Q1 2020 Earnings Call
Mr seems like you may begin.
Good morning, everyone and thank you for joining us with me on the call. This morning are.
Financial Officer, Kevin knows and.
I want to remind everyone at the forward looking statements in our earnings release in 8-K filing also.
Mentioned on today's call with their corresponding GAAP measures.
Following prepared remarks. This morning, we will open in Q for your question.
Then one please ask your most pressing first and then reenter the queue.
Today's conference call is being webcast and is also being recorded for replay via our website.
And now ill turn it over to Chris.
Thanks, Mike and good morning.
Imagine we'll be spending a good portion of today's call discussing.
By acknowledging the human toll of this pandemic.
Dan heartfelt, thanks, and gratitude to healthcare professionals first responders and other central workers around the world, who put their own lives at risk to help others.
The global crisis has impacted people in communities everywhere.
In the face of such enormous challenges I'm immensely proud of the entire mcdonalds system and the tireless efforts of our franchisees crew members suppliers and.
Company employees.
Where we've been able to stay open safely and responsible they've made it possible for Mcdonald's to continue offering great tasting affordable and convenient food image widespread change in disruption.
Turning now to our purpose.
Well in 2019.
That momentum carried into January.
Navigant decline in our business due to the pandemic dragging down our.
Q1, global comparable sales by 3.4%.
We're now operating in a completely different world and we expect these changes to persist long after the crisis is over.
Not immune to the immediate pressures threatening our global community, we came into the situation better positioned than most.
And we believe that we will strength.
Held strong balance sheet franchisee cash flows and most of our major markets were at or near record highs in 2019.
Our global.
Critical to our business during the pandemic.
We now navigate through the crisis, Mcdonald's unmatched global foot.
So proving to be significant strength for us.
Specifically with the presence in over 100 markets, we've been able to develop insights and.
In China, where the outbreak began.
We quickly learn how to address.
These solutions along with many others were then shared around the globe.
As each country develops their own innovations these are quick.
We shared by our global restaurant solutions group across all markets.
Our system's ability to quickly adapt operations across 40, the size and scale of our supply chain is also proven to be a significant advantage during this crisis.
To date, despite the disruption or business we have.
Want to give particular recognition to our supply chain team for sourcing vitalbeam materials.
Such as mass.
Im gallon system.
And of course Mcdonald strong drive.
Redevelopment has continued to allow us to safely serve millions of customers in the U.S nearly 95% of our locations have drive thru and virtually all are open deserve.
Health care professionals first response.
You are up significantly versus brito, but.
Our restaurant footprint every market, where we operate.
To do this it's essential that our franchisees have the financial wherewithal to capitalize on the opportunity.
You can several steps to help our franchisees and developmental licensees maintain or liquidity and financial strength.
While there will come.
Lee targeted and temporary financial support, which Kevin will walk through in a few minutes.
From a customer.
Customers will be seeking known brands and familiar routines.
We're also seeking seeing a heightened focus on value and convenience.
In China. This was reflected in the response to our recent big Mac promotion.
Show that after prolong disruption to their day.
And open entities like Tokyo, Berlin in Chicago, and in northern in our European markets will be phased and grounded in what's best for the safety of our customers and crew.
Similar to what we did.
Focused primarily on our core items, when we reopened in countries around the world.
Through this we will focus on what Mcdonalds has done.
This is a challenging an unpredictable time.
Looking at comparable sales, we expect in the month of April.
As things stand we believe we reached the trough in terms of number of restaurants closed in late March.
We're planning for limited Reopenings end markets in the near future.
Sure.
The exact trajectory of our recovery, however is highly uncertain and dependent on many factors outside our control.
We're developing contingency plans for a wide variety of scenarios.
From our experience in China.
For Eotech remodel program in the US we do know that customers will not immediately revert back to their pre shutdown routines.
The most challenged Daypart.
We know that a focus on core menu will be critical due to both customer interest in familiar favorites and operationally is.
We know that value will be unnecessary element to reengage our customers.
Each market is re.
Building their marketing calendar to reflect these learnings and many others. So we.
Can reignite our business momentum.
But.
And safety of our people and customers.
We remain closely aligned with the expert judgment of scientific and government leaders in our various markets and we support the focus on widespread testing as a central element to broader recovery.
Gafford.
Whatever the gains of reopening markets, we know we can adapt.
Mcdonalds is a remarkable system and I'm confident that the strength, we've exhibited both before and during the crisis will be even more apparent as we emerge into.
But Kevin to talk about our first quarter results.
Beginning in mid March consumer traffic began a declined significantly due to the impact of covered 19 as.
We temporarily closed some restaurants and shifted to limited as a result global comp sales were down 22% in the month of March and down 3.4.
Percent in the first court.
Friends to provide perspective on how comp sales have progressed over the past few months.
International aptly, 70% and several markets like France, Italy.
Pain and the UK temper.
Early closed all restaurants and other markets like Australia.
Canada in Germany.
Derived through.
Comp sales have continued to be down about 70% through April in this segment as many of the fully closed markets are.
Now just beginning to reopen.
Arch and continuing through mid April us comp sales were consistently down about 25%.
However, we have begun.
April comp sales to be down about 20%.
Also over the last several weeks the us as Ics.
This is due to an increase in party size as well as evolving consumer behavior with daily routines interrupted.
Not surprisingly the US has also seen sales impacted on weekends more than weekdays as consumers leave their houses only when necessary.
And we've seen a shift in sales mix by order channel has nearly all restaurants are operating derived through.
Delivery and takeaway only.
Prior to the impact of covert 19, the derived are accounted for about shifted from in person ordering to drive through in delivery channels.
Through now accounts for nearly 90% of sales in the U.S.
We're also seeing an uptick in delivery and digital trends.
Similar to what we've seen in China and other markets.
Those were down even more significantly reflecting the impact of covered 19 as it spread throughout the segment.
In China, approximately 25% of restaurants were closed in early February.
By the end of March continues to experience reduced level of demand as consumers have not fully returned to their pre covered routines, resulting in.
Negative comp sales since the initial outbreak in late January.
Comp sales were down over 20% in the first liens.
In terms of New unit development, China opened over 100 restaurants in the quarter.
However, we expect timelines to be delayed due to the crisis.
Flow through considerations on the PML corporate liquidity and franchisee financial health.
Starting with the.
PML as we become a more heavily franchised business over the life into the entrepreneurial spirit of our local business owners and for efficient conversion of topline growth to the bottom line.
Fixed nature of our franchise cost structure resulted in strong flow through to the bottom line.
Inversely.
Franchise margin dollars.
Our company operated restaurant expenses are more variable in areas, such as food and paper it better in our company operated restaurants in the current environment.
For perspective in March with a cap.
Sales of negative 22%, our total restaurant margin.
Most of the decline was in the Io M. segment due to the significant number of temporary restaurant closures.
Turning to DNA.
We saw an increase of about 95 nonrecurring costs, including 40 million for the cancellation of our biennial worldwide convention and roughly $20 million related to payments of contractual obligations as we reduced the scope and ongoing spend in R&D work.
Freeze relates to the running costs associated with our acquisitions of dynamic yield and apprentice.
As well as continued depressed.
As a reminder, both of these acquisitions occurred subsequent to first quarter 2019, So we're not lab.
Our investment in digital customer engagement remains a priority for our business and as I mentioned before we've already seen the bank.
And how they order pay and receive their food during this unprecedented time.
And we'll remain important in serving customers as we think about our business beyond this crisis.
As we navigate through uncharted waters, we're taking a disciplined approach to decision making.
This includes reviewing all investments and reducing or delaying spending as we re scope priorities in some areas and redirect dollars to other priorities.
We're focusing resources on projects and initiatives it can reasonably be implemented an executed in the near term.
Both in terms of cost and time and will also benefit the system for the long term.
As we make these assessments will also prioritize our resources against the most critical needs of the business you lines of the other operating section of the PML to be impacted in 2020 as well.
Gains on restaurants sales are.
Back to be down about $100 million as a result of minimal restaurants sale activity for the rest of the year.
Our.
And we expect to have some additional reserves for bad debts related to rent and royalty deferrals subsequent to March.
The result of all of this is that we expect our operating cash flow to be down significantly this year.
And we've taken a number of actions to preserve financial flexibility.
In addition to currently reviewing our DNA costs.
We secured $6.5 billion of new financing in March, including $5.5 billion of debt issuances at various.
We drew upon immediately.
In terms of capital expenditures, we've taken a very practical approach to development activity.
We suspended experience of the future groundbreaking in the us and new restaurant openings around the world as covered 19 began the spread.
Given that our first quarter Capex is typically about 20% of the full year.
Many projects are delayed or on hold we now have some flexibility with decisions for the majority of our plan capital spend for the.
Any 20 spending by about $1 billion from our initial expectation of 2.4 billion.
I also want to beginning of March prior to the widespread impact of Covance.
Mcdonald's remains financially strong and our capital allocation priorities remain investing in the business for growth.
And prioritizing dividends to our shareholders.
We will convert.
As I mentioned earlier, we've taken a number of actions to to ensure that the company is in a sound financial position.
Around the world in a position to be successful in running their businesses.
As covance spread quickly around the world. Our first step was determining operating procedures, resulting in temporary closures of all restaurants in some countries and lip.
Limited operations and others as I've mentioned.
That was likeable to all franchisees within various markets.
Because we needed to make quick decisions to alleviate franchisee concern.
Generally we've deferred the collection of rent in royalties earned in March and April in most markets around the world.
This deferral amounts to roughly a $1 billion of liquidity assistance that we committed to our franchisees and developmental licensee.
Partners across the system.
We also worked closely with lenders suppliers and distributors to extend payment terms to franchisees where necessary.
Now, we're assessing the financial health and liquidity of specific.
At risk franchisee and developmental licensee organizations.
This assessment includes various sales projection scenarios and takes into account the impact of liquidity assistance measures.
Provided by the company suppliers lenders and governments.
We have developed an object to the NGL organizations may need further liquidity assistance and how we may support them.
This will help ensure a consistent an equitable approach to decision making across all of our markets.
As Chris mentioned, our general philosophy is for any assistance to be timely targeted and temporary.
The financial health and strength of our franchisees has been a competitive advantage from mcdonalds for years, and we expect that to continue post covered 19.
Now I'll turn it back to Chris.
Thanks, Kevin.
Well, there's much we don't know about the future course of this pandemic basis in a position of strength.
Looking ahead, we know these unprecedented times will bring about some fundamental changes to the way businesses, including ours operate.
What will remain constant is our commitment to maintaining a strong level of trust our customers have in the business.
We're also beginning to think about our strategy in the aftermath of Govan 19.
All elements of the lasted growth plan will continue to be important we're making adjustment.
Once in real time, and there will likely need to be further changes.
Well look to provide updates on our overall progress later in the year.
These challenging times I'm immensely proud of the way our system has banded together to stay true to our purpose to feed in foster community.
Countless inspiring examples of this around the world showcase the real impact Macduff.
Arnold has and the communities in which we operate.
I'm proud responders and healthcare workers to thank them for their tireless efforts to protect us all.
These include favorite breakfast and lunch menu.
And as package and happy meal boxes with the thank you note in place of a toy.
We're in the middle of this two week show appreciation and we've already provided nearly 4 million. Thank you meals.
Across Europe may markets are providing free drinks coffee and meals to first responders in healthcare workers on the front lines.
In Madrid, a restaurant just reopened solely to serve frontline workers at the nearby hospital.
In Australia, we've added staples of milk eggs, and Brad to our menus, enabling customers to use Mcdonald's contact list drive thru and takeaway.
Yes, shopper basics, providing a safe and easy way for customers to shop.
And in many of the communities around the world that we call home actions and local food banks to feed communities in need.
We've also donated nearly $1.5 million mass to covert relief Act.
Birds.
They said earlier, we had significant disruptions and challenges we remain confident in our ability to adapt as we've done throughout our 65 years to secure our long term success.
And now we'll begin today.
Thank you as a reminder.
Fewer on industry and wed like to ask your question. Please press star followed by the number one on your telephone keypad.
Sure.
Good morning, our first question is from David Palmer with Evercore.
Thanks, and good morning.
So far in April it sounds like the lead us as seriously diverge from your trends in other international markets. So just focusing on those international markets.
Obviously, a lot of that weakness has been closed stores, but I would also imagine that those will be more vulnerable to colgate tight formats like higher walk in mix.
And then right the other economic in structural factors that that might linger.
So.
Can you give us a sense about how things Andy do you see the snap back as strong as it's been in the US and then perhaps you can dig into that comment about the support your offering to franchisee, especially in those hardest hit markets. Thanks.
Good morning, David Thank you for the question and.
Right and the international particularly in our island markets in Europe, we have a number of countries that are completely close based on government mandates.
We are just beginning the process.
Opening on a limited basis in a number of those markets.
And so it's probably a little premature for us to give you any indication of what with the overall trajectory is going to be but I would say.
We've been really encouraged.
When we do start to open limited restaurants by the demand you may have seen in the last week as we've opened up.
In a few of these markets we had a three hour wait at one of our.
Our restaurants in France.
People to get through the drive through in Austria, We had.
Two to two mile line of people getting looking to get into that drive through and I think our overall view is.
As markets start to open up.
And that are known.
Is very very powerful and I think the fact that we also had a strong orientation toward convenience.
We are optimistic we certainly are expecting that we're going to be able to take share.
In those markets and so.
But the overall.
Level of customer demand is going to be.
We do feel like we're well positioned on that but.
Probably too soon to say in terms of financial support that we're providing to franchisees, let me pass it over to Kevin to address.
Yeah, Hey, David.
Related to the franchisee assistance I'd say, it's similar to what we've done in the us as I as I talked about it it's broad based assistance. It was deferring a couple months of rent in royalties generally for most franchisees around the world. The other thing that's happened is essentially we've converted our rent too.
Variable rent based on sales.
So the the restaurants that have been closed effectively are paying rent because they don't have sales.
The only other thing I would.
Persistence related to.
Kind of workers, who are hard working temporarily which means that in some other markets.
In terms of being able to keep their workers not EFTA.
Payment doesn't come out of the franchisees.
Pockets.
While they were the restaurants are closed and then in several markets, we've actually been working with other companies to actually even find places where.
Employees have been able to work so in a couple of them Weve partnered up with a couple.
I would like all the and others to provide a temporary employees for the month.
What would you attribute to that improvement there have been part of the strategy the lean more into around digital.
Value resumed advertising or would you call that that maybe improving that youre seeing as far as a result of stimulus checks and consumers growing more comfortable venturing outside the home as a contributor thanks.
Yes, Hey, Andrew.
So maybe let me take it in into different pieces there.
I think in terms of the best practices, we have learned a lot around how we adjust operations to really make sure that we're providing a safe environment for our crew and for our customers.
And it.
Almost every market, where we operate the U.S. included there are dedicated.
Teams that are meeting daily.
In reviewing procedures and connected to our global restaurants solutions group.
To understand these best practices in the case of US they've made 50 different changes to operating procedures as we've learned more and it's everything from position.
Turning guides to protective barriers to others.
Just a variety of different things so.
So.
That has been really helpful for us in terms of just making sure that are.
Customers as well as for our crew I think that certainly does help.
With the demand that we're.
Thank you to offer food in a safe way that certainly helps but there is a benefit that I think you could attribute due to the stimulus checks I think there's probably all.
So as customers are starting to venture out a little bit unfamiliar brands.
Are you saw in in the.
Away from lower in the.
As people were space staying home I think that same dynamic is going to be at play as people start to come out looking for familiar brand. So certainly we've we've been we're encouraged by what we've seen the last couple of weeks in the us.
All right.
Your next question from Eric Gonzalez with Keybanc.
Hey, Thanks, I know better than being well so in the current environment.
Frank I think helps to big topic, and I understand the Utica linearly.
We tell the public but in the past you've given some detail on what's happening.
Greece that loads quite significantly to cover the Remodels and tech upgrade. So the question is our lengthen royalty peripheral than us to prevent some of your Bob what those might be those troubled franchisees and then secondarily regarding the carry back and the PPP really would you be let's say.
Of course.
Got your stores actually qualify for some.
Yes, hi, Kevin the hand off in terms of any more details but.
The first phase of this crisis.
Actually we wanted to move.
From what we did as well as what our suppliers to just in that a new.
Actual phase make sure our system had the sufficient liquidity.
I think their liquidity needs are under a variety of different scenario.
Goes in terms of how this business recovers atrium.
Thats, the timely element, which is.
Who knows how how any of this progress is but we certainly have a sense of.
I would say we have.
Full suite of tools at our disposal to address those situations, but Kevin if you want to add any.
Most of our franchisees in most of our major markets either at or near all time high cash flows.
Leveraged I'll say than others. So we are cognizant of that and certainly are having the appropriate discussions with those franchisees.
Where we are looking at organization my organization, and seeing where we need may need to step in and provide further assistance or.
The loans.
I guess I would just remind everyone on our operators are small independent business owners, who are eligible for them up.
That is.
And then we're certainly continue to working with them to make sure that they've got the liquidity to keep running there but.
Businesses. So I think we've drilled feel pretty comfortable in general about franchisees.
But there certainly Baird.
Hi, good morning, overruns doing well, Kevin I, just wanted to ask a quick follow up to that last.
Comment.
Is there any way to maybe bucket, how many of those franchises or what percentage of the system.
We need to to offer this year also.
Assistance.
And then my second part of the question is cash flows will shape up in the short run if theres any metrics you can share in terms of cash burn rate.
For the second quarter for example that would be helpful. Thanks Jerry.
Thanks, David.
Yes, it's a small.
There's not a large majority of operators or a large piece of the operators is generally maybe a few I've no widespread issue that we're dealing with.
Related to cash flow and let me let me.
They try and put that in some context and I'll go back and just.
We're obviously, we have a strong investment grade.
Credit rating, that's always been important to us.
Talked about our franchisees also.
Entered into the year.
Sure.
We as we.
Certainly in anticipation of that.
No World, we secured six NFL line of credit and then we also still have full access to.
Okay.
Right on that.
But we do have contracts in our liquidity position.
Quarter, a little over $5 billion of cash on our balance sheet and again from memory, we still have that three and a half billion.
I'd say, our cash outflows right now are fairly consistent month to month for things and this invite big variable is the cash inflows because as you know we operating over 100 countries we've given.
Some of that those renton royalty deferrals of.
Those individual operate organizations, the meaning something further.
Having said all that between the temporary restaurant quarter.
But assuming that the countries continue to reopen on the schedules that we're seeing right now and again most of those are in the.
You'd have the ability to pay their rents and royalties, we would expect that to fraced on current plans, we would expect that to turn around that.
Positive in the third quarter.
Our next question is from Sarah.
Sure with Bernstein.
Oh, thank you.
I wanted to ask more mat sales trend, both before and after the margins as well clearly niacin, though.
Thanks, Laurie January February noted that wireline switching chapters that account or leap year effectively you haven't had positive traffic in any rational and aligning trying to understand what the jivers.
I had van and then after.
After the range of handling delayed rain, maybe give some color on.
Yes, digital ordering as well.
Ladies and gentlemen that jocular.
Our carry out what would have been digital so just a little bit more contact was very excited about the U.S. results.
Through February as you know we were up over 8%.
[music].
For the first two months of a year.
And a good amount of them to the new year.
And that excludes the extra benefit that we then got through through leap year. So.
We were in it.
Leap year further helped.
And then we had the important thing is the vast majority of our business is still.
Drive through driven in the U.S. and so.
Well.
The predominant thing that is driving our business the predominant.
Channel is really through the drive through.
Okay, It and the.
I'll say the penetration of derived through as Chris mentioned certainly derived during the US has gone from today.
But we certainly are seeing both delivery and digital sales up in the U.S. and then some markets thing it is seeing it.
Okay.
Yes.
Great. Thank you very much.
Just trying to get some historical.
I would like some some good intelligence.
I'm just trying to assess the pace of recovery through the crisis. It seems like you mentioned it was down more than 20% from a comp perspective in the January February timeframe.
Wondering if maybe you can give some sort of a monthly trend is that market I think is.
That is now down mid teens. So it seems like it's a five point plus improvement with as much more quickly improving I think you said it started April down 25, I'm just within the markets now are down 15. So anything you can compare and contrast between China.
And the use in terms of how we think about the recoveries around the world would be great. Thank you.
Sure.
So I think there are elements that I described earlier in the call.
We've certainly also been watching.
And learning is.
As China's been able to approach the digital side of the business, we're not seeing a V shaped recovery in China the business trends.
Our improving.
But but theres still running negative to where we were.
Year ago, I think there.
Couple of things.
That are worth just noting as to reasons for that.
The first as we had.
Question that if you're able to kind of contained continue to be open.
The things that we have seen.
As a real strength of our business is drive through penetration and so when you have a strong drop.
Hi, Andrew penetration I think your ability for that business that market.
To get bounce back.
That those are the us the biggest things.
There are some consumer trends I say that we're seeing similarly, which are.
Weekdays recover quicker than weekends.
As people start to go out again breakfast as a little slower to revocation holiday travel et cetera. So some of the consumer trends are similar but to Christmas point, the big difference to me is that.
We've got much more derived through certainly in the us and those restaurants remained open whereas in China. The restaurants are fully closed for awhile.
Our next question is from John Glass with Morgan Stanley.
Okay.
Thanks, and good morning on the island.
I'm trend a couple of questions. One is I know, we can do the math, but then in those markets and you're just talking about China and drive through Thats, a critical differentiator in the U.S for example, what percentage of the island markets have drive-thrus.
What percentage partial breakfast, we know it varies but if there's an average or some anecdotes there.
And then Kevin just wanted to clarify your dividend comment you said you are acknowledging dividend does that mean that it's under review and or it's not under review just making clear what you said about the dividend in your decisions around that thanks.
Yes.
So I'll start with just an overall comment about Iowa them in the European markets.
Every market is.
In a different situation based on what's happened from government mandates.
Just the overall orientation of that March that are open comp is still down comp is down reflecting just a lower level of.
I cannot.
Even in markets that are able to remain open. So that is that is adversely affecting even in restaurants in early market by market. I think if you then go to your second question, which is a.
About.
<unk> percent of restaurants, primarily in Europe, again, I'll focus there that have drive through.
The majority of our restaurants have drive through.
In Europe It does vary.
Market by market, but the majority of our restaurants that we expect to be helpful to us.
As we emerge out of this and then Kevin I'll flip the other questions over to you yes.
Relate to the dividend Jan.
Yes, what at what I'm, saying as I'm reiterating our capital allocation priorities, which is investing in the business for growth, which includes supporting franchisees where necessary and prioritizing the dividend because we know that's important to our shareholders.
Our normal quarterly process, just because of timing is that will provide a recommendation to the board later in the quarter for the second quarter dividends. So.
We havent changed our.
Normal process at this point, it's it's our ongoing process.
Our next question is from Chris Carroll with RBC.
Hi, good morning, and thanks for taking the question.
Yes. So can you. Please provide some more detail on the flexibility you have with capex in any additional detail what makes up a 1 billion dollar reduction this year and on the remaining domestic EOP remodels that were in the pipeline for the number. This year can you talk a bit about how franchisees are thinking about the timing of those.
Remodels is the thought process to complete them as soon as feasible or our franchisees seeking to largely just delayed beyond this year. Thanks, yes. Thanks for the question.
So we said we are going to reduce capex by roughly $1 billion.
Experience of the future projects.
We have substantially reduce that those projects for this year now to your.
Seasonably feasible to keep keep going on those many of the franchisees will want to continue doing knows we.
Have gotten some requests even already.
For some franchise from some franchisees to continue those projects. So I would expect a lot of those would get pushed into 2021.
But.
I think the franchise.
These and rightly so want to understand that the business is back to operating I'll say more normally before they go.
So thats a piece of it we've got we're also reducing openings in many of the markets outside the us.
Again, partly because if you think about several of those countries they've been closed for a period of time now, they're just getting back up and running now the normal operations and so the disruption.
The mill, maybe quicker pace, probably isn't the right thing to do for a lot of the franchisees there so that pace will slow and.
Okay going up and.
We certainly still see opportunities for growth and made most of those markets. So it isn't day it isn't a long term change in opportunity, but it is a pause in 2024.
A lot of that.
Our next questions from Nicole Miller Reagan with Piper Sandler.
Thank you good morning.
Okay.
Clearly for different reasons today, but I think of in some cases, where you had been doing that as a strategy thinking of Paris in particular, so how permanent might this be even if it's not what are the learning and then if you could please just clarify for the us good.
Good day part mix prior to this current situation what it is now and then if you expect to be different going forward. Thank you very much.
Okay.
On a goal.
Yes so.
I guess, just I'll take the anyone first which is.
Breakfast is down.
Relative to the other day parts and Thats consistent with.
Everything we've learned it's consistent with what we've seen.
In markets like China.
It's consistent with what we've learned through.
The whole experience of the future.
Closing and then reopening process. So so breakfast is down.
Relative to.
The other day part.
Matt.
Now that we ordinarily have.
And then the other than menu and limited menu.
It's been interesting and it's a good question.
So.
We have gone to limited menu.
In the us as well as a number of other markets I.
I think one of the things that.
Each of the markets are thinking about is as you go back to.
More of a standard menu do you are immediately revert back to sort of everything that was on the menu or does it maybe provide us an opportunity to do some things.
That.
Net debt balance right between margin operationally speed of service et cetera. So I think it's probably safe to say at this point that.
[music].
That is going to be a market by market decision, but I would say every market is thinking about doesnt make sense to go all the way back to where we were pre crisis or maybe we want to go back in more of a staged way and add some items, but not all items. So.
Stay tuned on that.
Our next question is from Katy Huberty with Goldman Sachs.
Great. Thank you and hope everybody is well only guide into the back quickly in a little bit more detail.
Hi, guys competitor of yours yesterday that.
Hi, guys is going to be allowing franchisees to take breakfast menu.
Okay.
A lot of competitive dynamic right now with.
That they've had so I was hoping to contextualize the I'd, averaging the there on the competitive landscape.
How you're thinking about the economic sensitivity at back that any disruption either on people's normal routine.
Hi, you're prioritizing marketing hopefully recapture that.
People they turn back to work thank you.
Sure well.
I think it's fair to say breakfast is a critically important daypart for us and so.
We are.
As we start to really get into the recovery phase.
Getting back at breakfast business is going to be critical for us.
I think the point, we're trying to make on breakfast is it takes time, it's a disruption to routines reestablishing those routines does take time.
But we plan to be very aggressive.
Make sure that we get back the breakfast business. The breakfast business is a great part.
Of our overall mix and and so we're going to be.
Putting a lot of effort against that.
Our next question is from John Ivan Co with JP Morgan.
Hi, Thank you are there some comments that were made regarding it should be perhaps changing the way that we operate I think is the words that used and potentially.
Further change that's coming in the relatively near term on the got I assume or via perhaps thats alluding to gionee and you'll see overall structure in obviously, Chris I think you were going to go to this exercise as a new CEO, regardless, but how you feel about organizational structure or spend to offices reporting lines, what have you and.
If this is kind of the catalyst to maybe make some changes of the near term that you could have potentially consider it over the much longer term.
Yes, I think our comments around how we operate has really been was geared more towards how we operate the restaurants and the changes that we need to make.
As we're in the midst of this crisis.
How many of those stay permanent so I think you they.
Intent was really when we talk about.
How we think about things operating differently, it's about how our restaurants operate differently after that.
Other point, though which we did talk about is.
And as I mentioned in my remarks, the world is going to look different.
Coming out of this crisis and we expect that many of those changes are going to be enduring and so part of the work that we're going through is really thinking about our strategy kind of indisposed Coven World. We've got a great foundation to build on with velocity growth plan, but I think.
Probably fair to say that were not just going to pick up the velocity growth plan playbook in kind of resume business as usual there we're going to need to be adjustments to that and so my team and I are planning on doing that work over the next.
Several months.
As we start to formulate our point of view and determine what continues what changes we'll come back to all of you later in the year and give you more insight into that.
The only thing I'll add on GSK. John has we are we are Remy certainly reviewing our investments were reducing or delaying some spending reallocating some resources.
So I think we're doing the things that people would expect us to do as far as certainly scrutinizing our spend but at the same time. We also have as I mentioned, we have a few kind of nonrecurring costs. We have the cancellation of our worldwide convention that cost us about 40 million we have.
From contractual obligations, we needed a pay for stopping some R&D work it cost us about 20 million and then we also has an unusual dynamic where there's a portion of our people costs that are capitalized related to restaurant openings and as we reduce our restaurant.
And opening is less of those costs will be able to be capitalized that will likely cost us another $30 million to $35 million DNA now that's not that's not additional cash because we were we were paying those folks are ready, but as the accounting of them, where it may end up in DNA instead, it where it would have been capitalized on device.
Elements. So we've got some offsetting things going on in DNA for the year.
Thank you everybody for joining us at on conclude the call and a good day.
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