Q3 2020 Yum! Brands Inc Earnings Call

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Participants will be in listen only mode should you need.

So since placing no conference specialist by.

That's in the Star key followed by zero after.

After todays presentation, there will be an opportunity to ask questions. Please note. This event is being recorded I would now like to turn the conference over to Keith Siegner.

VP of Investor Relations at Monday, and Treasurer. Please go ahead.

Thanks, operator, good morning, everyone and thank you for joining us on our call today are David Gibbs, Our CEO, Chris Turner, Our Chief Financial Officer, Dave Russell, Our senior Vice President and corporate controller following remarks from David and Chris will open the call to question.

We get started I would like to remind you that this conference call includes forward looking statements forward looking statements are subject to future events and uncertainties that could cause our actual results to differ materially from these statements. We're going to do our best to provide our current thinking about the impact of the COVID-19 pandemic on our business, but obviously the situation is completely empty.

Yes, and then in an evolving so any forward looking remarks should be considered in light of the uncertainty regarding the severity and duration of dependent make and the variables that will be impacted as a result, all forward looking statements are made only as of the date of this announcement and should be considered in conjunction with the cautionary statement in our earnings release and the risk factors.

Included in our filings with the SEC.

In addition, please refer to our earnings release and relevant sections of our filings with the FCC to find disclosures and reconciliations of non-GAAP financial measures that may be used on today's call. Please.

Please note the following regarding our basis of presentation first all system sales results exclude the impact of foreign currency second core operating profit growth figures exclude the impact of foreign currency and special items for more information on our reporting calendar for each market. Please visit the financial reports section.

Of our web site we.

We are 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 ask a question. It will be included in both our lives conference and in any future use of the recording.

We would like to make you aware of upcoming Yelm investor events first disclosures pertaining to outstanding debt and now restricted group capital structure will be provided at the time of the form 10-Q filing.

Second fourth quarter earnings will be released on February four 2021 with the conference call on the same day now I'd like to turn the call over to Mr. David Gibbs.

Thank you Keith and good morning, everyone I want to start by saying, Thank you to our entire global system for exceptional execution of our recipe for growth and good strategy during the quarter, our employees franchisees and restaurant team members are successfully adapting to this years ever changing environment, while also accelerating progress.

On our digital and technology journey.

Weve deepened collaboration around the world and across functions and brands to bring customers are delicious food through sales contact list message. While also carry for our team members employees and communities for that I am incredibly proud.

These efforts led to encouraging third quarter results, including a return to year over year core operating profit growth our restaurants that had temporarily closed because of the pandemic continued to reopen throughout the quarter and despite many of our restaurants operating with only a portion of their normal sales channels same store sales growth in our own.

Opens doors was approximately flat in aggregate.

2020 has presented many challenges our portfolio of brands has proven resilient our balance sheet and liquidity position are strong franchisee health has improved and we're incredibly well positioned to drive global growth and maximize stakeholder value for years to come.

Our recipe for growth using our four key growth drivers continues to guide our long term strategy. So I'll start with an overall review of third quarter results and use a few examples to illustrate the power of our relevant easy and distinctive brands or read for sure.

Last operating capability, and unrivaled culture and talent growth drivers.

Then Chris will share more details of our Q3 results, including some discrete one time impacts our bold restaurant development growth driver and our healthy liquidity position.

First Q3 results.

Overall system sales grew 1% with a 2% increase in net units year over year, partially offset by a 2% same store sales decline coal.

Covert continued to impact the business both in terms of temporary closures of restaurants and limitations on the use of dining rooms, which some of our markets heavily rely upon despite.

Despite the challenges related to covert we delivered core operating profit growth of 7%. This.

This strength can be attributed to strong growth in the Taco Bell Division and an improvement in franchisee health our third quarter same store sales declines were once again, primarily driven by temporary closures.

You may recall that as of our last earnings call. We have less than 2500 units fully closed this number decreased to approximately 1100 by the end of the quarter and today stands at about 1000, which means roughly 98% of our system is open in a full or limited capacity.

Assets located in malls transportation centers airports and the like continued to be pressured making up many of the closures.

Geographically Pizza Hut, U.S., Latin America, Asia, and India make up the majority of these closures, but the situation remains dynamic and largely dependent on government responses decoded based on local conditions.

At the end of the quarter, we continued to have a significant number of our open restaurants subject to dining room closures or other limitations on access.

However, as I mentioned earlier, despite the drag from these limitations are off premise channels aided by digital enabled our open store base to deliver same store sales that were flat for the quarter.

This was an improvement of a few points from what we saw in the second quarter.

Now, let's talk about our four red brands.

Starting with KFC Division, which now accounts for approximately 48% of our divisional operating profit Q3 systems sales declined 1% as a 4% same store sales decline was partially offset by 5% net new unit growth.

KFC continues to reopen temporarily closed stores and ended Q3 with about 99% open in a full or limited capacity.

A rapid recovery at KFC has largely been driven by off premise capability acceleration of digital and the reopening of temporarily closed stores.

Many markets have started to show improvements, but the pace is varied during the quarter markets with robust off premise and or digital capabilities excelled including strength in the U.S., The UK, Australia, Japan and Canada.

Many of these markets delivered sales performance above their pre kobin levels and collectively represent about 30% of the KFC global portfolio.

KFC continues to innovate on our core menu, including launching great products like the famous chicken chicken sandwich in Canada, and the slab in Australia, and adding new bundles that offer great value for off premise family dining.

Importantly markets such as Africa, much of Asia parts of Europe, and the Middle East started to show sequential improvement during the quarter by growing their off premise capabilities to partially offset their dine in reliance.

KFC is most impacted geographies, where markets, where most of our temporary closures remained elevated including Latin America, and Caribbean Asia, India, and the Middle East.

These markets also tend to be our more dine in centric and had lower consumer mobility during the quarter.

KMC U.S. had another fantastic quarter with 9% same store sales growth owing to the continued strength of our group occasion business and digital.

Our KFC us drive through sales grew about 60% year over year with our largest daypart growth occurring at mid day and continued strength during the dinner daypart.

We also hit a delivery milestone with about 80% of KFC is in the U.S. now delivering many through multiple aggregator partners.

Moving on to Pizza hut, which now accounts for approximately 18% of our divisional operating profit. The division reported a Q3 system sales decline of 4% with a 3% same store sales decline and a 4% net new unit decline.

Global off premise same store sales grew mid teens year over year, which is clearly encouraging.

Cove It is highlighting how important the future of off premise is and we intend to use this momentum to further advance the off premise category and continue to decrease our dine in asset footprint.

Please note that as we lean in on this opportunity to transition the asset base. We may continue to see closures present, a near term headwind to overall division net unit growth in Q4 and into next year.

During the quarter Pizza continued to reopen temporarily closed stores and ended Q3 with about 96% at least partially open in a full or limited capacity.

Express units continue to be pressured making up many of the remaining closures.

The 9% same store sales decline at Pizza Hut International for Q3 marked a significant improvement from the Q2 lows, but the continued softness was largely a result of markets with substantial Don and footprint, such as China parts of Asia Central America and Europe.

On the other hand, our off premise focus markets continued to see strength, Canada, Japan, Taiwan, and Australia, all posted strong results, while the UK delivery business and South Africa saw improved momentum during the quarter.

Importantly, our off premise channel generated another quarter of positive 10% same store sales growth, giving us confidence that our off premise strategy is working and will be the foundation of the long term growth story Tim.

Similarly pizza at U.S. had another positive quarter with same store sales growth of 6% with our off premise channel generating 17% same store sales growth. Despite a 4% drag from closures and sales headwinds in express units.

In addition to digital and convenience driving sales, we promoted abundant value with a 10 dollar tastemaker followed by 11 99 large three toppings stuffed crust pizza and 12 99 double that box.

As for Taco Bell, which now accounts for approximately 35% of our divisional operating profit.

System sales grew 5% driven by 3% same store sales growth and 3% net new unit growth.

Taco Bell continued to reopen temporarily closed stores and ended Q3 with about 80 closures.

Even more impressive was the profitability delivered by Taco Bell in part due to a 400 basis point increase in restaurant margins, a testament to the strength of the brand and the operating capabilities of the team.

We expect these margins will likely return closer to historical levels as check averages normalized dining room patronage increases and value focus moves to balance abundant value with price point guidance.

In the U.S. talk about focus on a bundled value offerings continued as the primary theme throughout the quarter. We also reintroduced innovation beginning with the debut of the grilled cheese Burrito, which quickly became a customer favorite mixing at 9%. This.

This was followed by the five dollar ground day now to his box and one dollar Nacho Crunch double stack cargo.

Well also continue to focus on a faster and easier customer experience by expanding aggregator partners and digital reach while breaking records and drive thru times dry.

Dry through demand Sky rocketed this quarter as Taco Bell served over 30 million more cars and was 17 seconds faster year over year during.

During the quarter, we also unveiled our new go mobile asset design in the U.S.

These assets will have a smaller footprint with a big emphasis on digital and off premise with dedicated mobile pickup lanes and bellhops for outside in person ordering.

Better experience for customers and better economics for franchisees is a winning formula stay tuned for more about this exciting development opportunity.

Now onto the habit, we continued to reopen temporarily closed stores and ended Q3 with 97% of habit restaurants opened in a full or limited capacity.

Same store sales declined only 3% as effective off premise solutions basically offset the dine in sales mix loss, which was over half of sales pre code.

Supporting this digital sales maintained second quarter's 40% mix, even with dining rooms and patios reopening.

The habit restaurants would drive through capabilities are performing exceptionally well and they are yet another proof point for us as we continue to position the brand to fit the needs of consumers today.

This is a perfect segue to our unrivaled culture and talent growth driver.

When we first approach the habit team about joining one of our biggest takeaways with or operational excellence consistently serving delicious quality food customers.

Now that they are part of it.

It's clear that they fit right in with our culture as well.

We're extremely pleased with Russ bendel and the team's ability to pivot they joined our organization. During this unprecedented time and jumped right into action, making sure that their food was accessible on a safe low contact and off premise environment.

Many of you have asked us about our interest in Refranchising the habit.

Continue to unlock sales growth over the near and long term.

To that end, we're optimizing our resources reallocating them towards critical areas of the business that will drive future growth with strategic initiatives that include accelerating our digital technology and innovation capabilities to deliver a modern world class team member and customer experience and improve unit economics.

Like many companies optimization includes managing expenses through a number of levers, including reduced travel elimination of large meetings freezing open roles optimizing current rolls no 2021 salary increases and offering an early retirement program in the U.S.

Of course over time, we will continue to invest in new roles across Yum and our brands to support the most important areas of growth in our company.

We are confident in the resilience of our highly diversified global business model and believe that investing in things that are integral to our growth in social impact strategy will help us emerge as an even stronger company.

During the quarter, we published our 2019 recipe for good report.

Since our last report we have made significant progress advancing our sustainability agenda globally with expanded efforts to offer customers more balanced choices, including plant based and vegetarian menu items and continuing action on climate change by increasing efficiencies in our restaurants, and corporate offices and making progress on key deep.

Fourth station commitments, including paper Palm oil beat and soy.

And as we mentioned last quarter, we are stepping up our investment in Yonkers, new social purpose to unlock opportunity in our people and communities, while championing equity inclusion and belonging across all aspects of our brands and franchise business.

With that Chris over to you.

Prior to leaning on digital and technology during a period when acceleration in these initiatives should only enhance our competitive advantage for the fourth quarter. Our current estimate is the consolidated G&A expenses will approximate the fourth quarter of 2019 do two accelerated growth initiatives, which may offset continue.

Deficiencies.

Interest expense X special was approximately $127 million, a 6% increase from the prior year driven by higher outstanding borrowings offset by a decrease in rate on our floating rate that we.

We recorded $8 million, a pretax investment income related to the change in fair value of our investment in Grubhub, which resulted in a <unk> benefit to EPS in the third quarter.

Our grubhub investment favorably impacted year over year EPS growth by 17, this quarter as we lapped $60 million a pretax investment expense in the third quarter of 2019, which generated a negative 15 <unk> impact to Q3 2019 EPS.

Are effective tax rate was 19, 3% during the quarter an increase from the prior year due to reversals of reserves in the prior year as well as lower year over year share based compensation benefits.

Before moving on to bold restaurant development I'd like to add some detail around the impact quarterly timing on our profitability this quarter and how that relates to queue for.

Beginning with bad that our franchise and property expenses were $13 million in the quarter compared to $43 million and the prior year.

During the first half of 2020, we recorded significant bad that expense due to the uncertainty surrounding covid and increasing past due receivables from certain franchisees.

During the third quarter, we saw significant recoveries of amounts past due and KFC international as well as in the Pizza hut business, including MPC. These recoveries resulted in a net $21 million benefit to operating profit related to bad that during the quarter and improvement of 30 million.

Compared to $9 million of expense and the third quarter of 2019.

Now moving on to bold restaurant development.

We delivered 2% net new unit growth over the third quarter of 2019. This includes the addition of 276 habit restaurants in Q1 of this year and the stellar unit growth. We had in Q4 2019, offset by Covid related dislocations and Pizza hut.

Closures.

We always anticipated uncertainties and delays could arise and development, owing to global macro conditions, including the potential for Covid related dislocations.

This remain the case in the third quarter as we opened 556 restaurants and closed 823, including 672 closures at Pizza hut.

Gross openings were led by China.

Asia, The U S Russia in Thailand.

To put a quarter into context three of our four brands have positive net new units year to date. Despite these macro headwinds.

This adds to our confidence that a return to net unit growth rates equal to or better than 2019 is a question of when not if.

Nothing has changed on this front and we remain confident these uncertainties should debate in time, and we will generate meaningful net unit growth backed by strong unit level economics for years to come.

In regards to Pizza hut, where units have declined 5% year to date. There are several factors at play which should assist in the transition to a healthier global estate off of which to grow.

First as it relates to the chapter 11 filing of NPC, one of our pizza hut use franchisees, we consented to up to 300 mutually selected closures of underperforming and primarily Dynein stores.

These closures are largely complete and are reflected in our ending unit count for the third quarter.

Second on our queue for 2018 earnings call, we mentioned that we anticipated between 100 and 150 closures due to overlap following our Tele Pizza Alliance.

While only six overlap closures occurred in 2000 1947 closures have occurred thus far in 2020.

Third Covid dislocations have impacted off premise location development as with our other brands.

Fourth.

While covid has hasten the transition and the closure of casual dining based restaurants, we still have a lot of work to do on transitioning the global asset base to off premise focused assets.

Or both Pizza Hut U S and international the closures for the quarter resulted in an asset mix shift to about 36% diamond down from 38% in queue too.

We expect the mix to continue to migrate downward overtime, though caution the transition will continue to take some time.

The hasten transition and the Pizza hut asset base and the closure of Tele Pizza overlap units will present, a near term headwind to the division's net unit growth in Q4 and into next year, taking this dynamic into account along with lingering covid related uncertainties on our global development across all brands.

We currently estimate Yom's overall absolute units to be roughly flat at the end of Q4 as compared to the end of Q3.

This would be an improvement from both the second and third quarters results in a solid step toward returning to net unit growth rates equal to or better than 2019.

Now for an update on our balance sheet and liquidity position as well as our latest thoughts on capital structure and priorities for capital allocation.

First we ended Q3 with cash and cash equivalents of $1.1 billion, excluding restricted cash.

Consolidated net leverage was five two times, which is marginally above our historical target of approximately five times I'd.

I'd like to highlight that owing to the improvement and stabilization and our core business, we felt confident enough to repay the entire outstanding balance of our revolving credit facility, which had been $575 million drawn as of the end of the second quarter.

When considered alongside the 47 dividend we paid during the third quarter. We believe this should clearly demonstrate the confidence we have in our liquidity position at this time.

Second we refinanced our 5% coupon rate restricted group notes do in 2024 with newly issued 10 five year unsecured holding company notes with a coupon rate of 362, 5%.

This coupon right now represents the lowest fixed rate coupon in our debt structure, a testament to the health of our global system. In addition to lowering the coupon rate and extending the maturity by approximately seven years. The refinancing action increased flexibility since the new notes are not subject to financial maintenance and that and.

<unk> covenants, which the restricted group notes were subject to.

Third R capital priorities remain unchanged invest in the business maintain a healthy balance sheet pay a competitive dividend and return remainder excess cash flows to shareholders via repurchases <unk>.

Commensurate with the performance of the business the health of our balance sheet and liquidity position and our confidence and returning to five times consolidated net leverage by second quarter of 2021, we plan to resume share repurchases in the fourth quarter <unk>.

Now the team and I are happy to take your questions.

We will now begin with a question and answer session.

Question.

And one on your Touchtone phone.

Speaker phone please pick up your handset before.

I have a question please.

Please ask only one question.

This time, we will pause momentarily to assemble a roster.

First question is from Dennis Tiger.

Go ahead.

Great. Thanks for the question just wondering if you could talk a bit more about about Taco bell strength of the brand the strength of the franchisees you've touched on and just kind of thinking about maintaining the industry or any momentum.

In recent years and maybe if you can comment some on the latest developments loyalty program.

Delivery and kind of the opportunity going forward posts covid as we think about menu.

Menu simplification speed and what that new product pipeline Uhm could look like please thank you.

Thanks Dennis.

Look at the Taco Bell brand performance in two or three is obviously something we're very proud of Mark King and his team have done an amazing job of pivoting in this environment to meet the consumers new needs. So you touched on a couple of other things that they've done.

To do so, but the ability to embrace larger meals family meals, they've seen a doubling of their party sized meals.

Obviously rolled out a lot of tech rolled out of loyalty program to connect better with consumers and giving them access to delivery they've added delivery partners as the quarter went on now on multiple platforms.

And I think Taco Bell.

Always has their finger on the pulse of the consumer that's what makes the brand great. The way they connect with consumers they've recognize that we're really in an environment, where food is going from something as fuel to being something a little bit more like entertainment. This is an environment where people are now comfortable with how things are going to be for awhile and they are looking for a little.

More excitement that's why you saw the success of something like the grilled cheese burrito that got rolled out and was well received by consumer so.

Across multiple fronts. The brand is really connecting well with consumers and excited about the progress I made obviously the margin progress they've made in the quarter is somewhat related to the limited hours. The menu simplification that you mentioned Dennis was also helpful. In that regard so I think they're getting through this and an admirable way.

Hi. Thanks next question. Please our next question is from China Ivan.

I even call from J P. Morgan go ahead.

Hi, Thank you so much yeah. The question was also on Taco Bell, but I wanted a pivot it a little bit can you talk about your experience with new unit openings internationally. I mean are you kind of saying that you are the type of consumer reception and trust that you see in the U S internationally in a post.

Covid environment, then I guess, what some of your.

International franchisees are telling you in terms of their willingness to kind of accelerate unit development of this important Brandon.

I want to go with that is do you think talk about is potentially the driver internationally to get you back to 4%.

Plus unit development or is.

In a position where it can start to take advantage of what is obviously, a much stronger balance sheet and cash position to maybe consider even adding additional brands for the portfolio would add to some of that international unit growth. Thank you.

Hey, John this.

Chris Good question look I think I'll start a little bit more broadly.

Think about the development journey.

We've got three of our four brands for we've had positive net new unit growth globally. So far this year Taco Bell is one of those we remain very confident in the long term potential for development and Taco Bell around the globe.

In certain markets the sales and.

The situation have been impacted but there are other markets, where the business is done.

Strongly.

Through Covid.

Including all of the things that are supporting us around the globe in terms of shift to off premise and digital and delivery.

Those trends have existed in the Taco Bell international stores and so in the long run we continue to remain confident in Taco bells international growth as a pillar of our overall unit development engine Nothing's changed there in the long run it's just the uncertainty on the timing of us getting on that track.

On Taco Bell development.

Just to pick an example market Australia just opened their 15th unit starting from scratch two years ago that unit and it's first dated weekly type sales volumes the.

The team in Australia, we've got two great franchise partners. They couldn't be more excited they have big plans for development next year, probably more than doubling the unit count there. So I think your question, though is really country specific.

Like everything if we talk about averages on average we're pretty excited about development, but there's going to be pockets in countries, where we have franchisees that I have are more reliant on dine in for any of our brands, they're more affected by this obviously and so we will have impact in certain markets and hopefully other markets where were on fire with are off premise business.

Can make up for that.

Next question is from David Palmer some evercore.

Yeah.

Great. Thank you good morning, I'll just squeeze in two quick ones. Just if you have a big comment to be made about.

What your divestiture of Grub hub, what that statement.

Removal that stake means about your strategy with delivery over the long term.

And maybe you're thinking about the future of third party delivery in general.

And then also on Pizza hut.

What would you say to people about this brand longer term post covid, you've put a new brand management there there's been some closures.

You've gotten rid of some margin dilutive value.

But what would you say about the restaging that brand and sort of a concern that it remains in a in a fragile financial state and.

And the brand is just benefiting right now from Covid. Thanks.

Thanks, I will take your first question and then turn it over to David for your second question.

During the quarter, we did sell our position and the Grubhub shares all 2.8 million chairs for a total of 206 million.

It doesn't reflect anything about our view on the delivery space in general.

David mentioned, we've expanded our relationships with Aggregators are overall thesis is we want to be where consumers wanted to do business with our branch and if that's through a delivery channel with an aggregator we want to be there and with the relationships. We continue to bring online in the U S and around the globe. We're off the solid starts on those it's also a story of leveraging our <unk>.

Gail when we bring our restaurants under those platforms the economics improve for the aggregator and we were able to get advantage economics for our franchisees and for young when we do it. So we think it's a way to drive profitable growth for the system.

Yeah, and the other point on Grubhub, obviously, our ability and our scale our ability to get aboard seat participate in understand what's going on in the aggregator space was helpful to us with that investment and we made a little money on the investment on the side. So I think that worked out the way.

Essentially had hope.

Turning to your question on Pizza hut.

Obviously this is an environment right now.

US in a lot of people I've talked about where existing trends in the in the restaurant industry have just been accelerated does not as so much about new trends being introduced is just existing trends being accelerated like golf premise like delivery like ordering through tech Pizza hut is perfectly positioned.

For a lot of those trends.

Why you're seeing such a strong performance from the Pizza brand right now in the off premise Kara category, our delivery carry out sales in the U S. If you just isolate those sales are up 21% mid teens globally. So.

So we do think the brand as well positioned for the for the future based on these accelerating trends franchisees are obviously benefiting from that in terms of their financial condition and the opportunity to execute the strategy that we've talked about for now for a couple of years about wanting to get out of certain dining assets that aren't.

<unk> building assets that are is essentially holding us back we've accelerated the transition out of those assets as you as you are seeing in the numbers. So.

Certainly, it's a brand with bright future in our portfolio, but still has a lot of work to do to pivot the asset base.

Asset base that makes sense for today's consumer.

Our next question is from Brian.

Oh.

Go ahead.

Thanks, Good morning.

Want to follow up on the unit growth.

When you are talking about unit growth I noticed a couple of times and your prepared remarks at.

Not only do you think he can get back to 19 pace of unit growth, which was over 4% and kind of hit on all cylinders, but <unk> said, you could potentially better than that.

I'm just wondering what's driving that commentary or are you starting to see specific ynnerman incremental growth opportunities open up because of what's happened through the pandemic or any other color you can put on on that comment would be helpful. Thanks.

Great.

Good question looks if we think about the overall development picture reached said before we remain very bullish on the long term opportunity for young and we think it's as we've said a matter of when not if we get back to that long term unit growth algorithm the macros a promising our branch.

Stand tall in this type of environment, they stand for value, which pivoted off premise. So that'll drive the top line for the stores are teams are developing prototypes that are fit for those with lower footprint sizes that have great digital capabilities and enhance even further off premise capabilities and in certain markets there likely will be some <unk>.

Real estate tailwind from a real estate cost standpoint, and.

And our franchisees have been growth minded historically and they've shown the resilience through the situation that we've got great development teams.

And even if you just think about what's happening this year in the pandemic. There are some very positive signs as I mentioned earlier three to four brands have grown there units.

This year.

And do you think about KFC and Taco Bell alone. We've had 540 net new units this year, which is three three quarters.

Sent in a half of net new unit growth, even a pizza, where we're working through the asset transformation that David mentioned, we've had 340 gross openings. So far this year. So it indicates that our development teams in our franchisees are working hard there. So all of that I think is what gives us the long term confidence.

I'd love to.

Say that we will get there as soon as we can and our teams are going to be striving to do even more as you described.

But we are confident in the long run we still have uncertainty about the timing of it.

And that's why we just can't commit to the exact timing of when we get back to that algorithm you've seen the news from Western Europe over the last couple of days. That's an example of the types of things that are driving the uncertainty on exactly how this will play out and that's why we just can't provide specific guidance on the timing where the exact number.

Our next question is from Jon for Morgan Stanley Go ahead.

Thanks. Good morning, two questions. One is on Pizza hut can you just help us understand what the system sales impact will be for the closure as you know either the year to date is 5% closures or decline in 5% what was the system sales as soon as your lower volume units and if you think about the portfolio for time is there a way to think about the system sales and tech versus just.

Unit closures. So we can try to understand the financial impact.

And then of course can you also just on the bad debt recoveries, where are you now so is expected fourth quarter benefit again, and what's kind of the order of magnitude is still outstanding recoveries versus normalized level that to get back to sort of do what you are fully up to normalized levels of collections.

Great.

Good questions. There look I'll give you a couple of facts that help.

On the Pizza hut side, just as we think about the closures that we're seeing.

First there more than 50% of the closures are are dining units and our express units and that's how we're driving the asset transformation. That's why you saw the two point reduction in the dining percentage of the estate both in the us and internationally and as you might expect those stores that were closing or under.

Performing stores so on average you.

S. As an example, the average unit volume of the closed doors is about two thirds that of the overall system average.

And that's true whether you are talking about the regular stores that are closing the diamond stores that are closing or the expression. It's they're both on the underperforming side. So hopefully that gives you a little bit of a feel for.

The nature of cleaning.

Cleaning up underperforming assets and driving this asset transformation and pizza hut.

On the bad that side.

Yeah, you saw that this quarter the recoveries were dramatic we think.

But that.

Is a great signal about the long term health of the franchisee based on the resiliency of the franchisee based on the way that we've worked with them.

Through the pandemic in the quarter relative to last year. It was about a $30 million swing $17 million in KFC and about $13 million and pizza hut, mostly in pizza Hut U S.

Look in the long run.

We hope to get back to more normal levels of.

Bed that expense, but I think we've got to remain vigilant in the near term just given the uncertainties around covid, but we're certainly pleased with what happened in the quarter and think overall, it's a great sign of the resiliency of our franchisee based on business model.

Our next question is from Sarah China from.

Some Bernstein go ahead.

Quick follow up question.

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Okay. Thanks area I'm part of your question broke up at least for US here, but I think I got it.

The the Taco Bell mix and the impact from the.

The impact the hours are breakfast business as you said typically mixes around 6% I think that mixes down to four now is the number of people stop serving breakfast, although it's still in more than half of our stores and.

And we obviously, we are committed to breakfast long term and expect to be back into that with all stores.

As time goes on I do as far as the impact to the business.

It's a point or two of the same store sales impact depending on how you want to cut it. So it's nothing that we can overcome obviously as we pivot to other means of serving customers and then the question on acquisitions I think we mentioned it in the speeches I'll repeat it we're really pleased with the acquisitions that we've done whether it be.

The quick order acquisition that we did on the technology side, a couple of years ago. We recently bought hard styles Collider, a consumer insights company, though these are smaller acquisitions, but more recently, obviously the habit Burger grill.

It's worth really taking a look at what they have done in this environment. They went from over 50% of their sales coming from dining in another good portion of their sales coming from carry out in the restaurant.

To pivoting almost everything coming outside the restaurant and recovering to immediately flat I think they're basically flat in the stores that are open.

So I think that's an incredibly positive datapoint for a brand that we believe is on the rise we have lots of interest than the franchise community from it but we're in no rush to do another acquisition, we want to we want a digest habit get that established you hit the right partners around the world and get the growth going there.

And if we continue to see the kinds of results that we think we're going to see and that we have seen from them that would be obviously a positive datapoint as we think about other similar type acquisitions down the road.

Our next question is hen, David Contino, some band go ahead.

Hi, Good morning, my questions on G&A I, just want to make sure I understand your comments there.

What is your long term G&A outlook, because it's still a target of 1.7% assistant sales and I guess the nature of my questions and thank you talked about achieving some efficiencies in the current environment, but reinvesting just wanna try to reconcile that on your long term target.

Yes, so David G&A.

[noise] removed guidance right now, but in general the way, we think about G&A is coming out of the the transformation we were right.

<unk>, we did a lot of work in the transformation to right size the expense space and so we were already fairly clean and of course, our mindset is one that's driven by lean we're going to invest in things that makes sense and drive value for the customer and for the business.

But we're going to make sure that we're reducing expense otherwise and.

Managing those expenses carefully on things that aren't driving value.

And right now I think the main thing we're doing on G&A is continuing to reallocate spend to things that will drive long term growth. So we're continuing to invest ahead in digital and technology invest in a recipe for good.

And so that's our focus.

At the same time in order to create room for that investment. We are doing the things you would expect us to be doing in terms of optimizing.

The way that we work taking advantage of the cost reduction opportunities the covid.

Puts on the table and so we're trying to manage it very smartly, obviously in the long run some of those day to day expenses will start to come back.

But we'll continue to manage this in a in a.

Lean way.

That's kind of the question and answer session.

No I'd like to turn the conference back over to Chris Turner for closing remarks.

Great I'll I'll actually David give the closing remarks here. Thanks.

Thanks for everybody's time today, obviously, we're.

Excited and proud of the results that we put up in Q3, showing strong sequential improvement on the recovery from Q too.

Driven by the things that we wanted to see our ability to adapt and pivot to off premise embraced digital the billion dollars of extra digital sales in the quarter just like we did in queue to is incredibly encouraging but yet we know it's a fluid environment and.

As we're seeing in Europe, it's just not an environment, where we can predict and guide for 2021, we do have confidence in our team based on how they recovered so far and that whatever thrown our way, we will be able to pivot to it as we've gone into Q4.

The trends from Q3 have continued.

But we know that it's an uncertain environment and that.

We will be faced with more challenges and excited about the way the business can pivot meet those challenges and continue to thrive. So thank you for your time today.

That conference is now.

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