By Neil J Kanatt
July 30 (Reuters) - Taco Bell's sales hit from the Cyclospora outbreak is beginning to ease, Yum Brands executives said on Thursday, reassuring investors that the fallout would be temporary
and lifting the stock about 4% in early trading.
U.S. same-store sales at Taco Bell outlets, which were first linked to the outbreak earlier this month, are down 2% so far this quarter, with a peak drop seen in mid-July, Yum executives said on a post-earnings call,
"Elevated uncertainty initially weighed on consumer demand, and since then, consumers have become increasingly aware that this is an industry-wide issue, not an issue specific to Taco Bell," CEO Chris Turner said.
Shares of peer Chipotle Mexican Grill jumped 11% on Thursday, a day after the company raised its annual forecast despite warning that the current quarter could be its toughest of the year as the outbreak dented consumer confidence in eating out. Chipotle has said products linked to the outbreak were not used in its menu items.
Cyclospora is a foodborne parasite that causes cyclosporiasis, an intestinal illness. The outbreak, one of the largest foodborne illness incidents in the United States in recent years, has become a closely watched test of how quickly restaurant chains can rebuild consumer trust after a food safety scare.
Brand and crisis-management experts have said lasting damage to Taco Bell is likely to be limited if the illness is contained swiftly and communication remains transparent.
The peak impact on domestic comparable sales at the chain was on July 18, Yum CFO Ranjith Roy said, with "relatively steady recovery" observed since.
Foot traffic at the chain has declined every day since July 13. Visits were down 20.8% on July 23 compared with the average for Thursdays between January 1 and July 6, according to Placer.ai data.
Taco Bell has been Yum's primary growth engine, drawing customers with its value-focused Tex-Mex offerings at a time when budget-conscious consumers have been cutting back on discretionary spending, making the traffic slowdown particularly important for investors.
"The near-term decline is significant, but not as bad as it could have been," eMarketer analyst Rachel Wolff said, adding that it's likely the chain will have to lean more heavily on promotions in the short term to encourage cautious diners to return.
For the second quarter ended June 30, Taco Bell same-store sales rose 7%, compared with 4% a year earlier.
Yum reported a 3% rise in comparable sales, in line with analysts' expectations and up from 2% growth a year earlier.
The company, which is set to sell its Pizza Hut chain in a $2.7 billion deal, also posted 2% same-store sales growth at KFC.
Yum's quarterly adjusted earnings per share of $1.62 beat estimates of $1.58, according to data compiled by LSEG.
(Reporting by Neil J Kanatt in Bengaluru and Waylon Cunningham in New York; Editing by Anil D'Silva)
