Yum! Brands Q1 Earnings

Yum! Brands, Inc. (NYSE: YUM) today reported results for the first-quarter ended March 31, 2020. Worldwide system sales excluding foreign currency translation declined (3)%, with 4% net-new units and (7)% same-store sales decline. First-quarter GAAP EPS was $0.27, a decrease of (68)%. First-quarter EPS excluding Special Items was $0.64, a decrease of (23)%.

DAVID GIBBS COMMENTS

David Gibbs, CEO, said “First-quarter results reflect two different realities. We began the year with momentum across many of our businesses, however as the quarter progressed we were heavily impacted by the unfortunate spread of COVID-19. Around the world, we took extraordinary measures to protect the health and safety of our employees, customers, franchisees and restaurant team members. We partnered with our franchise operators on our shared mission during this global crisis to provide affordable, convenient food in a safe, low contact environment with drive-thru, curbside carryout, and contactless delivery all enabled by our digital capability. As a result, our restaurants around the world remain largely open for business, serving customers and supporting frontline workers and other essential workers in our communities.

I’m tremendously proud of all those executing across our company and franchise system and am encouraged by the second-quarter sales trends of many of our businesses in Asia and in the U.S. Over the previous three years, we transformed Yum! to be a stronger company for its stakeholders and believe we are well positioned to weather this unprecedented crisis owing to the strength of our system-wide talent, operating capabilities, global best practices, and our healthy balance sheet and liquidity position.”

FIRST-QUARTER HIGHLIGHTS

• Worldwide system sales excluding foreign currency translation declined (3)%, with KFC at (2)% and Pizza Hut at (9)%, offset by Taco Bell at 4%.
• We opened 65 net units and acquired 276 Habit Burger Grill units for 4% net unit growth.
• We recorded $22 million of pre-tax investment expense related to the change in fair value of our investment in Grubhub, which resulted in a negative ($0.06) impact in EPS on the quarter. When coupled with $20 million of pre-tax investment expense recorded in the first-quarter of 2019, which resulted in a negative ($0.05) impact to EPS, our Grubhub investment unfavorably impacted year-over-year EPS growth by ($0.01).
• Foreign currency translation unfavorably impacted divisional operating profit by $6 million.

All comparisons are versus the same period a year ago.

System sales growth figures exclude foreign currency translation (“F/X”) and core operating profit growth figures exclude F/X and Special Items. Special Items are not allocated to any segment and therefore only impact worldwide GAAP results. See reconciliation of Non-GAAP Measurements to GAAP Results within this release for further details.

KFC DIVISION

• KFC Division opened 333 gross new restaurants in 44 countries.
• Operating margin decreased 2 percentage points driven by lower same-store sales and higher bad debt expense, partially offset by net new unit growth.
• Foreign currency translation unfavorably impacted operating profit by $5 million.

PIZZA HUT DIVISION

• Pizza Hut Division opened 127 gross new restaurants in 33 countries.
• Operating margin decreased 7.4 percentage points driven by lower same-store sales and higher bad debt expense.
• Foreign currency translation unfavorably impacted operating profit by $1 million.

TACO BELL DIVISION

• Taco Bell Division opened 55 gross new restaurants in 9 countries.
• Operating margin increased 0.7 percentage points driven by lower G&A and same-store sales growth.

OTHER ITEMS

• Disclosures pertaining to outstanding debt in our Restricted Group capital structure will be provided at the time of the filing of the first-quarter Form 10-Q.
• On March 18, 2020 we acquired The Habit Restaurants, Inc. (“Habit”) for total cash consideration of $408 million, net of cash acquired. We have reflected the ongoing results of Habit’s operations from March 18, 2020 through March 31, 2020 in our financial statements for the quarter ended March 31, 2020. These ongoing results had an insignificant impact on our Core Operating Profit and EPS before Special Items. Additionally, we have included the system sales of Habit for the period from March 18, 2020 through March 31, 2020 in our consolidated system sales and reflected the Habit’s same-store sales results for this same period in our consolidated same-store sales results for the quarter ended March 31, 2020. Neither our consolidated system sales growth nor our same-store sales results were significantly impacted by the inclusion of Habit.
  • For the first-quarter and for informational purposes only, Habit had a same-store sales decline of 9% for the period January 1, 2020 through March 31, 2020.
• As a result of the impacts of the COVID-19 pandemic on Habit’s results through March 31, 2020 as well as general market conditions, we have recorded an after-tax impairment charge related to the goodwill arising from the preliminary purchase price allocation associated with our Habit acquisition of $107 million. We have reflected this impairment as a Special Item, resulting in a Special Item EPS charge of approximately $0.35.
• On March 24, 2020, we borrowed $525 million under the Revolving Facility as a precautionary measure in order to preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 pandemic. This borrowing, together with $425 million borrowed under the Revolving Facility on March 18, 2020 to fund amounts associated with the acquisition of Habit, resulted in an aggregate of $950 million outstanding under the Revolving Facility as of March 31, 2020.
• On March 24, 2020, we announced a suspension of our previously announced share repurchase program, pursuant to which the Board of Directors authorized repurchases up to $2 billion of common stock through June 30, 2021.
• On April 1, 2020, subsequent to the end of our first-quarter, we issued $600 million of Senior Unsecured Notes. Proceeds from the Notes offering will be used to pay the fees and expenses of the offering and for general corporate purposes.