Q4 2019 Earnings Call
Hello, and welcome to the young brands Q4, 2019 earnings release.
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I would now like Dan the conference over to Keith Siegner, Vice President Investor Relations Emanate and treasurer.
Sir Please go ahead.
Thanks, operator, good morning, everyone and thank you for joining us on our call today or David Good our CEO, Chris Turner, Our Chief Financial Officer, and they brought our senior Vice President corporate controller following remarks from David and Chris will open the call. The question before we get started unlike the reminder.
This conference call include forward looking statements forward looking statements are subject to future events that uncertainty they could cause our actual results to differ materially from these statements.
Forward looking statements should be considered in conjunction with a cautionary statement in our earnings release and the risk factors included in our filings with the FCC in.
Please refer to our earnings releases.
Second our filings with the FCC defined disclosures and reconciliations of non-GAAP financial measures that may be news about today's call, we'd like to remind you that the habit burger drilled transaction.
Subject to approval by their stockholders and other customary closing conditions.
This transaction is expected to be completed by the end of the second quarter of 2020 as such we use understand that we are limited in what we can discuss on todays call.
Please note the following regarding our basis a presentation first all system sales results exclude the impact of foreign currency second piece about division in worldwide.
The system still include the benefit of the increase in units in the fourth quarter of 2018 related to our strategic Alliance Wood pellet Pizza same store sales and net new unit growth reflects the inclusion of pillar pizza in the prior year basis.
Third quarter operating profit growth figures exclude the impact of foreign.
And special items.
For the lease accounting standard was prospectively adopted on January Onest 2019, as a reminder, this is a GAAP required changes, resulting in a recognition of operating lease assets and liabilities on the balance sheet no significant impact in our income statement work cash flows.
The result of this accounting change unless please note that the fourth quarter 2019 results included 50 Threerd week. However figure stated on this call will exclude the 50 Threerd week. We're broadcasting this conference call via our website. This call is also being recorded and will be available for playback. Please be advised that if you.
The question it will be included a book our live conference and in any future use of the recorded.
We'd like to make you aware of the following changes and upcoming Investor event.
Disclosures pertaining to outstanding debt in our restricted group capital structure will be provided at the time of the form 10-K filing.
First quarter 2020 earnings will be released on April 29, 2020, with the conference call on the same day no I'd like to turn the call over to Mr. David Good.
Thank you Keith and good morning, everyone.
2019 was a truly does start your per yard.
First we successfully completed.
Our three year transformation and delivered on or bolt.
Second we surpassed two milestones that are a testament Young's incredible scale as we eclipse $50 billion and system sales and Mark the opening of our 50000 restaurants.
None of this would have been possible without our unrivaled Coltrane Collins.
And over 2000 franchisees, who brought 98% of our restaurant globally and employ more than 1.5 million restaurant team members.
Because of our journey to become more focused franchise and the Fisher. We're now in a much stronger position to accelerate growth and improved franchise unit economics over the long term.
Before I begin I want to share a heartfelt. Thank you to everyone within the young families who made these results possible I, especially want to thank Greg Creed, who led Jambas RCR CEO for five years with his signature blend of smart Arden cards.
I also want to thanks, Tracy schemes was uniquely is central to this massive transformation in her dual role is.
Keep transformation officers Chief people officer, Tracy helped shape young direction, all while working to make our culture more collaborative and inclusive and getting up and the best positioned to expand our capabilities with new talent and strategic investment.
As an example on the talent side in 29 team, we elevated experienced young.
You'd have to critical global growth roll Tony lowering the KFC CEO already started the pizza hut CEO Gavin Felder to Chief strategy Officer, and Nicky lost in the Taco Bell Chief brand Officer. We also brought in fresh thinking and capabilities from outside young with Chris Turner as young CFO Mark King is.
So both CEO play Johnson, Chief Digital and Technology Officer, and more recently, Shannon, Tennessee as KFC Global Sea of book.
In addition, or talent moves we made bold strategic investments that leverage our skill for example, our U.S. partnership with Grubhub Pizza Hut acquisition, a quick order.
And our growth Alliance would tell you.
We started 2020, we built on this momentum by announcing our plans to acquire the habit Burger grill and fast casual trend forward concept with tremendous growth potential.
I'm proud of what we've done during this time of transformation and couldn't be more excited about where we go from here.
Now I'd like to share with you if you thought that our future direction.
One it's clear that how we got rid of get results in today's world matters more to our customers employees and investors than ever before.
So you'll hear us hearing more about our recipe for good that outlines our sustainability commitments on our food planet and people.
As such the guiding purpose for young brands will be to unlock the potential for both growth and good.
We'll remain committed to the poor growth drivers and plan to deepen our execution with new strategies and tactics within each one.
To the grow we must deliver a consistently positive customer.
Yes, wherever we operate.
Only the best friends in QSR will thrive and be relevant for the next generation of consumers as CEO I'm committed to elevating the experience for each of our 40 million customers every day and achieving the kind of unit economics, only made possible through exceptional talent industry leading operations.
Innovative technology and modern assets.
Three with more restaurants than any other company, we must leverage our scale in technology to create sustainable competitive advantages and growth for our franchisee.
You've already seen a take steps in this direction as previously announced Clayton Gavin are leaving a cross.
Brad effort that have raised disruptive innovation harmonize platform advanced data analytics and emerging technologies to transform the customer an employee experience.
Well also consider continue to consider acquisitions and strategic partnerships that allow us to unlock value with expands our capabilities.
For.
Because our unrivaled culture and talent is a huge competitive advantage, we're going to continue investing in developing the best leaders and restaurant general managers around the world, We will dial up our efforts on diversity and inclusion with a focus on gender parity and underrepresented might art.
In summary, our brand will focus on unlocking our potential.
So with better experiences for our customer employees, which will ultimately lead to better franchise unit economics and better growth.
I'll now share our overall view of our results for young at a red brands out there.
Chris will show the details of our fourth quarter and 29 team results 2020 guidance as well as an update.
On bolt restaurant development and unmatched franchise operating capability.
Let's talk about 2019 results.
Overall young delivered a strong year with it themselves growth of 8% with 3% same store sales growth and 4% net new unit growth.
Starting with same store sales growth Taco Bell and KFC were standouts is here with.
5% and 4% respectively.
For bold restaurant development 2019 was a record breaking year and I'd like to recognize the efforts of all involved and put it into contact as I previously mentioned, our global system surpassed 50000 restaurants in 29.
We accomplished this by opening a record 2000 and.
40, net new units, which represents a 70% increase versus 2016, when we began our transformation.
We opened on average nine growth restaurants per day in 2019, and now have an unmatched 287 brand country combinations.
I believe already have focused.
On bold restaurant development, resulting from a transformation enabled us to accelerate unit growth and achieved this milestone.
Now for three rent Brett.
KFC Division finished the year strong in the fourth quarter. They delivered system sales growth of 8% with 3% same store sales growth and that offers that net.
New unit growth.
For the year system sales grew 9% with 4% same store sales growth and 7% that you're going to grow.
KFC International's results are truly remarkable was strong performances across the board India had another exceptional quarter with 12% same store sales growth ending the year with 10% same store sales growth.
Their momentum is attributable both to always on marketing around value innovation and expanding their digital channel.
Our middle East business unit was another top performer acute or with 11% things to ourselves.
In the U.S. same store sales growth grew 1% you for KFC U.S. continues to partner with Grubhub.
Locations for delivery and click and collect we now have over 2800 locations offering delivery and 3800 restaurants available for click and collect.
In conjunction with the launch of KFC Dot Com and October we're excited about the operational eases provides where team members and customer.
Moving on to the Pizza hut.
Vision fourth quarter system sales growth growth was flat, excluding the benefit of Televisa with the same store sales declined 2% and 1% net unit growth.
For the years system sales grew 2%, excluding the benefit of tell a piece of the flat same store sales and 1%.
Pizza Hut U.S.
Which represents 8% of Yum operating profit, excluding corporate and unallocated items reported system sales in same store sales declined to 4% with a 2% net new unit decline in the fourth quarter.
He said U.S. continues to be business and transition and for the last three years, we've made improvements in food quality speed of service our.
LT program and upgrading our technology brought online ordering and delivery.
However, significant opportunity remains in three years first more consistent execution in our customer experience across the Liberty and carrier.
Second ensuring we have value promotions, a truly resonate with consumers and that are consistent with a.
Long term profitable unit economic model.
Third in remodeling and relocating asset.
We urgently taking steps to change the trended who are working internally with our franchisees to place the brand on firmer footing to grow.
To start we've injected new leadership and talent we've added.
KFC U.S. President Kevin talked into the he said you with team as interim President.
We've also leveraged young deep global talent pool at a new Chief brand Officer, and Chief Marketing Officer.
Kevin's turnaround experience in both CPG and KFC U.S. and his proven ability to improve distinctiveness of brand and.
Great innovation make him ideally suited for this opportunity.
Kevin and team are working closely in partnership with a U.S. franchisee many of whom have a capital capability and commitment to continue driving this turnaround.
To be clear as we work with our franchisees through the turnaround we have a few guiding principles.
We.
Our growth company inspect and expect that all of our brand can and should grow.
Second we remain committed to an asset light model and disciplined spending.
Third we know the formula for success in markets, where we deliver a great customer experience with a better tasting pizza unbeatable value distinctive food innovation a best in class.
Digital experience and modern assets, we grow sales consistent.
A piece on international system sales grew 13%, including a nine point benefit from Televisa with flat same store sales growth and 4% net new unit growth in quarter.
The same store sales gap between the dining channel.
An off premise bill was approximately 3% this quarter, meaning our off premise performance remained healthy at a positive 2% same store sales.
Europe was the main driver of the quarter's performance delivering 3% aggregate same store sales growth led by strength in the UK delivery business.
During the year the UK.
Hey, Brazil, Germany, Australia in Spain, where the primary contributors to positive same store sales growth and showed significant improvement in value the introduction of aggregator and product innovation.
Turning to Taco Bell 2019 marked our eighth consecutive year of positive same store sales growth a.
Testament to the power of the Brad an excellent customer experience with delivered by our World class franchise.
Fourth quarter system sales grew 7% with 4% same Brazil's growth and 4% net new unit growth.
Talk about a great example of what it means you read Brad the all new toasted Cheddar cheese lumos.
Reduced in the fourth quarter, delivering the innovation that Taco Bell is known for and generating solid sales mix of 10%.
We also brought back the very successful five dollar nachos box and ended the year with a perennial fan favorite X. box gaming promos.
Enroll chicken tacos.
2019 marked the completion of the.
Nationwide kiosk rollout nearly 6500 restaurants.
Deliver a modern and easy interface that allows our customers to explore the menu and customize their favorite items.
We continue to see meaningful checklist and growing utilization.
From T. The grubhub delivery in over 100 restaurant.
E Commerce nationwide talk about continued leverage technology to become easier and more relevant ultimately drives though.
Internationally, we continue to have strong sales momentum for the year with highlights, including India, Canada, Japan and Europe.
We made strides an all in our all access initiatives this quarter include including.
The loyalty in the UK, adding kiosks and four markets, including the UK, Spain, Australia New Zealand.
Before I turn it over to Chris I did want to note that our thoughts are with everyone affected by the Corona virus situation.
We're obviously following this closely and I've been in regular contact with Joey Wat the CEO of Young chart I.
I know she.
She and her entire team are doing everything they can to work with local health officials and the government to help ensure they protect their employees as well as their cup.
The young foundation is matching their relief efforts with donations that will provide support medical supplies and masks to the affected areas in China and assist frontline healthcare workers and Bob.
Biting the epidemic and move up.
While young business model is highly diversified such as such that the impact on our financial performance won't be as significant as what many companies will it spreads. This will certainly be a headwind for 20 twond.
At the ended the day. This is a business built on people and the health and safety of those people.
Bill will always be our top priority.
With that I'll hand, it over to our CFO, Chris Tucker.
Thank you David and good morning, everyone today, I'll discuss our fourth quarter and 2019 results 2020 guidance and our remaining growth drivers.
During the fourth quarter.
Sure we delivered system sales growth of 7% same store sales growth of 2% and net new unit growth of 4%.
As expected growth in the second half of the year was lighter than the first.
Still consistent with our long term growth model.
Standouts for the quarter included KFC with.
3% same store sales growth and a remarkable 7% net new unit growth and.
And Taco Bell also had another great quarter, 4% same store sales growth and 4% net new unit growth.
This performance translated into core operating profit growth of 9% report.
Next I'm excited to say that we achieved or exceeded each component of our 2019 guidance.
First and as David mentioned, our consolidated system sales growth was 8% with 3% same store sales growth and 4% net new unit growth.
KFC and Taco Bell boat.
Met or exceeded our long term target of 2% to 3% same store sales growth.
During the aggregate young figure so the high end of our 2% to 3% range.
We also had our second consecutive record breaking gear for development with 2014 net new units.
Second.
We met our full year core operating profit growth guidance of low double digits.
Core operating profit growth for the year was 11%.
Third net capex for the year.
For the year was $86 million, which was slightly below our guidance for 2019.
Moving to generally tight controls over all buckets of stat.
For.
We met our target gene or DNA at 1.7% of system sales in 2019.
After running below our guidance through the first three quarters in the fourth quarter aggregate gionee was above that.
Rick order run rate, primarily owing to a few factors our strategic investment spend was heavily back end weighted commensurate with timing of our new talent appointments. Additionally, we had some discrete spend including strategic projects largest which was related to global tax reforms that was.
Concentrated in the fourth quarter.
Oh, I get down to exclude the 50, Threerd week and discrete nonrecurring items. The 2019 base you should use the model 2020, DNA all Bob is about $900 million.
Lastly, as.
We met our goal.
All to deliver at least $3.75 in 2019, adjusted EPS, which we introduced in 2016.
While our GAAP diluted EPS was $4.14 the apples to apples comparison to the three dollar and 75 cents bigger was $3 and.
Yes.
Please see our earnings release for a reconciliation of our GAAP reported results to the adjusted EPS figure.
Next guidance, our long term growth model remains unchanged.
We continue to believe that 2% to 3% same store sales growth.
Should complement 4% net unit growth for mid to high single digit system sales for.
Added leverage and we believe long term core operating profit growth should be high single digits.
However, as it pertains to Twentytwenty.
First.
But the last of the 50 Threerd week represents a $24 million headwind or just over 1%.
Additionally, there are few matters, adding uncertainty to the outlook for the full year.
Most importantly, the impact of the grown a virus in China and the potential.
Well it impacts surrounding areas in Asia and other parts of the world.
In addition, there is potential for Choppiness in near term results at U.S., primarily related to our largest franchisee.
Given the fluid nature of these issues specific forecast for impacts are challenging at the moment.
However, we believe it prudent to plan our business to account for these risks.
As such we're currently basing our 2020 plan on the assumption that we will likely be below our long term algorithm on a 52 week equivalent basis.
We'll update you as the year progresses, and we have more information.
A few.
Other items.
First we estimate Capex net of Refranchising proceeds and the $125 million to $150 million range in 2020.
Second we believe five times net leverage remains an appropriate and balanced sorry.
Third in relation to dividends.
Our long term target payout ratio remains 45% to 50% of annual net income, excluding special items and Grubhub mark to market.
In fact, we are pleased to have recently increased our quarterly cash dividend, 12% to 47 cents per share.
Going forward, we plan to return the excess cash remaining after capex dividends and select shareholder accretive investments through share repurchases.
One last note with regard to our guidance for the last few years, our reported effective tax rate has benefited from deductions associated with stock.
Based compensation exercise.
While the timing of the exercises as well as the exact amount of benefits are very difficult forecasts. We believe it is prudent to assume less benefit going forward, partly because of deductibility changes in light of U.S. tax reform.
Thus, we're now forecasting our.
Our effective tax rate to be within a range of 21% to 23% versus the 20% to 22% range, we forecasted previously.
In January we announced our agreement to acquire the habit Burger grill or $14 per share in cash or a total of approximately.
$375 million.
As Keith mentioned the transaction is subject to approval.
As it relates to the impact in 2020, we estimate minimal impact the non-GAAP earnings per share before special items with accretion beginning in 2021 and increasing thereafter.
Now, let's discuss our remaining growth drivers I'll begin with bolt restaurant development.
This is perhaps the clearest example of how focus and a new mindset can generate improved results.
During 2019, we opened 3332 rows, new restaurants, and 2040 restaurants on a net.
[music] basis. This is truly a step change and pace.
KFC finished 2019, but 669 net new units in Q4 or 1483 net unit.
For the year, which represent 349 more than 2018.
This outstanding performance was led.
By China, Our Russia business Unit, Asia, Latin America, and Thailand, among others.
In the U.S., we closed out Q4 2019 with over 2200 American showman restaurants across the country, representing over 54% of the U.S. system.
At Pizza.
But the division opened 188 net new units during the quarter and 266 for the year as headwinds related to the transition in the U.S. asset base, partially offset international growth.
Taco Bell delivered 172 net new units during the quarter in the U.S., we opened our.
Yeah urban style cantina restaurant.
Internationally 71, net new units were opened in the fourth quarter, including the entry into new markets, Portugal, and New Zealand.
Internationally, we saw impressive growth in India, Spain, UK and Thailand.
The pace of global development.
Used to accelerate with 291 net new units opened this year and increase of 30% year over year.
Next unmatched franchisee operating capability.
Across each of our brands, we are working to enhance the customer experience.
Ever changing technology, we have to it.
That consumers to deliver a consistent interaction and positive response, each time, a person interacts with our brands.
With that we know how important it is to hear our customers and learn what we can do better operationally.
At KFC, we piloted customer feedback and survey model, but are also.
With our delivery Aggregators in our Africa, Middle East and Australia, New Zealand business units.
At Pizza Hut International we focused on enabling both better customer experience.
And ease of operations to drive efficiency by Rolling out driver tracking and operations management system in.
Markets comprising over 600 restaurants.
This will provide our franchisees with order sequencing intelligence, enabling them to more efficiently allocate resources.
At Taco Bell focused on speed and operations continued to yield results.
Q4 ended with 20 seconds faster service year.
Over year.
This translated to 9 million more cars through the drive through in 2019.
Great Service is also key to the customer experience.
I'm pleased to report that while getting faster all operations metrics improved across the board.
To summarize the transformation made Yom a stronger company.
As or and investment.
With iconic category, leading brands and a uniquely diversified global business of over 50000 restaurants, Yom is well positioned to accelerate growth and drive healthy franchise unit economics by leveraging our massive scale expanding digital technology and deliver.
We look forward to we look forward to updating you throughout 2020.
Now the team and I are happy to take your questions.
At this time.
Okay question. Please press star one on your telephone at.
Remember.
A limit yourself to one question.
Your first question will come from the line as David Tarantino with Baird go ahead.
Hi, good morning, and congrats on a like a good 2019 my questions about the U.S. pizza business.
First.
Could you just maybe clarify your comments about the choppiness.
That you expect them and 2020 related to your largest franchisee.
Perhaps what are the range of outcomes there that you're considering at this point and then and then secondly, my main question involved.
Around whether you're contemplating and injection that capital and to the end of the business.
You know whether to support the existing franchise base in some way like you did what they are transformation agreement. Thanks.
So thanks for the questions David.
Yes, obviously on Pizza hut us as we mentioned we are focused on driving the turnaround in that business as David mentioned, we're excited about the new leadership that we have in place there and their focus on the fundamental improvements.
Business on both.
The way than we translate the brands are consumers and on the asset base, but obviously theres a lot of work to be done there.
You asked specifically about our largest franchisee.
We we typically do not go into detail on specific franchisee situations.
But as we've discussed before on the.
The asset side of the equation of Pizza hut U.S. we are.
And the majority of our franchisees are.
Really good partners, they are well capitalized committed and capable and continued to drive the business in right.
Correction, we do have a handful of situations, where we are working with the franchisees to get them into a better place.
Obviously each of those processes.
Time, and do create some choppiness as a result as an example, we drew up one market in the U.S.
Where we had a franchisee who.
Assets simply weren't up to our standard of we've worked with them to the exit some from the system and we'll roll down a path to getting a new franchise operator into place.
So hopefully that gives you a general feel for the situation and why there may be some choppiness as we work toward.
A better asset base.
And what I would add David I know, there's concern about injecting capital and your questions in the path. We have done two transformation agreement. One was gives US one would be put you at those were done at a point in time in exchange for certain rights that we gained.
He said you as we got more marketing.
Other Reits related.
Operational standards as Chris mentioned that helps us in some cases actually shut down the market and give to hit the market in the hands a better.
Britain heart so I.
As I mentioned in my prepared remarks, we're committed to an asset light model, if we do something with capital.
Whether be going out by the habit Burger drill or some kind of agreement with franchisees that done because theres some benefits the young but we are really committed to the asset light model.
Next question please.
Your next question is from a line of John Glass with Morgan Stanley. Please go ahead.
Hi, Thanks, very much I.
I wanted to just ask a follow up on he said if I could what was the bad debt expense enough in the fourth quarter and how do you what have you baked into your model or how should we think about what bad debt may may represent as a pressure and earnings it in 20.
And can you also talk about Kevin's early moves the pizza at what does he done I understand maybe there's some change in pricing or franchisees ability to pay changed.
Pricing what are the things that early on he is really focused on specifically I know driving sales generally, but specifically to help the brand.
Thanks, I'll take your first question and I'll, let David along with some remarks, so on the bad debt expense.
We stepped back and think about the context of young.
Well, what we collect.
North of $4 billion.
In royalties and other fees from over 2000 franchisees around the globe.
So you're always going to have some.
Situations that we are working for there was an uptick in bad debt expense at Pizza hut.
Just to give you a sense for the numbers for that division by Division globally in Q4 bad debt expense related to royalties and digital fees was $8 million for the division, which was up $4 million year over year and for full year 2019, bad debt expense was $22 million, which was up $12 million.
Year over year.
Yes help put it into some context, though this was related to just a handful of franchisees situation and as I mentioned earlier, we are working through those and.
The timing of how the steps play out there there may be some.
Bad debt impact as we go through that but that this is part of the Choppiness that we've described as we as we work for this but hopefully that gives you a sense that helps put it in the context of our global.
A franchisee base and give you some point of reference for the mob.
Yes.
And then as far as Kevin lending and piece that obviously, we're all excited.
About having somebody with his talents working on the pizza brand in the U.S., Kevin as you know the CMO and then the president of KFC U.S. really architected the turned around to that brand and going back to the things that we know matter in our industry, having brand communication to resonate with consumers that build the brand in a red.
Hey, offering behind the value that appeal to consumers, but that is also profitable for franchise partners and he's using that same playbook and pizza. It's obviously too soon to start to talk about this specific tactics that he's going to deploy but I can say that a lot of franchisees reach out to means eight or Kevin joining.
He spent a lot of time in the field with them getting to know them and understanding their concerns and I think its forming a good partnership with them and going to build on the great work that the pizza team has done the last few years and strengthen the brand from a technology standpoint logic loyalty program improving product operational improvements all the things that we've talked about on previous calls.
Thanks, John next question please.
Your next question is from the line of Dennis Geiger would you be yes. Please go ahead.
Thanks, just following another year of strong development growth wondering if you could talk a bit more about a 2020 development maybe just some of your most updated thoughts on puts and takes relative to that 4% long term target.
Called out the uncertainty related to the current of Iris and presumably it was almost pizza hut in the U.S., but you anymore thoughts at a high level on those two points than any other potential puts and takes around.
Around the globe that we should be thinking about thanks.
Yeah. Thanks, Yes. It is really remarkable what the team has been able to do with development.
We pulled back from building equity stores in the franchisees have picked up the development responsibility as I mentioned in my remarks, passing 2000 that new units this year.
Over the husband in the fourth quarter. These numbers I think Raul incredibly proud of and I I think would what you're seeing is it's fairly widespread right.
Taco Bell opened over 100 net new units internationally this year, but the first time off of a base of roughly a 450, that's pretty impressive growth and that's getting stronger and stronger in the U.S. It for Taco Bell was hitting new numbers.
KFC very widespread you're seeing development I think 99 countries, but we're building new.
Last year.
A number like yeah.
Yes, the over 800 gross new units into fourth quarter alone.
And then even piece I'd international above 450, net new units internationally. So the vast majority of our business is healthy when it comes to development and growing and we expect those.
Tends to continue into 2020 as far as specific things that may offset that as we've talked about we know we have a lot of pizza hut U.S. assets that are below our standards and deepen flows and that could the short term basis have a negative impact on the base.
But.
You know we still.
I feel very good about 4% commitment in the long term and being able to grow at that pace.
And I can tell your teams around the world. We're excited about development and obviously, we'll we'll talk about the habit Burger well when we get past transaction closing, but that's another.
There were positive when it comes to development for you.
Thank you next question please.
A question is from the line of John I haven't caught with JP Morgan go ahead.
Hi, Hi, Thank you I'll take that could the question is on a yet third party delivery and also you just overall order aggregators.
Yeah, what you're learning and do you have developed markets around the world and you know what at this point is seeing kind of how that how these markets are evolving in developed markets. Whether you think you know these I'll get to your types of businesses continued to be an opportunity to drive yams, various businesses and whether that opportunity also exist in the U.S. with obviously I guess.
Context around some of crops recent comments.
Yeah look obviously delivery is an area of growth in our industry just to put in context. So it's awesome NPD data reasonably 3.4% of restaurant occasions, our deliveries so while it's a growing part of the business it's still.
Probably the headlines would imply a bigger than it really is but it is growing and it is something that our business is benefiting from all around the world.
We are forming partnerships with the right aggregators by market that makes sense for young dawn on the terms that would make sense.
For somebody with our scale in our cloud in the marketplace and.
Seeing it obviously be a little bit of a tailwind for us I think the other thing I would point out is.
When it comes to the to digital it's not all delivery actually the data that we're seeing as the vast majority of digital orders are.
Super carrier so.
Not to be left out I think our teams are very focused on making sure that with the click and collect model is working for us as well not just the delivery model there are cost to delivery today no matter, how you cut it.
If it can lead to the per eater cost and particularly for our brands which are.
Very much known for value that makes the delivery occasion, not the appeal to the in our entire customer base. So as we always do we're always about the customer and giving them what I want but they want for those customers that want delivery. We're leaning in there and for those that are more carrio focused or diamond focus we have programs.
Thank you.
Next question please.
Our next question is from the line of Sara Senatore Bernstein. Please go ahead hi, Thank you.
A question about China, and then just a quick follow up on Pizza hut, New U.S. I understand there's lack of visibility on the outlook in China, but yeah. We heard from your China licensee last night was talking about.
30% in the stores being close and the rest comping down 45%. So maybe you can just how put some numbers around implications. Even if it's just you know if I estimate maybe a point of comp globally out of Caf CMP side. It seems like seven cents a D. P. S T youre your full year.
Yes, if you could just help kind of quantify how we think about yeah. The implication to the point of comp decline or store closures.
Any kind of numbers and then just a follow up on pizza hut.
You know you mentioned you for 10 acceleration agreement piece I think the last one kind of claims is out at the end last year are.
Now a lot of controls revert back to the franchisees are you seeing anything different about how they're approaching you know whether its advertising or store closures in any kind of strategic change now that it that transformation agreement has concluded thanks.
So.
Thanks good.
Trends.
Starts with China, So on the China situation I think.
Most importantly.
This focus on the health and safety a.
Customers and team members.
Thats the top priority and we really appreciate how Joey and the young China.
He men the authorities that they're working with there I have that their their focus.
And so that remains our top priority as you mentioned you heard there their call last night for those of you haven't seen it I think it would be.
Really helpful to go review their comments, we thought they did a very nice job summarizing the situation.
Mission one of the key elements of course is that it's a dynamic situation that is a bit.
Hard to.
Predict but a lot of precision right now.
Maybe just to give you some numbers.
And you can kind of work through the Matt.
One point of same store.
Store sales growth.
In China for full year would translate to 19 basis points of same store sales growth for job.
And it also translate to $2.9 million in young operating profit for the year. So hopefully that gives you.
Metric that you can use.
As you as you work through your your estimates, but again.
The.
The situation remains dynamic will continue to stay connected but then.
The other places that were monitoring closely as impact outside of China I can tell you that right now obviously as you know the situation does.
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Most.
Active in China outside there really are no store closures that we have as of right now, but we are staying close to those teams and monitoring the impacts and on the question about the acceleration agreement.
No there was a comment about controls reverting back to franchisees, but the reality is.
What was it that acceleration agreement made permanent changes to the franchise agreements so.
The royalty increase.
I'm part of the marketing contribution increase.
Some of the operational standards that we now have those all stay commitment to loyalty technology all stay in the agreement as far as.
These go obviously nobody is happy things same store sales growth negative and I think they're excited about Kevin joining as I mentioned earlier.
Please say that their partnering with government and I think you're working constructively together as we continue this turnaround of the pieces of U.S. business, which we.
Mentioned repeatedly is something that we're not counting on.
A dramatic change in the business in the short term, but we're proud of the work we're doing to build a stronger business along.
Thank you next question please.
Question is from the line of Brian Bittner with Oppenheimer. Please go ahead.
Thank you good morning on the Pizza U.S. business can you give us.
As an update on a broad range or ballpark range of unit closures.
You do expect in 2020.
And just a follow up on on the habit Burger acquisition.
You know very small acquisition and the Grand scheme of its impact to Yum brands in the near or medium term and I.
Really understand the opportunity to provide your franchisees, but can you just talk a little bit more about what caused you to possibly maybe pass on something that would be.
Richer and more impactful to investors.
Yes so.
Good questions I'll take the first one.
I think on the beach.
Hi, U.S. situation.
As we mentioned given the processes will work through with a handful of franchisees.
Yes, there will be as we said choppiness.
And the.
Situation as we go forward.
Yes, I know, we had shared a number of 7000 I wouldn't get to wrapped up.
On that number is from quarter to quarter, the choppiness would be a little bit hard to predict but we do think in the long term.
That's there.
This opportunity for growth in the network, but in the near term, it's going to continue to be John.
As far as the habit goes well obviously to limited in what we can say at this point until.
The deal closes doing shareholder approval, but.
What we have said publicly.
What we're excited about it this is a great risk reward nodes is as you said.
Right, it's a small investment, but we're buying something that has a lot of growth potential as you know we're all about growth we're not interested in.
Buying big businesses that are of the same scale of ours.
The don't have a lot of growth we want to buy something we're looking for the upside that comes with that growth, we think given our scale in our capabilities they match up with.
I have it very well and we should be able to unlock growth give our franchisees the.
Great new growth vehicle in the U.S. and given our ability to take things internal international markets I'll take this brand outside the us in a bigger whether they have already but we'll talk about this a lot more as we go forward, but I think the summary would be we'd really like the risk reward.
In terms of the size of both what we have to pay to get something with.
Central to that.
Thanks, Operator, we have time for one more question.
Your final question will come from the line of David Palmer with Evercore ISI. Please go ahead.
Thanks, Thanks for squeezing me in.
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If we were to talk about 2020 in terms of your versus your algorithm.
And excluding Corona virus, which is obviously a discrete health crisis this year.
And the 50 Threerd week, what's sort of year.
Thinking about versus that algorithm.
And of course, you know in that is how important something like what you're going through with pizza U.S.
It is to that and then and then you touchy meant men you said some comment about.
Current a virus Asia ex China I'm wondering are you already seeing an impact in some way.
In other parts of your Asia business. Thank you.
Hi, David just taking.
The last part of that first yeah, we weren't going to trying to imply that we're seeing any impact we were actually trying to put people. It is that we haven't we haven't seen an impact than we haven't seen any store closings or anything of that sort, but obviously, we're prudent to be looking at everything related to corona virus and planning for all different eventuality.
As far as in 2000.
Many algorithm goes I can tell you we entered to 2020 with a plan to deliver on our long term algorithm that we all feel good about.
Despite all of the you know.
No as we might have from pizza at U.S. or anything else I mean, when you have 2000 franchisees and 50000 restaurants and you were in 287.
Ran country combinations not all parts of the business are always coming all the time and that's always taking into account as we enter a year.
But we felt good about the plan going into the here, obviously, the corona virus and the impact it has on China.
Has a significant impact us and our financial performance this year and ability to hit that algorithm.
But other than that I think we feel good about business. We obviously have challenges within within the piece I'd do as business related to a large franchisee, which will deal with we'll get through and feel good and I feel really great actually about the long term health of the business.
So with that I'll I'll, just close the call by saying 2019 was truly a mile.
I don't here for us.
We successfully delivered on all the commitments that we talked about in 2016, which we were looking death now as we go forward but.
Really im incredibly proud of the team and what we've accomplished yeah. We started out the journey in 2016 talking about the fact that hey, we have a bold goal of getting to seven.
Person system itself and I know a lot of people didn't believe that young can do that we just concluded a year, where we delivered 8% system itself. Even if you back out Philippines that was 7%. So we hit that both goal.
We're incredibly proud that we opened over 2000 restaurants last year, representing 4% growth in cost the.
80000 unit Mark that sooner than we had anticipated in 2016.
So we're really coming out of this transformation much stronger than we were entering it.
And it's across all aspects of the business, we've really strengthen the team given all the people are talking about on this call that we've added and folks that have been promoted we certainly.
The culture, we're at operating more collaboratively and to do that during all the turmoil of the transformation of truly special accomplishment.
Our strategy is tighter than it's ever been with her for growth drivers are recipe for growth in our recipe for good and then we've got these extra areas of growth like the habit Burger acquisition, which I'm really looking forward to talking to you about.
You know habit and Russ Bendel, they're great leader near team when we get on the next earnings call. So in summary, the business model is working we're a diverse.
World's largest restaurant operator with more units than anybody else.
We couldn't be more excited about the future.
And with that.
Appreciate everybodys time.
Thank you. Thank you again for joining today's conference call you may now disconnect.
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