By Juveria Tabassum and Savyata Mishra
(Reuters) -Burger King parent Restaurant Brands (NYSE:QSR) and KFC owner Yum Brands missed market estimates for quarterly results on Tuesday, hit by choppy demand in the United States and abroad from budget-stretched customers.
Rising fast-food prices over the past year have prompted consumers to cook cheaper meals at home and avoid eating out, hurting traffic across the industry.
As a result, quick-service restaurant (QSR) chains have turned to aggressive promotions in an attempt to attract value-seeking customers. Burger King, McDonald's (NYSE:MCD), KFC and Wendy's (NASDAQ:WEN) have all launched $5 value meals since June this year to get lower-income customers back into their outlets.
"This is a challenging situation for the QSR market. I don't think anybody's going to be out of trouble anytime soon, but they're doing something that seems to be working to at least stop the deceleration in traffic," said Danilo Gargiulo, senior analyst at Bernstein.
Burger King's U.S. sales declined 0.4% in the quarter ended Sept. 30, compared with a 6.6% rise last year.
Intense sector-wide promotions made it difficult for Burger King's Fiery menu option "to cut through all the value messages in the market", Restaurant Brands CEO Joshua Kobza said on a post-earnings call.
KFC's same-store sales in the U.S. tumbled 5% in the same period, marking the third straight quarter of declines this year.
McDonald's last week reported a bigger-than-expected drop in global comparable sales and flagged weakness in international markets such as France, Britain and the Middle East.
INTERNATIONAL WEAKNESS
A challenging economic recovery in China and weak demand in the Middle East from boycott campaigns related to the Israel-Hamas conflict have worsened the sales hit to restaurant operators.
Yum Brands, which also owns Pizza Hut and Taco Bell, saw worldwide same-store sales decline 2%, while Popeyes parent Restaurant Brands reported a comparable sales rise of only 1.8% for its international segment, compared with 7.7% last year.
Yum executives said on a post-earnings call that several international markets, including China and India, became "more intentional in offering value", causing the company to shift to lower price points.
"Our sales didn't meet expectations in a few key markets, including China and the Middle East, where we have outsized exposure, and as a result, we tempered our expectations in the fourth quarter," they said.
Burger King recorded soft demand in France, coupled with weakness in China and the Middle East.
Last week, McDonald's executives said they expect the Middle East conflict to keep hurting their business for as long as the war continues.
Toronto, Canada-based Restaurant Brands earned 93 cents per share on an adjusted basis, missing analysts' estimates of 95 cents, according to data compiled by LSEG. Excluding items, Yum logged a profit of $1.37 per share, missing expectations of $1.41.
U.S.-listed shares of Restaurant Brands were down about 3% in early trading on Tuesday, while Yum was about 1% higher.