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Doritos tacos put sizzle in Taco Bell's US sales

By Bruce Schreiner

Associated Press

Published: Thursday, April 19 2012 11:55 a.m. MDT

This undated image provided by Taco Bell shows an advertisement for Doritos Locos Tacos shells.

Taco Bell, Associated Press

Enlarge photo»

LOUISVILLE, Ky. — Taco Bell's new take on the taco, featuring orange Doritos dust, has helped put the sizzle back in its U.S. sales after a nearly yearlong slump stemming from a short-lived lawsuit that caused the chain some queasiness.

Sales at Taco Bell stores open at least a year — an indicator of a restaurant chain's health — rose 6 percent in this year's first quarter. Its parent company, Yum Brands Inc., on Thursday predicted even more robust sales gains for the Mexican-style chain in the current second quarter.

Yum Chief Financial Officer Rick Carucci predicted sales growth in the high single digits or low double digits.

Taco Bell's introduction of Doritos Locos Tacos in early March has been "enormously successful," Carucci told industry analysts Thursday, one day after Yum reported sharply higher first-quarter earnings on the strength of robust overseas sales and a rebound in its U.S. performance.

Rollout of tacos that use shells made of Nacho Cheese Doritos came late in the first quarter, so their full impact will be felt in the current quarter. Taco Bell also said at the time of the rollout that Cool Ranch flavored shells are in the works.

Louisville-based Yum also owns KFC and Pizza Hut, which also had sales gains at established stores in the first quarter. Yum's operating profit in the U.S. jumped by 27 percent in the first quarter as it looks to reverse its recent domestic struggles.

Taco Bell accounts for about 60 percent of U.S. profit for Yum, so its slump put a dent in the company's performance.

Taco Bell was knocked on its heels by the bad publicity generated by a lawsuit early last year that alleged the meat filling served at its restaurants didn't have enough beef to be called that. Taco Bell denounced the claim as false and spent millions to defend its filling and shore up its image.

The suit was dropped about three months after it was filed by an Alabama law firm. But the chain's sales struggled for months afterward.

Now, the California-based chain known for its hip advertising and late-night snacking aimed at young men seems to have its mojo back.

It's expanding its menu and entering the highly competitive breakfast business.

The chain introduced its breakfast menu early this year at about 800 restaurants, mostly in the Western U.S. It plans to expand breakfast to 200 more stores in the second half of 2012, Yum Chairman and CEO David C. Novak said Thursday. The chain has said previously that if the launch goes well, it hopes to begin selling breakfast burritos and hash browns at its more than 5,600 locations nationwide by 2014.

The chain also is testing a Cantina Bell line of more upscale foods created by celebrity chef Lorena Garcia.

"We're looking to broaden the appeal of the brand," Novak said. "We think this is going to extend the breadth of the appeal of the brand, make us more mainstream with both male and female target audiences."

The long-term strategy, he said, is to expand Taco Bell's reach in the U.S. The goal is to raise the number of U.S. restaurants to 8,000, he said.

"We think we can be a significant new unit developer in the United States as we improve our unit economics," he said.

Meanwhile, Yum continued its fast-paced international expansion in the first quarter, adding 297 new restaurants. It opened 168 new stores in its key China market, a record for the quarter.

Yum expects to open more than 1,500 new international units in 2012, including at least 600 in China, Carucci said.

Strong growth in overseas sales, especially in China, has been a key growth driver for Yum along with rapid restaurant expansion.

Operating profit in China rose 14 percent in the first quarter, adjusted for currency fluctuations. In the international division, which excludes China and India, operating profit rose 9 percent, adjusted for currency fluctuations.

A slowdown in China's economic growth hasn't shown up in Yum's stores, Carucci said.

Besides the rapid expansion, Novak said, the company has strong potential for volume growth at its existing restaurants in China, where KFC is a leading fast-food brand and Pizza Hut has developed a strong foothold.

Yum's shares were down $1.34, or 1.8 percent, at $71.60 in midday trading.

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