Chris Turner
Chief Financial Officer at Yum! Brands
Thank you, David, and good morning, everyone. Today, I'll discuss our financial results, our bold restaurant development and unmatched operating capability growth drivers followed by an update on our balance sheet and capital strategy.
I'll begin by discussing our strong results for Q3. We achieved 10% system sales growth, driven by 6% same store sales growth and 6% unit growth. Our digital sales channels continue to grow with digital sales setting another record this quarter, exceeding $7 billion, an increase of more than 20% year-over-year. Core operating profit grew an impressive 16%. Taco Bell delivered another quarter of exceptional performance, achieving 24% restaurant-level margins while simultaneously driving transaction growth.
Global ex-special general and administrative expenses were $263 million lower than expected in part due to timing, with some expenses shifting into the fourth quarter. Our ex-special tax rate of 19% was lower year-over-year. Lastly, our EPS, excluding special items, was $1.44 per share. Ex-special EPS was positively impacted by $0.05 of unrealized investment gains related to our investment in Devyani.
I'd now like to give a little bit of color on the remainder of the year. We're proud to say that we continue to expect that our results will land well above our long-term growth algorithm for the full year, including achieving low double-digit core operating profit growth. On the fourth quarter specifically, we now expect an operating loss at Habit of approximately $10 million, largely driven by restaurant asset impairment charges which will be higher than we had initially expected due to anticipated impacts from the California Assembly Bill 1228, previously referred to as the FAST Act. Even with the previously mentioned timing shift of G&A expenses, we still expect fourth quarter G&A to be slightly lower year-over-year.
Moving to reported operating profit, we now expect foreign currency translation to represent a $45 million to $55 million headwind on a full year basis. Finally, we expect our ex-special full year tax rate to land at approximately 20%.
Next, I'll cover our Bold Restaurant Development growth driver. We are on track to finish 2023 with net new unit development similar to the record-breaking performances of the last two years. This quarter's 6% growth in unit count led by a Q3 record of 1,130 gross new openings across 65 countries, reflects the continued success of our multi-year effort to accelerate development across our brands. By now, you've seen the announcement at Yum China's recent investor conference, raising their unit growth expectations for our brands in China. This announcement highlights continued strong returns on new restaurant development in our brands in combination with the best-in-class development capabilities that Yum China's leadership team have built in the market.
More broadly, we continue to see excitement for our brands all around the world. As an example, in Vietnam, a market with a high population but relatively low Yum restaurant penetration, our unit count increased by over 40 units versus last year, reflecting 16% growth. In total, this quarter, KFC achieved 8% unit growth, including 664 gross new units, a Q3 record for the brand. This was led by Yum China, along with our franchisees in India, Sapphire and Devyani, and IS Holdings in Turkey. At Pizza Hut, we opened 383 gross new units with more than 30 markets contributing to this growth. Our Taco Bell Division opened 74 gross new units, led by the U.S., China, and India.
In the midst of a higher interest rate environment, our world-class 3C franchise partners are stepping up and investing to grow share. One of those exceptional franchisees is the Serrano Group, our partner for KFC in multiple countries in Latin America. In just the past three years, the Serrano Group has opened over 100 net new units, quadrupling their store count from the past 10 years and building world-class assets that reflect how dynamic and tech forward our brand is in this region.
Building a network of growth-minded franchise partners is no easy task. It requires persistent effort to identify and engage with like-minded partners to consistently deliver on brand standards, growth ambitions and mutually shared financial objectives, all of which add up to long-term profitable growth for all parties and a competitive advantage for our brands.
While we focus on having the right partners, we also work to ensure we have the right restaurant formats and economic models in place. All of our brands are laser-focused on delivering industry-leading franchisee returns by continuously optimizing new store capex as well as maintaining a flexible portfolio of formats that meet the unique needs of each trade zone in which we operate.
Taco Bell's newest small box design, Go Mobile 2.0, now open in El Paso, Texas, builds on the original Go Mobile concept. This new design leverages digital capabilities to create more touch points for consumers to order and pick up in a seamless manner.
Moving on to our unmatched operating capability growth driver. We continue to focus on delivering a seamless digital experience for our consumers, enabling easier operations for our team members and harnessing our expansive data to make fast and informed decisions. We frame up this approach through three lenses: Easy Experiences, Easy Operations, and Easy Insights.
Within Easy Experiences, we successfully rolled out the Yum! Commerce Platform to the Taco Bell's system last quarter and are in the process of rolling the platform out to the Pizza Hut U.S. system, transitioning our brands on to Yum! owned platforms allows us to scale new capabilities at a rapid pace and build out an ecosystem of proprietary platforms that are designed to work together in a secure and seamless fashion. Our primary focus is to deliver leading-edge capabilities to our franchisees with advantaged economics. And our franchisees continue to co-invest with us as we develop and roll out our solutions.
One exciting area of growth is the implementation of in-store kiosks. We now have kiosks in nearly 40% of KFC stores outside of China, all of our Taco Bell U.S. locations, excluding licensed stores and almost 70% of our Habit locations. Looking forward, for our KFC stores outside of China, we expect to drive a 20-point increase in our kiosk penetration next year on the way to reaching the vast majority of stores by the end of 2026. Kiosks not only drive a higher check compared to our traditional front counter, but also drive higher margins through operational efficiencies and generate new opportunities to leverage customer data and create personalized ordering experiences.
Within Easy Operations, we're on track to have our recommended ordering technology, which we're calling AIM, or automated inventory management, rolled out across our KFC U.S. system by year end. As a reminder, this is an in-house developed AI module that predicts and suggests the quantity of each product a restaurant general manager should order. We now have AIM in place at over 7,000 U.S. restaurants, including 2,700 KFC U.S. restaurants added over the past quarter.
There is also great momentum behind the Dragontail rollout. We have deployed Dragontail, an AI-driven production and delivery sequencing platform, to nearly 1,400 Pizza Hut U.S. stores as of the end of the quarter, and are on track to have Dragontail deployed to around 8,000 restaurants globally by year end, further proof of our unique ability to scale Yum! owned technologies around the world. We have made significant progress in 2023, building, testing and refining our proprietary technology platforms. In 2024, we will further scale these platforms and continue to realize the value of our owned tech ecosystem.
Finally, we are excited about the new technologies. Our RED innovation team is in the early stages of piloting in restaurants to support our franchisees and free up team member time to allow them to focus even more on delivering world-class customer experiences.
First, we are testing a voice-enabled AI drive-thru platform in a couple of our restaurants in California that elevates the drive-thru experience, increases speed, productivity and efficiencies, and generates automated upsell recommendations. Second, we have developed a proprietary automated drinks fulfillment system that frees up team member time and increases drive-thru speed and accuracy. We've designed these technologies to integrate seamlessly with our proprietary designed point-of-sale platform, and we look forward to continuing to test, refine and pilot these capabilities.
Wrapping up with our Easy Insights pillar. I'm very excited by the progress we have made in building the infrastructure and engineering capabilities required to harness the power of our global data assets. We continue to expand the Yum! global data hub, which captures the vast majority of global transaction-level sales data and other key operational and customer metrics. We believe this centralized hub is a key asset and differentiator for Yum! as we develop leading AI capabilities. In 2024, our Easy Insights team will develop and test new AI-driven capabilities that pull from the global data hub and integrate into our owned technology platforms.
Some examples of these AI-driven capabilities include personalized upsell recommendations for customers ordering on our digital platforms, intelligent menu pricing recommendations, and dynamic restaurant routines for restaurant general managers. Finally, we will begin activating our U.S. cross-brand customer data platform in Q4 and throughout 2024. This cross-brand platform gives us unprecedented visibility into the ordering behaviors of millions of customers across our four brands and will also be a breakthrough source of learnings for Collider, the high impact boutique insights consultancy that we acquired in 2015.
Lastly, I'll provide an update on our balance sheet and capital strategy. As a reminder, our capital priorities remain unchanged, invest in the business for the long-term, maintain a resilient balance sheet, pay a competitive dividend, and maximize shareholder value by returning excess capital through debt paydown and share repurchases.
Net capital expenditures for the quarter were $31 million, reflecting $57 million in gross capex and $26 million in refranchising proceeds. Our net leverage ratio ended the quarter at 4.4 times. Furthermore, our current outstanding debt has a weighted average maturity of six years and our greater than 90% fixed debt ratio remains highly attractive in the current market environment.
To wrap up, we're very proud of the results in this quarter. We are on a clear path to achieving double-digit core operating profit growth for the full year. We continue to strengthen our position as the global franchisor of choice, a testament to the success of our business strategies and industry-leading talent. We're proud of our incredible continued momentum on unit development and are excited as we further accelerate our tech deployments and AI initiatives to meet the demands of consumers both today and tomorrow.
With that, operator, we are ready to take any questions.
