Yum Eases Franchisee Payments as Outbreak Sparks Sales Decline

(Bloomberg) -- Yum! Brands Inc. said it’s suspending its share repurchase program and working to assist some franchisees as the coronavirus outbreak erodes sales.

• The owner of the KFC, Pizza Hut and Taco Bell brands said in a filing that comparable-store sales -- a key measure for restaurant companies -- will likely decline in a range of mid to high single digits in the first quarter. The next quarter will probably be hit “more significantly,” however, “due to the increasing number of markets currently impacted.”

Key Insights

• Restaurant companies have been among the hardest hit as coronavirus disrupts life worldwide as governments order widespread closures or limit operations to carryout or delivery only. Yum said its units borrowed $525 million from a revolving credit facility -- joining other restaurant operators that have looked to shore up liquidity amid the sudden decline in sales.
• Yum said it has about 7,000 restaurants worldwide that are closed. In the U.S. and some other markets, operations are limited to drive-thru, delivery and carryout. The impact on sales varies widely by region, the company said. “Because this situation is ongoing and because the duration and severity are unclear it is difficult to forecast any impacts on the Company’s future results.
• The company is “working with franchisees who need more access to capital and are in good standing with the company to provide assistance, including grace-periods for certain near-term payments where necessary,” Yum said. Yum’s network of stores is widely franchised, with some operators struggling under elevated debt levels.

Market Reaction

• Before the filing was released, Yum shares rose 23% on Tuesday amid a broad rise in U.S. equities, paring the company’s month-to-date decline to 22%.

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