Q4 2020 Yum! Brands Inc Earnings Call
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Good day and welcome to the fourth quarter 2020, Yum brands incorporated earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.
To ask a question you May press Star then one on your Touchtone phone and to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Keith singer. Please go ahead Sir.
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, and Dave Russell, Our senior Vice President and corporate controller following remarks from David and Chris We'll open the call to questions before we get started I'd like to remind you that this conference call includes forward looking statements forward looking state.
Once are subject to future events and uncertainties that could cause our actual results to differ materially from those 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 this situation is completely unprecedented and evolving so any forward looking remarks should be considered in light of the uncertainty regarding the severity.
And duration of the pandemic 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 statements in our earnings release and the risk factors included in our filings with the SEC. In addition, please refer to our earnings releases and relevant sections of our filing.
As with the SEC to find disclosures and reconciliations of non-GAAP financial measures that may be used on today's call. Please note. The following regarding our basis of presentation first all system sales results exclude the impact of foreign currency.
Core operating profit growth figures exclude the impact of foreign currency and special items third. Please note that fourth quarter of 2020 results include the impact of lapping a 50 <unk> week in 2019. However figure stated on this call will exclude the 50 <unk> week for more information.
On our reporting calendar for each market. Please visit the financial reports section of our website. 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 live conference and in any future use of the recording we'd like to make you aware.
They're of upcoming Yum investor events, and the following first disclosures pertaining to outstanding debt in our restricted group capital structure will be provided at the time of the form 10-K filing second first quarter earnings will be released on April 28, 2021, with the conference call on the same day and finally.
We will be hosting a virtual KFC global brand day on Tuesday may 25th available via webcast on our website stay tuned for more details now I'd like to turn the call over to Mr. David Gibbs.
Thank you Keith and good morning, everyone.
We entered 2021 of stronger company trying to grow made better and more resilient by the challenges of 2020.
I'm incredibly proud of our people and the way our global system came together to navigate these challenges and offer new ways to safely and affordably serve customers, we galvanized our global systems commitment to our growth and good strategy underpinned by our culture of collaboration of across our brands people and franchisees that we built.
<unk> is unmatched and has put us on solid footing to move forward.
In fact to ensure this momentum on collaboration and execution continues we recently elevated our chief transformation of people officer Tracy schemes to Yum, Chief operating officer. This promotion formalizes. The role she has already been playing to drive cross brand collaboration on people capabilities and customer experience.
Imperative that fuel same store sales of net new unit growth.
At this underlying alignment of vision in action is an often underappreciated competitive advantage for us and it's fundamentally central to our current and future growth across Yum, we intensified our focus on leveraging our scale.
As you are well aware of having more restaurants than any other company enhances our opportunity to create sustainable competitive advantages to fuel growth for our franchisees.
This includes accelerating our deployment of digital and technology initiatives to enhance the customer experience off premise capabilities and unit economics across the globe. We now have over 35000 restaurants offering delivery, representing a 16% increase year over year in part driven by expanded aggregator partnerships.
We ended 2020 on the digital sales high note hitting a record of $17 billion about a 45% increase over the prior year.
As I enter my second year, leading Yum I'm more confident than ever that our customer focused digitally enabled brands will grow same store sales unit economics will support profitable development and Yum is well positioned to maximize value creation 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 2020 results and use of few examples to demonstrate our relevant easy and distinctive brands or red for short unmatched operating capability and unrivaled culture and talent growth drivers and.
And then Chris will share more details of our Q4 results, our bold restaurant development growth driver and our strong liquidity and balance sheet position.
First of 2020 results.
Overall, Yum system sales declined 4%, including a 1% headwind of a lap of the 50 <unk> week in 2019 with slightly positive net units year over year end of 6% same store sales decline.
Covid continued to impact of business through the end of the year. Both in terms of temporary closures of restaurants and limitations on the use of dining rooms, upon which some of our markets heavily rely.
This adversely impacted our core operating profit, which declined 8%, including a 1% headwind from the lap of the 50 <unk> week in 2019.
Now I'd like to provide some details regarding COVID-19 related temporary closures of the progress that we've seen.
As of the end of the third quarter, we had about 1100 temporarily closed units.
This improved to about 1000 as of the third quarter earnings Conference call. We hosted on October 29.
We continued to see reopening through the balance of the fourth quarter, but due to the second wave of Covid impacts, including increased government restrictions temporary closures climbed back to about 1000 in January which is where we remain today.
This means roughly 98% of our system is currently opening of Fuller limited capacity not surprisingly the geographies experiencing temporary closures have evolved and we are now seeing more closures in Europe, Canada, and the middle East offset by some reopening in Latin America and India.
By asset format restaurants, located in malls transportation centers airports and the like continue to be pressured making up many of the temporary closures of.
All in the situation remains dynamic and largely dependent on local government responses to COVID-19.
We've also continued to have a significant number of our open restaurants subject of dining room closures or other limitations on access pre COVID-19 about one third of our system sales came from the dining room. Despite.
Despite the drag from these limitations are off premise channels aided by digital offset most of those lost sales and enabled our open store base to deliver same store sales that were about flat for the fourth quarter in aggregate.
Now, let's talk about our core red brands.
Starting with the KFC Division, which now accounts for approximately 48% of our divisional operating profit Q4 system sales declined 1% driven by a two percentage point negative impact from the lap of the 50 <unk> week in 2019 and of 2% same store sales decline, partially offset by 4% net new unit growth.
KFC continues to reopen temporarily closed stores.
So different geographies suffered from the second wave of impacts of Covid and ended Q4 with about 98% opening of polar limited capacity.
At KFC International same store sales declined 4% during the quarter an improvement from Q3 of the U K, So pack and Canada continued to show strong customer residents and operational execution leveraging drive through end to other off premise channels to grow sales.
Fortunately the most impacted geographies from Q3, such as India, Latin America, and the Caribbean in the Middle East started to show recovery across the Globe KFC continues to invest in innovation by filling gaps in their core menus or through re bundling repackaging and re conceptualizing the core menu items.
KFC U S continued to see positive same store sales growth delivering 8% growth in Q4, owing to continued strength in group of occasions in digital.
To kick off our launch with door Dash, we had of free tenders promotion, which performed particularly well and helped digital grow to a high single digit sales mix for the quarter.
Moving on to Pizza hut, which now accounts for approximately 17% of our divisional operating profit. The division reported a Q4 system sales decline of 6% driven by a three percentage point negative impact from the lack of the 50 <unk> week in 2019 at 6% net new unit decline and of 1% same store sales did.
Your line.
During the quarter Pizza hut continued to reopen temporarily closed stores and ended Q4 with about 90% of 8% at least partially open and a fuller limited capacity.
Express units continued to be pressured making up many of the remaining closures.
Pizza Hut International same store sales declined 7% our off premise focused markets continued to excel, while our guidance footprint continues to be of headwind.
Our off premise channel generated a positive 9% same store sales growth and we are continuing to emphasize and support the shift to off premise both of our operations and brand strategies further markets at offered abundant value of the customer has helped drive strong performance in markets, such as Canada and Asia.
Pizza Hut U S had another stellar quarter delivering 18% of same store sales growth in the off premise channel with 8% overall same store sales growth are $10 pacemaker value offered continued to perform well mixing over 20%.
Justin current of the holidays, we introduced our triple treat box of premium product with abundant value.
We also partnered with beyond to be the first major pizza chain to successfully introduce of plant based alternative product of the market.
A few weeks ago Flynn restaurant group announced its intention to acquire Npcs, approximately 950 Pizza hut U S restaurants.
Glenn is an existing Yum brands franchisee for Taco Bell debt as well capitalized and brings a strong track record of operational excellence. We expect blends of ownership of these restaurants will make the entire pizza hut U S system stronger and welcome Greg Flynn and his team to the Pizza Hut family.
The near term plans include modernization of a significant portion of the restaurants acquired while improving operations.
As for Taco Bell, which now accounts for approximately 36% of our divisional operating profit Q4 system sales declined 3% driven by a five percentage point negative impact from the lap of the 50 <unk> week.
This was partially offset by 1% same store sales growth and 1% net new unit growth.
Taco Bell continued to reopen temporarily closed stores and ended Q4 with less than 50 temporary closures.
Before delving into results I'd like to congratulate the entire Taco Bell system for ranking number one in the franchise 500, beating our peers as well as impressive concept in other industries in.
In the words of entrepreneur magazine, which produces this list Taco Bell was recognized for a well seasoned blend of innovative products at value prices customers, who are willing to follow of the brand on wild marketing adventures and some of the most satisfied franchisees in the business.
During the quarter talk about USD focused on simultaneously building the brand over time and building sales overnight.
First we improved ease by expanding to additional aggregator marketplaces.
Bolstered by dedicated media. These marketplaces helped delivery grow to a high single digit sales mix for the quarter second we launched a loyalty program with promotions geared towards customer acquisition and adoption all in digital sales mix reached 12% for the quarter and about $1 billion for the full year.
2020.
We are very pleased with this progress on such a central component of building the brands over time.
Third we offered compelling and craveable product to drive sales overnight at <unk>.
Warner began with the return of a fan favorite of the $5 Grande Stacker box, which had a strong performance mixing at 9% net.
Next we brought back that toasted Cheddar chalupa and sort of the sales mix of 10% we've been rounded out the year with the grilled cheese Burrito and Nachos Party pack, both having a positive sales impact.
Now onto the habit, despite ending Q4 was 7% of habit restaurants temporarily closed as well as COVID-19 related to on premise restrictions in California same store sales declined only 5% of slight step back from the pace in late Q3.
I'm pleased to say that we were able to fill much of this void through our digital ordering platform, which continued to perform well constituting over 40% sales mix.
Two permanent new menu items were added during the quarter to keep customer engagement high including the habits, one amazing crispy chicken sandwich as well as chicken bites.
Now onto our unmatched operating capability.
First at KFC U S with most of the sales occurring in the drive through our teams have successfully adapted to better support the drive through lanes as a result of transaction times during the quarter improved 16 seconds from Q4 2019.
At Pizza Hut International we're modernizing the team member experience through the launch of Phase one of our in house intelligent coaching app called hotspot, two improved shift level of store performance.
After launching hotspot and other process improvements in the U K delivery times improved over six minutes and drove a 20 point.
<unk> in customer satisfaction scores.
Theres lots of franchise excitement around hut, Bud and nine other markets of already rolled out the store management and coaching aid.
Similar to KFC Taco Bell U S saw a record breaking drive through performance and with consumer demand and our drive through at an all time high achieved its goal of completing a full year with transaction times below four minutes with the fastest quarterly average achieved in Q4.
Next our newest brands of habit Burger grill aggressively rolled out off premise solutions. This year, such as pop of drive throughs and curbside pickup.
Curbside in particular has continued to be well received by customers accounting for over 10% of total sales and about 50% of mobile orders.
Now to our unrivaled culture and talent growth driver.
With the restaurant team member in mind, we held our first ever virtual global ops summer.
Where it stood at the most to me was how the summit integrated key talent from our digital and technology teams directly into the unmatched ops agenda more than ever before our Yum digital and technology team is not solely focused on the customer experience, but the team member experience as well through focus on building systems at scale harmonizing platform.
<unk> and leveraging in the agile mindset. The goal is to unlock our pace of innovation and adoption for front end back of house platforms, which will be launched in a major market first at.
<unk> until mature and then scaled globally. There is a lot of excitement across the globe for our newly developed technology solutions and Chris will provide a few examples of specific platforms launching in the U S.
With that Chris over to you.
Thank you David and good morning, everyone today, I'll discuss our fourth quarter results, our progress on our digital and Tech journey, our bold restaurant development growth driver and our strong liquidity and balance sheet position.
To begin let's discuss Q4.
Overall, Yum system sales declined 2%, including a 3% headwind of lapping the 50 <unk> week in 2019.
This was driven by slightly positive net units year over year, partly offset by a 1% same store sales decline.
Core operating profit declined 9% in the quarter or a decline of 5% when excluding the lap of the 50 <unk> week in 2019.
EPS, excluding special items was $1 15.
This represented a 15% increase compared to X special EPS of $1 in Q4 2019.
I'll now provide some additional color on several items.
General and administrative expenses, excluding the impact of special items were $306 million for the fourth quarter 2020, roughly consistent with the estimate I shared on our third quarter conference call.
For the full year of 2020 G&A, excluding the impact of special items represented one 9% of consolidated system sales.
We saw an opportunity to enhance our systems competitive advantage by accelerating digital and technology spending during a period when many others could not.
We offset this through proactive austerity measures. However, because of 2020 sales pressures we were temporarily above our historical framework for G&A spend as a percentage of system sales 2020 was not representative of a fundamental change in approach or in our commitment to be an efficient.
<unk> growth model that leverages fixed costs, our business model is positioned for rapid recovery once we emerge from the pandemic and we expect our G&A ratio to move back toward our historical target of sustained growth resumes.
In the fourth quarter interest expense was approximately $132 million flat compared to Q4 2019, driven by higher outstanding borrowings offset by a decrease in rate on our floating rate debt.
Our fourth quarter and 2020 ex special effective tax rates were lower than the prior year, primarily due to the release of a valuation allowance against net operating losses, we now expect to utilize in a foreign jurisdiction. We are currently evaluating potential changes in taxes under the new <unk>.
Administration in the U S. Though it's too early to provide an assessment at this time, we believe the 21% to 23% range. We provided last year remains appropriate for an effective tax rate for 2021, excluding any potential impact of special items.
Capital expenditures net of Refranchising proceeds of $19 million were $141 million for the full year 2020, including $16 million at the habit.
While our 2021 capital spending plans remain fluid given the macro environment I'd like to discuss our general approach.
We believe roughly $250 million in annual gross capex appropriately balances the inherent needs of the business as well as occasional opportunities to invest in technology initiatives and strategic development of equity stores.
We also anticipate at least $50 million in annual proceeds from Refranchising, which will fund the strategic equity store investments for 2021, we may be slightly higher than the gross capex amount I. Just mentioned this upside relates to catch up spend on repair maintenance and remark.
Addles delayed owing to COVID-19 as well as select strategic development in the U S primarily for the habit for which Refranchising proceeds may not be fully realized this year.
As you are all aware the global macro environment remains quite fluid owing to the impact of COVID-19, governmental actions, including stimulus packages and more we have the utmost confidence in our teams and their ability to pivot to whatever challenges and opportunities arise.
However, the environment is still unpredictable and therefore, we will not guide to specific financial results before moving on to bold restaurant development I wanted to share some of the work we've been doing around restaurant technology to transform the customer and team member experience.
As David mentioned, we are launching our new solutions in major markets before we scale globally.
KFC U S began the national rollout of our new E Commerce platform in early 2021.
This will allow KFC to take orders from our own digital platform for both pickup and third party delivery.
Pizza Hut U S launched our Omnichannel menu management system, where there is one source from menu customization and pricing that can be synced across multiple digital channels. This was particularly important as we grow our delivery capability across multiple aggregator partners and lastly, Taco Bell.
U S is the first to test a new advanced point of sale system of modern tablet based application that is completely customizable. This.
Of this technology should increase accuracy speed and reliability as well as allow for a more intuitive team member experience optimized for each brands specific needs.
Now moving on to bold restaurant development.
During the fourth quarter, we opened 124 restaurants and closed 797, including 540 closures at Pizza Hut, which placed our year end unit count slightly ahead of the estimate I shared on our third quarter conference call for the full year 2020, we delivered slightly positive.
<unk> unit growth. This includes the addition of 276 habit restaurants in Q1 of this year offset by Covid related dislocations and pizza hut closures I.
I am pleased to say that despite COVID-19 headwinds three of our four brands achieved positive net unit growth for the year, an encouraging sign for the future.
Most notably KFC delivered 4% net unit growth with strength in China, Russia, and central and Eastern Europe and Thailand.
Importantly, 10 out of 13, KFC markets, where net unit positive in 2020, ending the year with 25000 restaurants and incredibly impressive milestone.
This momentum gives us confidence that there is capital available when we provide strong economic models.
In regards to Pizza hut units declined 6% for the year as we continued the previously announced transition of the asset base to a healthier and more modern of state.
Closures that occurred this year were largely underperforming units or units with lower <unk> Covid has hastened the transition and the closure of casual dining based restaurants, we have more work to do and we expect this to weigh on unit growth end of this year.
As it relates to franchisee health and appetite for development as David alluded to earlier, we are entering 2021 from a position of strength unit economics are improving in many markets and many franchisees are prime to growth.
During the quarter, we saw of recoveries of amounts past due at KFC International Pizza Hut U S and Taco Bell.
These recoveries resulted in an $8 million net benefit to operating profit related to bad debt during the quarter, an improvement of $14 million compared to $6 million of expense in the fourth quarter of 2019.
<unk> deferred royalties outstanding from Grace periods provided during the year were less than $1 million as of the end of 2020 down from $60 million as of June 32020 at our allowance for doubtful accounts is below where it was in Q4 2019 before the pandemic.
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 Q4 with cash and cash equivalents of $730 million, excluding restricted cash.
Consolidated net leverage was five two times, which is marginally above our historical target of approximately five times.
We resumed share repurchases and repurchased two 4 million shares totaling $250 million at an average price per share of $103.
Third our capital priorities remain unchanged <unk>.
Invest in the business maintain a healthy balance sheet pay of competitive dividend and return the remaining excess cash flows to shareholders via repurchases to that end. We are pleased to have recently increased our quarterly cash dividend by over 6% to <unk> 50 per share.
After maintaining our dividend in 2020, despite the impact of COVID-19, we believe this increase conveys our confidence in the cash flow generation and growth potential of Yum 's business model with.
With iconic category, leading brands and a uniquely diversified global business of over 50000 restaurants, Yum is well positioned to accelerate growth and drive healthy franchise unit economics by leveraging our massive scale and by expanding digital technology and delivery, we look forward to updating you.
On our progress throughout 2021 now the team at <unk> are happy to take your questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up of your handset before pressing the keys and to withdraw. Your question. Please press Star then two we ask that you. Please limit yourself to one question at this time, we will pause momentarily to assemble.
Of our roster.
And the first question will come from David Tarantino with Baird. Please go ahead.
Hi, good morning.
My question is about the unit growth and I appreciate the comments at the millennium franchisees are kind of prime for for growth, but I was wondering if you could perhaps comment on your previous long term target of 4% annual growth and if there's any framework you can share on at <unk>.
How long do you think of that might take to get to that level, given what you know today.
Okay.
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Yes.
So my question is about the unit development in and I. Appreciate your comments about you know.
Kind of many of the franchisees right.
Being prime for unit growth, but I guess the main question is about your prior target of at 4% annual growth and given what you know today.
I was asking about how long do you think is reasonable for us to expect.
For you to get back to that type of a growth rate of at system wide basis.
Thank you.
Alright, Thanks for the question, David and I apologize to everybody for our phone dropping out that's a first for us on an earnings call, but I guess and everything has happened in the last 12 months of went out there.
As far as unit development I know that's on everybody's mind, So just a couple of thoughts there.
To the question of can we regained at 4% pace and you know as that down in our crosshairs and our goal certainly to get to 4% of beyond and the answer is certainly yes.
There's a lot of reasons why we're confident that we will get there over time, our business model really has gotten stronger over the last 12 months you know the shift to off premise suits us well and improves our franchisees' economics, and obviously in our open stores, we're seeing that show up of sales.
Most of them most of our franchisees are in good shape, there coming out of this situation with in good financial shape and they are ready to grow certainly it's a more favorable real estate climate and I will point out that in you know in 2020, we actually opened over 2400 gross units. So it's not as if the development pace at.
Young just disappeared the challenge obviously with a lot of the closures, which we had for good reasons things we've talked about over the years wanting to close, particularly pizza hut restaurants, the strength of our asset base of week, we've got a lot of that behind us in 2020, and then suddenly three out of our four brands grew last year, and we had 3% growth.
In the in the in the global business when you exclude the pizza business. So all of those good proof points for why we can get back to 4%.
As far as the timing, though I know the you know the question is when and there's still some uncertainty on that which is why we're not providing guidance on net number we certainly can't be certain of the pandemic of course since at our last call. We've obviously seen flare ups in that have impacted our business Yum, China talked about debt as well last night.
It's a challenging environment just to build stores and there are markets that we want to get stores open and we're having trouble getting permits and getting the right people to construct the stores.
And certainly as we've changed our asset models, you know that as of got our franchisees looking at making changes to the kinds of sites they pursue and in some cases the type of stores. They build them on those locations all of that leads to some delays and then.
Certainly we all know in the development game in retail it takes time to build the pipeline and the fact that our pipeline was disrupted last year, we have to rebuild at so <unk>.
Confident that we can get back to 4% of beyond <unk>.
Still.
Not at a point, where we're going to commit to a certain timeframe on that but but of the mood is definitely one of confidence.
Next question please.
Our next question will come from John Glass with Morgan Stanley. Please go ahead.
Thanks, very much good morning.
I just asked about digital you've talked a lot about the success you've had of a digital penetration underneath of that can you just talk about at the enterprise level, what youre doing to support franchisees specific day of gasoline is there a common platform by brands. For example, now globally that allows all franchisees to access that at integrating mobile order and pay in grading does.
Ivory integrating loyalty, whereas at even bigger than that like across the enterprise you've got one just maybe just to understanding where you are and where your investments in digital specifically are going to be in 'twenty one.
Thanks, John at this is Chris really good question Interdigital has been such an important part of our resilience during the pandemic. We're proud to say that we had the 17 billion in digital sales for the year sort.
Very significant increase over the previous year and we're just very pleased with how digital is supporting the business.
And we are as we said investing ahead in digital we're finding other places too.
You know manage cost to help us to continue to fund those investments.
And to your point or really care about and the long term is that we earn a return on those investments and so that gets at how we're thinking about you.
You know the digital strategy, we want to continue to have.
The consumer facing and team member facing technologies be curated by the brands would be right for each individual market the needs of our customer and the expectations for E. Commerce in one market may be very different from another so theres front ends of tailored but to your point. We are building common platforms underneath that we don't need to rush.
Application those common platforms multiple times and so we gave a couple of examples.
You know earlier around how we're doing that we mentioned that in KFC U S. We've now introduced an internally built E. Commerce platform will test that at a major market like KFC U S and number will take at two other brands in other markets over time.
Only the POS example, that we used on Taco Bell Taco Bell at the first place, where we'll implement that and then we will customize and tailor that as a platform for other markets. Both of those allow the front end to be customized so it's a blend of customer focus and platform underneath.
The next question will come from John Iron Cogs with J P. Morgan. Please go ahead.
Hi, yes, thank you very much.
There's obviously a lot of discussion.
But both in the U S and Europe, but I think specifically on the U S of you kind of as you know a major wave of restaurant consumption. You know that will happen at post vaccine and I Wonder if you know just kind of what your thoughts were on that.
You are prepared for you know significant shifts back to dine in and obviously you have a lot of off premise assets and.
Eight of them and if there are any examples around the world at maybe even cities within countries. You know that you know that are you know more or less kind of post pandemic of you know that you have a significant amount of stores that maybe you could talk about.
Some of experience of upsell of sudden and the brands, where you have some scale thanks for that color.
Yeah. Thanks, John.
Look obviously, the environment's changed over the last 12 months at we're operating in and we're pleased at how the business has pivoted to off premise, but that doesn't at all mean, we're giving up on dine in and we know that diamond can play a role in our business as we go forward.
I think Yum, China talked about at yesterday on their call that they've seen some sequential improvement in their dine in business and while it hasn't gotten back to where it was that.
Duncan of innovation around technology to help in dine in and haven't been able to regain some of it so.
We have 300 different combinations of brands and countries every one of them is a different story as we've gone through this what youre seeing is of the markets that have a more that were built for off premise of the ones that are doing better than the ones that had more of a diamond SKU are developing better off premise solutions and improving their situation, but we are.
Preparing for people re engaging with dine in and we have the assets debt.
Conserve it and we still think it'll be part of the business, but lesser going forward than it has been.
The next question will come from Greg Frankfurt with Bank of America. Please go ahead.
Hey, thanks, Thanks for the question.
My question is more of a high level. One can you talk a little bit about it seems like a lot of the big franchise ores are making a decision right now on what portions of the tech stack to bring it in house and what portion too.
Kind of buy from third parties can you talk of just a little bit about how you're thinking about that dynamic and what's gonna be of proprietary advantage to yum on the technology front going forward.
Yes.
Good question and it's one that we think about on each element of the tech stack and in general refocus on.
Ones, where we think the the debt element could provide a competitive advantage.
Yeah, you know, we're the ones that we want to build and have control of internally others that are more of a support or enabler role.
Or ones that you know.
We would work with third party vendors through hopefully advantage commercial relationships, where we bring our scale are at.
To bear so it's always a blend and we're always constantly reevaluating each of those aspects, but I gave a couple of examples of moment ago of ones, where we've clearly said we need to have a differentiated proprietary platform on ecommerce and P. O S. There's a couple of examples that are sort of strategically important to the business.
The next question will come from Dennis Geiger with UBS. Please go ahead.
Good morning, Thanks, Hope Youre doing well and congratulations to Tracy just wondering if you could talk more about the brands in the U S. Broadly I guess, specifically given the momentum that you saw through through 2020 and really to end 2020, given some new menu items. This year across brands already this year, you know and I guess of good pie.
Line for the remainder of the year thinking about stimulus benefits et cetera, just curious if you kind of care to highlight any of the momentum.
Debt that May have been you know continued into the end of this new year and just how you're thinking about the brands as the broader industry opens at as we go throughout the year. Thank you.
Yeah, obviously the U S was a bright spot for us in Q4 end during the course of the year collectively positive in both.
Despite all of the impact from closures on same store sales growth. So I think in each case, we're really excited about where the brands are pizza hut is the one that we've talked about a lot because of the remaking their asset base of moving to more off premise the progress they've made on digital.
One of the things that we mentioned in the in our of comments, but it bears repeating is 20% of the pizza hut stores were in the hands of of poorly capitalized operator previously now with Greg Flynn entering the system of proven commodity in the Taco Bell World. We know that that's going to provide a boost of pizza hut. So there's lots of reasons to be enthusiastic.
Well at Pizza hut with their off premise skew in the moves they've made.
The numbers are pretty staggering.
When you exclude the express units at 21% increase in Pizza Hut's off.
Off premise consumption for the quarter in the U S. So lots of excitement there at Taco Bell you know again getting through this with less of a family meal SKU.
They had to pivot more and embrace of the.
At the new needs of the consumer and I think they've done an amazing job of that.
They just put up a decent quarter end on top of that spent a lot of time in the quarter building up their loyalty base through our programs to acquire new loyalty customers. So we think that that bodes really well for the future as they you know as we you in our language we talked about they really focused on building the brand over time and entering 2021 with a lot of reasons.
To be excited about the loyalty program some of the product launches that we've had you've heard of the newest bell, bringing back potatoes, but theres a lot more to come in the world of Taco Bell and then KFC one of them.
Exciting things Greg KFC in this environment is obviously, it's built for this environment off premise has been good to them. We've seen a massive increase in their bucket sales in the quarter and as we go into the year. We've you know we've talked about are there new chicken sandwich coming and the rollout of that from 20% of of the stores now, but we'll we're pleased with how that increases.
Mix of sandwiches, and how that will play out as we get at an all of our stores. So.
Across every brands there is a reason to be excited about the future, but there is also a very uncertain environment in the U S. As we all know.
And we're remaining cautious as we move forward, Chris a couple of things to add.
I'll, just add a little bit of color on.
Sales trends to start the year, we've been pleased with all of the brands have started the year given all of the elements that David mentioned, but I will try to provide a little more context for trends that we've seen so first if we take the U S. Specifically in the first few weeks of the quarter across all four brands are same store.
Sales growth in aggregate was in the mid teens.
Of course that strength was partly bolstered by the U S stimulus, which appears to be waning.
Internationally, the sales trends have been.
Softer we've seen of smite slight deceleration from Q4 trends owing to the impact of regional Covid resurgence of.
Plus the temporary closures due to COVID-19 and local restrictions plus some restrictions on operating hours and some of the restaurants.
If you step back and you think about this quarter in total there's a fair bit of uncertainty.
That makes it a bit unpredictable, we've got many different labs, the lunar new year moving.
Plus all of the Covid impacts in various markets around the globe, but hopefully that gives you a little more context for how the quarter has started and one one last comment on the U S. The habit Burger Grill I know its of such a scale that it can have a meaningful impact on our numbers in the short term, but we are excited about the long term potential of the brands the way it's gotten through this environment pivoted.
The off premise the technology that they've deployed the quality of their operations.
A lot of reasons why you would be excited going forward with habit, we've seen a lot of interest from the franchise community and becoming.
Habit of franchisees, we're going slow in that regard to make sure we do at exactly right.
But that's a brand that I think is also poised for a lot of exciting things in 2021.
The next question will come from Jon Tower with Wells Fargo. Please go ahead.
Great. Thanks.
Kind of a feeling of what hopefully I think of gross capex number moved up a bit higher than in the past or at least what you're talking about in the past roughly say 25 million of ourselves. This is this step up mostly attributed to tech spend and then at all.
The internally built E commerce platform in the U S from some of the other solutions you are coming up with over time that are internally built or are these solutions is going to allow for a payback to the franchise of war.
By the franchisees and then just lastly in terms of thinking about the the tech.
Tech initiatives.
Initiatives, we're at as modernization of the global drive thru experience I'm thinking digital menu boards fall in the priority stack. Thank you.
Great. So I've got three questions I'll tick tick through those so first on gross capex.
But you know prior to the pandemic, we had gross capex.
Around $225 million in a normal year, and so yes, but the $2 50, there is a tick up there it's really driven by two factors. One we've now got the habit as a part of the business and we still have a large equity store base, there and so we will be investing in development and the habit and second.
Mahler pieces, driven by the digital investments and.
And of course, as we mentioned we want to have at least $50 million and refranchising proceeds could be.
North of that we obviously have more stores in the portfolio now with the acquisition of habit.
So hopefully that explains that slight tick up in the gross number.
Second in terms of payback on technology investments, yes, our focus is earning a return on those investments over time, however at the primary way in which we earned those returns at bi.
Those investments leading to higher sales growth and higher strength in the business, which also AIDS net new unit growth and that supports our franchisees that supports us that's the primary way in which we.
Earn and earn a return on those investments.
And then your third question.
Around drive thru, obviously off premise has been such an important shift as we've gone through the pandemic and yes, we continue to invest in the right drive through technology and experience in each of our markets. In some cases that does include digital menu boards and other markets, we might say that.
Not the needed investment but.
Virtually all cases, we want it to be an easy fast experience for our customers and we continue to focus on each brand on making sure that experience is terrific and at enabling it through the right technologies for the particular market.
We have time for one more question. Please.
The next question will come from David Palmer with Evercore ISI. Please go ahead.
Thanks, maybe I can squeeze into here with regard to Pizza Hut, you mentioned, how the franchisee base the financial health has been improved and shifted certain units into sure hands, there, but I'm wondering about the insides of the company from a brand perspective.
At the the pause of Covid.
In terms of at Kent, you at sales lift nay of Boston kind of again.
Internally under Kevin Hochman to rebuild the innovation pipeline of deals.
Thanks, Mike.
At my Hansen.
Growth.
Beyond the second half of 'twenty one event.
Could you perhaps.
Comment on at might be and then with regards to accidental clearly theres going to be less.
Our Bachelor of space.
On that part of the business in terms of going through Covid. How fast are you thinking you can rebuild that walk in business overseas.
Versus perhaps versus 2018 levels, how do you think you'll get back are in those markets.
Sure.
As far as Pizza hut goes at it David.
Broke out at it broke up a couple of time from I think I got the gist of your question on the U S.
The business and the brand and we're really pleased with the progress that Kevin under his leadership, but also the team that we brought in from a brand and a marketing standpoint, David grades and George Felix have done an amazing job of reinvigorating the innovation pipeline and bringing the brand forward to consumers in a way that's really.
At the Navy and Thats, why youre, saying that the great results there.
We do thank you as you've seen with the launch with at the Detroit style Pizza more recently, we do think that there is an important role for innovation to play in that brand and I think those guys are spot on in the way of bringing it to life.
So we're confident in the brands coming to life as we've always talked about the challenges are more around the asset base.
Then it is about consumers loves for the brands or the products of reserve on the international side. It's obviously a different story of the assets are in better shape, but they skew more towards dine in and you're seeing that shift in the asset base to off premise, even the dine in stores themselves are now in many cases offering delivery coming up with innovative.
Solutions to leverage technology on the dining experience so.
So I think that will continue and yes, we will be helped at the on the international side, when we get past the pandemic and people return to the stores, but the base model that we have at pizza hut, both internationally and domestically.
The building of delivery Carryout unit is a low cost asset to build that usually gets very high returns is attractive to our franchisees and that based model and the unit economics of it bodes very well for the future of of the brand internationally and domestically.
This concludes our question and answer session I would like to turn the conference back over to Mr. David Gibbs for any closing remarks. Please go ahead.
Well, thanks, everybody for your time today.
Honestly in summary, 2020 was a challenging year across almost every dimension, but we feel really good about them at massive progress. We've made in so many ways progress. We wouldnt have made without the challenges of 2020 I'll just end on a high note. If you didn't pick it up in the release, we opened our 25th thousands of KFC.
In Q4 ended the year with 25000 restaurants, if you look back just five years ago at the end of 2015, we had less than 20000 restaurants KFC in 2020 opened at 4% net new unit growth.
Even in the toughest of times. This brand is growing it's our biggest brand and that kind of 5000 unit growth over a five year period bodes well for the future, we still only scratch the surface of penetrating the world with KFC.
Probably most importantly, though 2020 was a year in which our culture and talent with a differentiating factor and getting through it as successfully as we have and I was so proud of the way our franchisees and our employees and took care of our customers and our communities partnered together to pivot the business and we clearly have emerged stronger and there's a lot of inc.
Thursday regimen of excitement around the world about the growth ahead of us. Thank you for your time.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Yes.
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