

Now more than ever, we’ve leaned into the structural advantages of our diversified global portfolio by leveraging our unmatched global scale, sophisticated supply chains, marketing and consumer insights expertise and our growing digital and technology capabilities to fuel growth and deliver strong results. Even as dining room sales recovered throughout the year, we continue to grow our digital sales that reached a record $22 billion in fiscal 2021, an increase of approximately 25% over 2020, suggesting a more permanent shift to digital channels.

We ended the year with over 45,000 restaurants offering delivery, representing more than a 25% increase year-over-year. We galvanized our digital and technology strategy and accelerated the development of our ecosystem with both internal investments and the closing of the Kvantum, Tictuk and Dragontail acquisitions.

Our teams remain focused on elevating the customer experience, expanding our off-premise capabilities and empowering our team members with tools to make it easier to run our restaurants, all ultimately fueling improved unit economics. Expectations of our customers, team members and franchisees have forever changed due to the experiences over the past two years and we continue to challenge ourselves to exceed their rising bar. I’m confident we’re poised to lead the industry as we embark on the next chapter of our growth journey.

Today, I’ll discuss our 2021 results, showcasing a few examples across our brands for two of the four pillars in our Recipe for Growth are Relevant, Easy and Distinctive Brands, or RED for short, and our Unrivaled Culture and Talent. Then I’ll share progress on our Recipe for Good. Chris will share our fourth quarter results and provide an update on the other two pillars of our Recipe for Growth, Bold Restaurant Development and Unmatched Operating Capability, as well as an update on our strong balance sheet position and capital allocation strategy.

To begin, full year 2021 system sales grew 13% with same-store sales growth of 10%, or 3% on a two-year basis, and 6% unit growth. Each of our brands recorded positive same-store sales growth for the year and contributed to broad-based development strength. Full year core operating profit increased 18%, driven by same-store sales growth and the impact of unit development throughout the year.

As we ended the year, COVID outbreaks and resulting government restrictions limiting mobility continued to impact sales in a few key markets, primarily in Asia, presenting a headwind to fourth quarter results. However, our sales momentum remained strong with continued global recovery as evidenced by our two-year global same-store sales, excluding Asia, up 10% on a two-year basis, accelerating sequentially from last quarter.

Next, I’ll talk about our four RED brands. I’ll begin with KFC, which accounts for 52% of our divisional operating profit. KFC full year 2021 system sales grew 16%, driven by a 11% same-store sales growth and 8% unit growth. Q4 system sales increased 10% with 5% same-store sales growth or 3% on a two-year basis. We continue to see ongoing recovery in emerging markets as evidenced by the fact that more than half of our 13 global KFC regions delivered system sales growth in excess of 25% for the full year.

KFC International Q4 same-store sales grew 6%, or 2% on a two-year basis. Sales remained strong throughout the quarter despite regional impacts from COVID variants with momentum holding in many recovered markets, more than offsetting heavily impacted markets, including parts of Asia and Western Europe. Common themes fueling top line growth in the quarter include off-premise and digital capabilities, newsworthy products and a strong value offering.

KFC US Q4 same-store sales grew 4%, or 12% on a two-year basis. Strong top-line momentum was fueled by strength in group occasions, growth in the digital channel and the success of our chicken sandwich. The chicken sandwich continues to perform well for the business and now makes up roughly 9% of our sales mix as of Q4, a strong improvement from a 1% mix last year. Our sandwiches are served straight from the fryer and hot to our guests. We expect the chicken sandwich platform to continue to be a significant driver of our positive sales momentum for the business going forward.

Next, Taco Bell, which accounts for 32% of our divisional operating profit. Before delving into results, I’d like to congratulate the entire Taco Bell system for ranking number one in the Franchise 500 for the second year in a row, beating our peers as well as impressive concepts in other industries. Entrepreneur magazine, which produces this list, recognized Taco Bell for its franchisee collaboration and innovation. This recognition is further evidence of our intentionality to be the world’s franchisor of choice.

Now, I’ll discuss our results for the year. Taco Bell full year 2021 system sales grew 13%, driven by a 11% same-store sales growth and 5% unit growth. Fourth quarter system sales grew 11% with same-store sales growth of 8% or 9% on a two-year basis, reflecting an acceleration from Q3. Taco Bell kicked off the quarter by introducing the new Cantina Crispy Melt Taco and later in the quarter brought back the Grilled Cheese Burrito featuring a grilled and bubbly blend of real cheddar, mozzarella and pepper jack cheeses.

Additionally, the team kept value front and center with the launch of a new crave more value menu featuring the $2 burritos. In addition, we launched a new line-up of toasted breakfast burritos as a way to welcome customers back to our breakfast daypart. Taco Bell fans continue to adopt digital ordering channels as we set digital sales records in both the US and international this year. We will continue to bring a distinctive product to life through our digital channels with early access to new products, digital-only campaigns and loyalty rewards.

Moving on to Pizza Hut, which accounts for 16% of our divisional operating profit. Full year 2021 system sales grew 6%, driven by 7% same-store sales growth and 4% unit growth. Q4 system sales grew 4% with same-store sales growth of 3% or 2% on a two-year basis. Overall, we saw an inflection in the growth trajectory of the Pizza Hut brand this year, a testament to the hard work of our team members and franchise operators and a reflection of the overall health of the system.

Pizza Hut International Q4 same-store sales grew 4%, while same-store sales declined 3% on a two-year basis. Key markets that contributed to strong performance in the quarter included Africa, Canada, India and the UK. The brand remains focused on emphasizing easy through raising continued growth in off-premise channels through utilization of both first and third-party delivery networks.

Pizza Hut US Q4 same-store sales grew 1% or 10% on a two-year basis. The team continues to bring iconic pizza that customers love to market in relevant and distinctive ways. In the fourth quarter, Pizza Hut received strong recognition for an influencer-based marketing campaign that resulted in Pizza Hut being named a 2021 Culture Driver by TikTok. Additionally, we brought back a fan-favorite, the Triple Treat Box, offering customers a convenient and value-oriented family meal option, which drove sales in the quarter.

Lastly, The Habit Burger Grill achieved full year 2021 system sales growth of 24%, driven by a 16% same-store sales growth and a 11% unit growth. Q4 system sales increased 20% with a 11% same-store sales growth or 5% on a two-year basis. To showcase their chef-inspired innovation, The Habit Burger Grill reintroduced the chicken Caprese sandwich on garlic ciabatta bread with garlic aioli during the quarter. As dining rooms have reopened over the course of the year, Habit team members welcome customers back into the restaurants while continuing to serve customers through their digital and off-premise channels.

Now, I’ll discuss our unrivaled culture and talent growth drivers. The hallmark of YUM is our people-first culture, which drives the retention and recruitment of amazing talent. We remain committed to growing our talent from within and recruiting top external talent as you’ve seen from some of our recent internal promotions and leadership transitions. This past quarter, we were excited to welcome former Nike executive Sean Tresvant to serve as Taco Bell Chief Brand Officer, while former Nintendo executive Nick Chavez joined KFC US as Chief Marketing Officer.

Past two years have allowed us to build the strong foundation centered on our culture, talent and unwavering relationships with our franchisees. The collaboration with our franchisees has never been more powerful as we’re aligned more than ever on the future growth trajectory of the business.

Finally, I want to give an update on our Recipe for Good and the work we’re doing around our three priority pillars, planet, food and people. When it comes to our planet pillar, 2021 was a milestone year. We announced science-based targets to reduce greenhouse gas emissions nearly 50% by 2030 and pledged to achieve net zero emissions by 2050. We are expanding our foundational requirements for green building standards for new unit builds and advancing our corporate office and company-owned restaurant footprint to renewable energy.

In terms of our food, we remain focused on food safety and listening and responding to customers’ evolving preferences and improving the nutritional value of our menu items. We continue to introduce relevant and distinctive plant-based offerings from KFC’s national launch of Beyond Fried Chicken in the US, to Pizza Hut offering Beyond Italian Sausage Crumbles in Canada.

Finally, on the people front, we’re committed to investing in YUM’s Social Purpose focused on unlocking opportunities for our people and communities, while championing equity inclusion and belonging across all aspects of our business. Just last week, we announced the Yum Franchise Accelerator, a groundbreaking partnership with the University of Louisville and Howard University to train and advance underrepresented minorities and women interested in building a career in the restaurant industry. Not only is this a priority for YUM, but unlocking opportunity remains a focus for our brands as well with the recent launch of the Taco Bell Business School.

As a result of our elevated commitments and transparent disclosures, we’ve received notable recognition this quarter, including being named to the Dow Jones Sustainability Index North America for the fifth consecutive year and being named on Newsweek’s ranking of America’s Most Responsible Companies. I’m incredibly proud of our Recipe for Good and know that this work is more important than ever when it comes to building resilient and relevant brands for the future.

As I take a moment to reflect on the past two years, I’m extremely proud and grateful for the significant accomplishments and collaboration across our teams to both serve our customers and community, while fueling growth for our franchisees and shareholders. We’re entering 2022, which marks YUM’s 25th anniversary with confidence in our Recipe for Growth and Good strategies and I’m energized for what lies ahead. I’m certain we’ll continue to build the world’s most loved, trusted and fastest-growing restaurant brands, while delivering lasting value for our stakeholders.

With that, Chris, over to you.

Chris Turner — Chief Financial Officer

Thank you, David. And good morning, everyone. Today, I’ll discuss our fourth quarter financial results, Bold Restaurant Development and Unmatched Operating Capability as well as our strong balance sheet position and capital allocation strategy.

I’ll begin by discussing our financial results. We finished the year strong, opening a record-breaking 4,180 gross units or 3,057 net new units, resulting in 6% unit growth for full year 2021. A robust 10% same-store sales growth helped us achieve 13% system sales growth, driving full year core operating profit growth of 18%. That is a tremendous outcome given the inflation, labor, supply chain and consumer mobility challenges our brands faced in the back half of the year, particularly in Q4.

Q4 results also reflect impressive performance. System sales grew 9%, led by same-store sales growth of 5%, or 4% on a two-year basis, accelerating from Q3. Strong underlying profit growth was masked by elevated G&A levels owing to higher incentive compensation as a result of our strong full year results and the normalization of Taco Bell company-owned restaurant margins in the quarter, as previously signaled.

We anticipate quarterly variability in our company-owned restaurant margins as we remain focused on balancing relative value for our customers while protecting margins in the long run. To that end, full year 2021 Taco Bell company-owned restaurant margins were in line with our historical range of 23% to 24%, virtually unchanged relative to 2019 levels. This demonstrates our ability to drive strong top-line results, while managing profitability in an inflationary environment.

Our Q4 ex-special EPS was impacted by two items: first, we recorded a $35 million pre-tax gain on our investment in Devyani International Limited; second, we had a higher than normal tax rate for the quarter due to a tax reserve related to a prior year filing position that was challenged. And so, our Q4 results were in line with our internal expectations and culminated in full year results that exceeded all elements of our long-term growth algorithm.

Moving on to our Bold Restaurant Development growth driver. We opened 1,678 gross units in the quarter, or 1,259 on a net new unit basis, resulting in nearly 4,200 gross units opened for the full year, which is a record for YUM and the restaurant industry. That equates to over 100,000 jobs created worldwide last year alone. We’re able to achieve these record-breaking openings, thanks to the contributions from each of our four brands and incredible franchisees around the globe.

China continues to be the biggest developer. However, we continue to see broad-based strength across our portfolio evidenced by over 2,500 restaurants opened outside of China this year. In fact, we saw new restaurants built in over 110 countries this year, a step-up from prior years, significantly our development engine is diversified and stronger than ever.

At KFC, the brand delivered a record development year, led by significant contributions from China, India and Russia. Overall, KFC International opened over 2,400 gross units and nearly 2,000 net new units during 2021. At KFC US, after several years of same-store sales growth and strengthening unit economics, we have a much stronger foundation now on which to grow in the future as evidenced by the inflection point in development with the system moving to positive unit growth in 2021.

Taco Bell reported a strong development year in both the US and International. In the US, Taco Bell reached an impressive milestone ending the year with over 7,000 restaurants and ample whitespace for future development. During the fourth quarter, Taco Bell celebrated mass international expansion as Spain was the first market to surpass 100 units. We believe this development threshold unlocks accelerated growth fueled by the benefits of scale, including supply chain advantages as well as marketing and brand awareness. We’re confident in what the future holds for Taco Bell International, particularly as scale ties directly to profitability.

Pizza Hut International delivered a record year in development with all international business units reporting net positive growth, led by China and India. Continued improvement in unit economics and a more HMR focus footprint are drivers of the broad-based unit growth. Pizza Hut US continues to make progress on its development journey and is poised for future growth, thanks to improved unit economics and a healthy franchise base.

Finally, The Habit Burger Grill restarted their development engine this year with 23 net new units. Our brands are entering 2022 from a position of strength with plans to continue exceptional growth owing to our world-class operators and franchise partners. We’re confident in our future growth engine, given our broad-based strengths, improved unit economics and the visibility we have into our development pipeline.

I want to say a huge thank you to our development teams and franchise partners for all the hard work it takes to open nearly 4,200 restaurants in a single year, let alone a year with ongoing COVID and supply chain-related challenges.

Next, I’ll talk about our Unmatched Operating Capability growth driver. We remain focused on leveraging our digital and technology strategy to elevate both customer and team member experiences by leaning in on three key elements, easy experiences, easy operations and easy insights.

Starting with easy experiences, we expanded our digital ordering channels, including chat ordering via Tictuk to nearly 2,000 stores at year-end, an increase of roughly 60% since our acquisition in the first quarter. We also saw digital sales at KFC US grow approximately 70% year-over-year, fueled by our delivery service channel and e-commerce platform that launched nationwide in early 2021.

We continue to invest in technology platforms focused on delivering a frictionless experience for our guests, including the launch of Quick Pick-Up at KFC US in the fourth quarter that allows guests to bypass the drive-thru and grab their digital orders from cubbies inside the restaurant. The outstanding sales growth across our digital channels is evidence that our customers continue to expect and opt for easy access to our brands.

Now moving on the easy operations, which are focused on making it easier for our team members to run the business and ensure a superior customer experience. I want to highlight the exceptional operating performance of our brands, starting with Taco Bell, whose team members were unwavering in their commitment to deliver a superior customer experience. In 2021, Taco Bell’s drive-thru times were two seconds faster year-over-year and the fourth quarter marked the eighth consecutive quarter of an average drive-thru time under four minutes. This truly is an impressive performance considering labor availability challenges.

Additionally, the Dragontail order and delivery platform is now live in 2,800 stores in 21 markets across KFC and Pizza Hut, up from 13 markets last quarter and nine markets from the end of 2020. Dragontail allows us to tap into the power of artificial intelligence to streamline the end-to-end food preparation process and optimize delivery routes for drivers.

At Pizza Hut International, we continued deploying HutBot, our intelligent coaching app designed to enhance both the team member and customer experience by digitizing routines and insights into operational efficiencies. When HutBot is deployed and used effectively, it’s proven to increase customer satisfaction scores. We ended the year with HutBot live in over 6,000 Pizza Hut locations in 70 markets.

To round out our technology strategy, our easy insights platform provides us with invaluable knowledge about our consumers, enabling us to enhance the customer relationship. When we acquired Kvantum, a leading AI-based consumer insights and marketing performance analytics business, in the first quarter, it was operating in 13 markets. We have since tripled Kvantum’s footprint to over 45 markets. We will continue to prioritize initiatives that lead to incremental sales growth and improve unit economics for our franchisees.

The impressive adoption rates of these technology platforms are evidence of our franchisees’ confidence and the investments we made to advance our digital and technology ecosystem this year. We’re confident these investments have created a meaningful competitive advantage and will be a point of differentiation for YUM as we serve the elevated expectations of customers.

Now, for an update on our strong balance sheet position and our capital allocation strategy. We ended the year with cash and cash equivalents of $486 million, excluding restricted cash. We closed the year temporarily below our net leverage target of 5 times as a result of our strong earnings growth. Capital expenditures net of refranchising proceeds were $55 million during the quarter and $145 million for the full year. The full year consisted of $230 million in gross capex and $85 million in refranchising proceeds. We paid a healthy quarterly dividend of $0.50 per share or approximately $600 million for the full year.

With respect to our share buyback program, during the quarter, we repurchased 5.6 million shares at an average share price of $128, totaling $720 million. For the full year, we have repurchased 13 million shares at an average price of $122, totaling $1.6 billion.

As we look to 2022, our capital priorities remain unchanged, invest in the business, maintain a healthy balance sheet, pay a competitive dividend and return excess cash to shareholders via share repurchases. We remain committed to maintaining our asset-light business model of at least a 98% franchise mix. Going forward, we expect strong returns from our equity store investments to continue and, like our franchisees, see attractive opportunities to invest in unit development.

Capitalizing on these opportunities, we expect net capital expenditures for full year 2022 to be approximately $250 million, reflecting up to $350 million of gross capex and $100 million of refranchising proceeds. In the long run, we expect our refranchising proceeds to offset our new store investments as they have in the past. But in the near-term, new store investments may exceed refranchising by $50 million to $100 million annually, primarily driven by our strategy to accelerate growth of the Habit equity estate.

We were pleased to announce earlier this week an increase in our quarterly cash dividend of 14% to $0.57 per share in 2022. The recovery of our business in 2021 and proven resilience of our free cash flow supported this increase, reflecting a two-year double-digit CAGR, in line with our historical earnings growth and dividend increases.

I’d like to wrap up by providing color on the shape of 2022. I’m pleased to share that we expect to deliver full year growth, in line with our long-term growth algorithm, which includes 2% to 3% same-store sales growth and 4% to 5% unit growth, culminating in mid to high-single-digit system sales growth, leading to high-single-digit core operating profit growth, which excludes FX. Reflecting on 2021 results, we had several quarterly drivers that created lumpiness in the shape of the year, creating noise in our year-over-year laps in 2022.

We expect our full year G&A to be approximately $1.1 billion, but our G&A spend will return to a more balanced quarterly cadence relative to 2021. Given the shape of our anticipated G&A spend throughout 2022 and comparison to 2021, we expect G&A to be a headwind to operating profit growth in the first half and a tailwind to growth in the second half of 2022. Due primarily to these timing factors related to G&A, we are expecting roughly flat core operating profit growth in the first half and high-teens core operating growth in the second half, culminating in full year high-single-digit core operating profit growth in line with our long-term growth outlook.

Finally, on our 2022 effective tax rate, although it’s difficult to forecast with precision, at this time, we continue to believe 21% to 23% is the appropriate range, but there are factors that could move us toward the high end of the range. We’ll continue to provide updates as appropriate. Overall, I couldn’t be prouder of the results for the year.

Looking forward to 2022, I’m confident we’re poised to take share and deliver on our long-term growth algorithm, driven by our expanding competitive advantages tied to our unmatched global scale, investments in our digital ecosystem and world-class franchise partners. I’m looking forward to the year ahead and the continued success of our iconic global brands, while delivering consistent earnings growth for shareholders.

With that, operator, we’re ready to take any questions.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from David Tarantino with Baird. Please go ahead.

David Tarantino — Baird — Analyst

Hi. Good morning. My questions on your outlook for 2022, and Chris, I think you mentioned that you’re planning it to be on algorithm for comps and unit growth. And specifically on comps, 2% to 3%, it looks a little maybe conservative in light of the fact that many of your markets will still be cycling some issues related to COVID, so arguably could see a recovery phase as you move through the year. So I just wanted to ask if you could give some context to that 2% to 3% outlook and whether you view that as a baseline that could prove conservative, or if there are any offsets that we should consider as we think about the year. Thanks.

Chris Turner — Chief Financial Officer

Yeah. Thanks, David. I think we view all of our brands as having strong momentum coming out of 2021. Our long-term growth algorithm is just that it is our long-term algorithm and we feel confident in delivering it in 2022 and beyond. You do have lots of puts and takes around the globe in terms of lapse, in terms of where Omicron is in any of our given markets, but we feel good about the momentum that each of our brands have. And so, we’re always going to strive to deliver the algorithm and find ways to beat it. And so that’s going to be our aspiration, but the long-term algorithm sort of defines the plan.

Operator

The next question comes from Jared Garber with Goldman Sachs. Please go ahead.

Jared Garber — Goldman Sachs — Analyst

Hi. Thanks for taking the question. Actually somewhat of a follow-up to the prior question, just on the comp algorithm as we look to next year. It look like in today’s results, the average weekly sales growth across the brand didn’t exactly line up with sort of the comp growth that there was some noise in between those numbers. And I wonder if that maybe is what’s driving potentially some of that — what David said is some conservatism in the comp algo.

So I just wanted to understand maybe if there is any specific drivers there, if it’s just a lapse on a year-over-year basis in some of these markets or if it’s maybe lower productivity units that are being opened? Any color there would be really helpful. Thank you.

Chris Turner — Chief Financial Officer

Yeah. So, when we think about how same-store sales and net new units add up to overall system sales growth, on that net new unit number, there are always going to be some factors like timing of when the stores open within the quarter, where we see stronger sales or stronger growth in markets that may have slightly different AUVs than the overall average, but that’s what’s driving that difference. But overall, as we say in the algorithm, 2% to 3% same-store sales growth, 4% to 5% net new unit growth, translating to mid to high system sales growth is how we think about it.

Operator

The next question comes from Sara Senatore with Bank of America. Please go ahead.

Sara Senatore — Bank of America — Analyst

Thank you very much. Just a two-part question on the digital sales and some of the technology investments. First, on the digital sales mix, could you just talk about, is that a structurally or a sustainably higher mix? How is that playing out by brand or channel? Is this coming from delivery which is lower margin or order ahead, which is higher margin? Should I think about the shape of the business going forward?

And then, you are investing for Pizza Hut on digital and technology, just give a little more color on this. Is this sort of pass-through where fees show up in revenues and the costs up in G&A or are you kind of investing ahead of the curve to support franchisees and will that likely persist? Thanks.

David Tarantino — Baird — Analyst

Yeah. So, first, if I take the drivers of the $22 billion in digital sales, it’s been broad-based. We’ve seen strength across all of our brands and we’re seeing strength across all of the channels. So, delivery has continued to grow. Carryout has grown over the two years where people are using Click & Collect. And of course, as people have come back to the dining rooms, we’ve seen growth in the kiosk business, which has rebounded at Taco Bell, for example. So we’re seeing strong growth across all of those channels. And of course, on our brand by brand basis, you’ve got real strength in each one.

KFC, if you go ex-China, was up 46%. Taco Bell in the US is approaching 20%. Taco Bell International with a 40% mix and, of course, Pizza Hut is sustaining their strength on digital. So it’s just a really great story. Clearly, those strong digital numbers come as a result of the investments we’ve been making and our strategy around digital because we knew this was the future of the industry.

As we said before, COVID accelerated those trends and we’re glad that we were in a great position to be able to capitalize on it. But whenever you nearly double your digital sales in two years, I think that’s evidence that those investments are paying off. And of course, our franchisees are co-investing with us to help make that happen, but they’re doing that because they’re seeing strong returns from those investments in their business as well. So, I think the overall story is, we’re getting a strong return and we’re very pleased with the digital results and we’re going to continue to drive that.

Operator

The next question comes from Dennis Geiger with UBS. Please go ahead.

Dennis Geiger — UBS — Analyst

Great. Thanks for the question. Wondering if you could talk a bit more about some of the industry challenges in the current environment, even as you’re managing them well, what you’re seeing globally but particularly in the US across staffing impacts on operations and sales? And I guess, more importantly, how do you think over the coming quarters and then going forward some of these industry challenges ease and the headwinds potentially turn to some tailwinds for the business as it relates to hours, etc? Thank you.

David Tarantino — Baird — Analyst

Yeah. Thanks for the question, Dennis. Obviously this is a challenging environment to operate in, in our industry, that’s been well-documented. Q4 was more of the same of that and that extended into the early part of this year.

As far as Omicron goes, in the US specifically, it does feel like we’re moving to a better place. I was just on the phone with our Chief Operating Officers yesterday, comparing notes across brands, and there are some really similar themes of — were past the peak impact of Omicron, applications for team members are starting to come back up. So we think that the challenges and the impact on our restaurant hours may start to slowly abate over time.

As far as the global picture, what we’re seeing internationally is, through most of the COVID pandemic, we had had a more severe impact in our emerging markets. They were less well equipped to deal with the challenges of COVID. That’s starting to change a little bit and we’re starting to see the gap between the developed markets and emerging markets narrow. As you know, YUM has outsized exposure to emerging markets. So even though we put up some amazing numbers over the last two years through this, we’ve been held back by those emerging markets. As that gap starts to narrow, we can see that there can be some strength in emerging markets to help strengthen our overall sales picture internationally, where, of course, two-thirds of our restaurants reside.

But it’s always a challenge to predict and forecast in this environment. We’re all learned that over the next two years. But quite optimistic right now that both internationally and domestically, the business is heading to a better place.

Operator

The next question comes from David Palmer with Evercore ISI. Please go ahead.

David Palmer — Evercore ISI — Analyst

Thanks. Good morning. Heck of a unit growth year in ’21 with 4,200 gross opens and I think it was 6% net unit growth at least as far as an exit rate. I was wondering if you could give a hint as to where you could see globally by brand, by region, some areas of acceleration and perhaps moderation in unit growth? For example, it’s amazing that 1,800 of the 4,200 gross opens were from China and I think there are some people concerned about economic headwinds there. And then you mentioned that Pizza Hut US was no longer a drag to the unit development. So, hoping for some highlights and low lights as you look ahead. Thanks.

David Tarantino — Baird — Analyst

I’m glad you talked about the new unit development, David. For me, it’s an amazing accomplishment of YUM in my 32 years in this business. And I’ve never seen anything like it. Obviously the growth rates are industry records, YUM records, it’s widespread, it’s across all brands, it’s occurring in the vast majority of our countries, which is really encouraging.

And the question about where do we see softness going forward, it’s a great question. I can tell you, there’s no countries that we’re worried about pulling back on development. We see all of our countries that are developing today being able to continue to develop at the pace that they’re at and even accelerate.

India is one I would highlight. We opened 335 units in the country of India on the strength of some development agreements with really great partners across all of our brands. Obviously there is a huge opportunity for YUM in India and one that should be accelerating. But even in the US, we’re starting to see the momentum develop in our Pizza Hut and KFC businesses where we historically haven’t been contributing net new unit growth. We’re optimistic about that.

And Taco Bell US is back to developing at a really fast pace, like in the early days of Taco Bell, we see that accelerate. The Taco Bell International is probably one of the most exciting stories we have right now. We’ve talked about it a lot and you’re seeing over 160 net new units built on a base of 600 entering the year, that’s a 26% growth, that’s pretty impressive, and we see that accelerating. Spain, for example, passed 100 units on the ground. We know when you get to that 100 unit tipping point, we see an acceleration but we have other markets poised to do the same.

Operator

The next question comes from John Ivankoe with JPMorgan. Please go ahead.

John Ivankoe — JPMorgan — Analyst

Hi. Thank you. And I apologize if I missed this. Have you gone back and looked at the fourth quarter system sales and determined how much the labor environment may have actually constrained system-wide sales growth? Whether that’s in the US or global, it’s up to you how we talk about that just in terms of having less hours in the store than you would have — labor hours in the store than you would have liked? Are you actually having less store hours than you would have liked, perhaps even dayparts in certain cases than you would have like? I guess this is the first part of the question.

And then, secondly, we talked about easy operations and you mentioned a few things that you were doing at the store to help your franchisees. Are any at the point now where stores can be more efficient from a labor perspective where they can do the same or even more customer counts on a reduced level of labor or might that come from future initiatives that you’re working on? Thanks.

Chris Turner — Chief Financial Officer

Yeah. Great questions, John, on the labor front. As David mentioned earlier, it’s obviously been a challenging environment, but kudos to our teams, our franchisees for navigating through that. And I’m thankful that we have such a strong culture that goes from top to bottom to our stores in YUM that our franchisees help bring to life. So if we think about your specific question on how it impacted our sales in Q4 and coming into Q1, first, it’s important to put this in context that these labor challenges are most pronounced in the US, and of course US is 40% of our business. There are a couple of markets, say, the UK, Australia that are also experiencing some pressures, but they’re most pronounced in the US.

So, our global footprint provides us a natural advantage in this type of environment. But obviously, let’s dig into the US where we know those challenges have been tough. We did see some constriction of hours across the brands in Q4 as our franchisees dealt with the Omicron impact on staffing availability. The nature of that impact varied from brand to brand. For example, in Pizza Hut, you saw it really constrained delivery hours because of the challenges in staffing those driver positions. I think it’s been well documented that’s a challenge for the pizza category. And we’ve seen other folks talk about the challenge but that’s an area where it’s particularly pronounced coming into early January.

I think the good news is, we believe, as David said, that we’re past the peak probably two or three weeks ago and things that were talking to our COOs yesterday have gotten significantly better in the last couple of weeks. All of that has had a small but real impact on sales, but again trend coming out of that’s much better. I will say that in terms of dealing with it, our franchisees have been focused on all the levers that you would expect. We think the one that differentiates us is the culture that we have in restaurants that causes our team members to want to stay.

Second part of your question around efficiencies. I think the Taco Bell example of how we’ve driven more volume through drive-thrus while reducing service times is the best example of how we’re bringing efficiency to life in the restaurants. We are doing a number of things on the technology front, whether it’s Dragontail or other systems, we have an innovation team that’s in place. And of course, our core ops process teams are always improving processes in the restaurants. So things are in motion, there are things that have been implemented, and in the long run, we think there’s a lot more to come.

Jodi Dyer — Vice President, Investor Relations

Operator, we have time for one more question.

Operator

Thank you. The last question comes from John Glass with Morgan Stanley. Please go ahead.

John Glass — Morgan Stanley — Analyst

Thanks. Good morning. I wanted to ask about KFC International. I was struck by how strong the comps were on a one and two-year basis despite the fact that China was down 12%. David, I know you’ve commented earlier about some of those key markets, but just maybe unpack that a little bit in terms of what offset that decline in China, which is an incredibly important market for KFC? And if you’re willing to talk about how you think about the China recovery and your plans for ’22 just broadly, is it a recovery story and is that embedded in your plans or not?

David Tarantino — Baird — Analyst

Yeah. As far as KFC International, obviously that’s a really positive story for us and more than most benefits from that turnaround in some of our emerging markets. You saw markets like India put up some really incredible numbers as they’ve recovered from COVID. And it also gives us confidence that some of these markets as we get more on the other side of COVID are going to really start to take off.

Yeah, look, this idea of forecasting specific countries and how they’re going to do, I think the benefit of YUM’s model is how diverse we are across brands, across countries all around the world, we’re not reliant on any one country. I’m glad you pointed out that even with softness in China that we can put out numbers like we did this quarter. And we think that’s the exciting part of the business as we head into 2022.

We’ve got the diverse business model that is stronger than ever. We’ve been through over the last two years some amazing challenges, but all they’ve done is really proven that our business is resilient, that our talent is the best in the industry and that our business model is one that franchisees want to invest behind in a huge way. You saw that in the numbers this quarter on net new units. That gives us a lot of confidence in our ability to maintain top-line momentum and profit strength as we go forward. And truly, the team is incredibly excited about the future.

Thank you all for your time today on the call. We look forward to talking to you and sharing Q1 results.

Operator

[Operator Closing Remarks]