Yum Brands Ends 2019 Strong, but China Virus Will Hurt Sales

February 7, 2020

KFC owner Yum Brands ended 2019 with better-than-expected sales, but the impact of the new virus in China could weigh heavily on its first quarter results.

Yum China Holdings — a separate company that pays royalties to Louisville, Kentucky-based Yum Brands Inc. — said more than 30% of its 8,790 restaurants in China are currently closed. At restaurants that remain open, same-store sales — or sales at locations open at least a year — have fallen by 40% to 50% since the Lunar New Year holiday ended earlier this week. Delivery is still available, but many customers are avoiding going out, the company said.

As of Thursday, authorities in China said there have been 28,018 confirmed cases of the virus and 563 deaths.

Yum China said it’s not yet able to say what the full financial impact of the virus will be. China made up 27% of KFC’s total sales and 17% of Pizza Hut’s sales in the fourth quarter.

“This will certainly be a headwind for 2020,” Yum CEO David Gibbs said in a conference call with analysts Thursday.

Yum China added that KFC and Pizza Hut are providing 1,000 free meals each day to medical workers at seven hospitals in Wuhan.

Yum shares dropped 4% to $102.12 in late morning trading.

Other U.S. restaurant companies, including McDonald’s and Starbucks, have also closed hundreds of stores in China.

Yum said fourth-quarter revenue rose 9% to $1.69 billion. That beat Wall Street’s forecast of $1.65 billion, according to analysts polled by FactSet.

The Louisville, Kentucky-based company reported net income of $488 million, or $1.58 per share. Excluding one-time items, the company earned $1 per share, which fell short of Wall Street’s forecast for $1.13.

Yum was stung by a change in the value of its investment in food delivery company GrubHub, which shaved 5 cents off its fourth-quarter earnings per share. Yum bought a stake in GrubHub for $200 million in 2018, but the platform has been struggling in the increasingly competitive food delivery market. GrubHub’s net loss widened to $27.7 million in the fourth quarter, from a loss of $5.2 million in the same period of 2018.

Yum’s same-store sales rose 2% for the fourth quarter. That was in line with Wall Street’s forecast.

For the full year, same-store sales growth rose 3%. Taco Bell led with 5% growth, KFC’s sales rose 4% and Pizza Hut’s sales were flat.

“Pizza Hut continues to be a business in transition,” Gibbs said. “We are urgently taking steps to change the trend.”

In August, the company announced plans to close 500 underperforming Pizza Hut restaurants. It’s also opening smaller express stores to meet growing demand for takeout and delivery.

Yum Brands ended 2019 with more than 50,000 restaurants worldwide. But that will soon grow. Last month, the company announced plans to acquire The Habit Burger Grill, a California-based chain with 265 restaurants. The $375 million deal is scheduled to close in the second quarter.


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