David Gibbs
Chief Executive Officer at Yum! Brands
Thank you, Jodi, and good morning, everyone. I'm excited to share our strong second quarter results as we delivered record second quarter unit development and 23% same-store sales growth. Importantly, each division reported positive same-store sales growth on a two-year basis, a step up from first quarter trends. This sustained momentum was underpinned by our investments in digital and off-premise and the adaptability of our brands to meet the needs of consumers in an ever-changing environment.
Though COVID obviously creates a more challenged operating environment, our confidence is stronger than ever in our ability to navigate the resulting uncertainties and in the long-term growth potential of Yum!. As a result, we are reinstating our long-term growth algorithm with one important change. We are raising our previous guidance of 4% unit growth to between 4% and 5% unit growth.
As a reminder, our long-term growth algorithm includes 2% to 3% same-store sales growth and mid to high single-digit system sales growth leading to high single-digit core operating profit growth.
The diversification of our global portfolio, the resilience of our business model, and the agility of our teams are allowing us to compete and win in a full range of market conditions, including both those markets with accelerated recovery and markets still heavily impacted by COVID. Looking forward, our iconic brands and unmatched scale, in combination with the world-class talent in our restaurant teams, franchisees, and above-store leaders, have uniquely positioned us for sustained growth.
Now we'll discuss our Recipe for Growth and our Q2 performance and the growth drivers that underpin it. To start, I'll cover two growth drivers, namely Relevant, Easy and Distinctive brands or RED for short, and unrivaled culture and talent. Then Chris will share more details of our Q2 results, our unmatched operating capability, and Bold Restaurant Development growth drivers and our strong liquidity and balance sheet position.
First, a few highlights from the quarter. In Q2, Yum! system sales grew 26%, driven by 23% same-store sales growth. Importantly, same-store sales grew 4% on a two-year basis, which includes the impact of approximately 700 or about 1% of our stores being temporarily closed due to COVID as of the end of Q2 2021. This was driven by continued strong sales momentum in North America, the U.K., and Australia, with improved performance in Europe as it began to reopen and show signs of recovery.
As I mentioned earlier, each of our brands delivered positive two-year same-store sales growth on a global basis, including the impact of temporary closures, and each brand also reported an improvement in the two-year trend from Q1. This is a great indicator for the sustained strength and breadth of our recovery. Even more exciting is the extremely strong net new unit growth of 603 units that we delivered during the quarter, which was both broad-based and record-setting.
Looking across the more than 150 countries in which we operate, we've seen that while the overall global trend is positive, the recovery will neither be consistent from country to country nor linear within a country. This insight reinforces the competitive advantages of our diversified portfolio and our ability to serve customers through multiple on and off-premise channels. We've seen that increased customer mobility driven by reopening trends and vaccinations contributed to strong performance in many of our markets.
A key growth driver for our business and priority for our teams is the continued acceleration of our digital and technology initiatives across the globe, geared towards providing customers with new and seamless ways to access our brands.
Even as economies continue to reopen, the importance of the off-premise occasion remains a top priority. We delivered a second quarter record with over $5 billion in digital sales, a 35% increase over the prior year. Even more exciting, for the first time, on a trailing 12-month basis, we delivered more than $20 billion in digital sales. We believe these sales are highly incremental and result from our investments in our digital and technology ecosystem, which enable our teams to deliver an even more RED customer experience.
To bring the impact of our digital efforts to life, I want to share a few proof points. The Taco Bell U.S. launch of our Taco Bell rewards program in 2020 has continued to grow digital sales for the brand with features such as loyalty member exclusives and early access to crave-worthy promotions. We're incredibly excited by the early results from the program and the future growth opportunity that remains. We're seeing significant uptick in frequency and higher spend per visit, leading to an increase in overall spend of 35% for active customers in the Taco Bell rewards program compared to their pre-loyalty behavior.
As another example, at KFC U.S., we launched our internally built KFC e-commerce website and app in early 2021, replacing our previous third-party solution. As a result, our 2021 digital sales are on pace to soon surpass last year's full-year digital sales amount.
Now let's talk about our RED Brands. Starting with the KFC division, which accounts for approximately 51% of our divisional operating profit, Q2 system sales grew 35%, driven by 30% same-store sales growth and 5% unit growth. For the division, Q2 same-store sales grew 2% on a two-year basis, which includes the impact of about 1% of our stores being temporarily closed as of the end of Q2 2021.
At KFC International, same-store sales grew 36% during the quarter. Same-store sales declined 1% on a two-year basis, which includes the impact of about 2% of our stores being temporarily closed as of the end of Q2 2021. We had truly outstanding results in March, leading the recovery with double-digit two-year same-store sales growth in the U.K., Australia, Canada, and the Middle East.
Our strong off-premise capabilities, digital strength, and value offerings have continued to meet shifting consumer demand around the globe and there is opportunity for continued recovery as reopening and mobility increases globally.
Next, at KFC U.S., we continued to see strong momentum, with 11% same-store sales growth in Q2. Importantly, same-store sales grew 19% on a two-year basis, owing to the continued strength of our group occasion business, the digital capabilities mentioned earlier, and our new chicken sandwich. Our chicken sandwich performed exceptionally well and provides us with a solid platform to drive additional sales layers in the future.
Moving on to Pizza Hut, which accounts for approximately 17% of our divisional operating profit. The division reported Q2 system sales growth of 10%, driven by 10% same-store sales growth. While the division had a 3% unit decline versus last year, driven by the elevated COVID-related dislocations and closures of 2020, it has sustained its positive 2021 development momentum, delivering 1% unit growth relative to Q1. Global Q2 same-store sales grew 1% on a two-year basis, which includes the impact of about 2% of our stores being temporarily closed as of the end of Q2 2021.
Overall, Pizza Hut International same-store sales grew 16%. Same-store sales declined 6% on a two-year basis, which includes the impact of about 2% of our stores being temporarily closed as of the end of Q2 2021. Importantly, the off-premise channel achieved 21% same-store sales growth on a two-year basis for the quarter and delivery continued to be the primary driver of growth as the shift towards an off-premise model continues in most of our Pizza Hut markets.
The top line results from our Australia, Canada, Malaysia, and our U.K. delivery business are shining examples of what it means to nail the RED Brand strategy. These markets continue to unlock off-premise growth opportunities through a focus on value and innovation, a digital-first customer experience, and distinctive communications with the help of our magnetic ambassadors, spokespeople who bring our brand to life across the world.
At Pizza Hut U.S., we continue to see positive same-store sales with 4% overall same-store sales growth. On a two-year basis, the off-premise channel grew 18% and overall same-store sales grew 9%, which includes the impact of about 1% of our stores being temporarily closed as of the end of Q2 2021. Pizza Hut also delivered strong product news with the continued success of our iconic stuffed crust pizza and the successful return of a consumer favorite, the Edge Pizza during the quarter.
As for Taco Bell, which accounts for approximately 31% of our divisional operating profit, Q2 system sales grew 24%, driven by a 21% same-store sales growth and 2% unit growth. For the division, Q2 same-store sales grew 12% on a two-year basis. The quarter kicked off with the return of the Quesalupa as part of the fan-favorite $5 Chalupa Cravings Box, followed by the relaunch of the iconic Naked Chicken Chalupa.
In May, we launched our first-ever global brand campaign, #ISeeATaco, in which fans could score a free taco when the moon looked like a taco. We generated over 2 billion impressions and step-change brand awareness, especially in our international markets where we have a tremendous run rate for growth.
And finally, the Habit Burger Grill delivered 31% same-store sales growth and 6% unit growth. Q2 same-store sales grew 7% on a two-year basis. Importantly, digital sales continued to mix over 35%, only a modest pullback from Q1, even as dining rooms continued reopening and dine-in sales saw a steady improvement throughout the quarter.
On the innovation front, we introduced the Brunch Charburger during the quarter, a unique all-day breakfast offering that included crisp golden tots, house-made secret sauce and a freshly cracked egg.
In addition to providing customers with a seamless experience to access our brands, we continue to invest in restaurant technology initiatives that make it easier for our team members to operate and run a restaurant.
As previously announced in the quarter, we've agreed to acquire Dragontail Technologies, a cutting-edge restaurant technology company, whose platform is focused on optimizing and managing the entire food preparation process from order through delivery, including automating the kitchen flow, driver dispatch, and customer order tracking. The acquisition is subject to various approvals and we expect to close by the end of the third quarter. We will not be able to comment further on Dragontail today, but you can find additional information in the May 26 press release.
An important factor of RED Brands is having a positive impact and the desire to make good easy for customers. Our Recipe for Good framework focuses on our commitment to investing in the right recipe today.
We were proud to publish our 2020 Recipe for Good report this week, which highlights our strategic investments in socially responsible growth and sustainable stewardship of our people, food and impact on the planet. The report includes updates on our key commitments on critical issues like climate change and equity and inclusion. I'm confident that our plans in these areas have the right ingredients for us to succeed and make a positive impact for our people, franchisees, customers, and communities.
Now to unrivaled culture and talent. Two of our key assets are our iconic brands and the people that bring our brands to life around the world every day. As I've mentioned in previous quarters, COVID has further strengthened the collaboration partnership across our entire system. A great example of this is our relationship with our independent supply chain purchasing co-op in the U.S., RSCS.
Many of you probably saw the recent announcement that the CEO of RSCS, Steve McCormick has made the decision to retire in early 2022 and that RSCS Chief Operating Officer, Todd Imhoff, was unanimously selected to succeed Steve in the role of CEO. Steve has had a tremendous and positive impact on our business for nearly a decade and our entire system is grateful for his leadership. At the same time, Todd is the right leader to step into this role and lead the RSCS moving forward as it continues to provide a true competitive advantage for our entire U.S. business.
Our unrivaled culture and talent has always been a towering strength of Yum! and I'm incredibly proud of our ability to bring our brands and people together in ways we haven't in the past.
During the quarter, we hosted several virtual meetings where we fostered collaborations on a global scale for our franchisees and teams, including marketing, planning meetings, ops, development programs, a global finance summit, leaning with leaders sessions, and companywide chats just to name a few. It's during these meetings that we realize we are all more alike than we are different and the power that our brands and our culture have to bring people together.
To wrap up, I'm pleased with the sustained momentum in our business and the agility we've shown in the last year and I'm optimistic that we are set up to win. Our results demonstrate the resilience of our diversified global business and confidence in our strategies, which are fueled by the underlying health of our franchise system. We are poised to accelerate growth and maximize value creation for all our stakeholders for years to come.
With that, Chris, over to you.
