Yum China (NYSE: YUMC) reported Q1 EPS of $0.16, $0.34 better than the analyst estimate of ($0.18). Revenue for the quarter came in at $1.75 billion versus the consensus estimate of $1.56 billion.

First Quarter Highlights

• Total revenues declined 24% year over year to $1.75 billion from $2.30 billion (a 21% decline excluding foreign currency translation (\"F/X\")).
• Total system sales declined 20% year over year, with declines of 15% at KFC and 38% at Pizza Hut, excluding F/X.
• Same-store sales declined 15% year over year, with an 11% decline at KFC and 31% decline at Pizza Hut, excluding F/X.
• Restaurant margin was 10.7%, compared with 18.5% in the prior year period.
• Operating Profit declined 68% year over year to $97 million from $303 million (67% decline excluding F/X). Adjusted Operating Profit declined 67% year over year to $98 million from $303 million (66% decline excluding F/X).
• Effective tax rate was 32.7%.
• Net Income declined 72% to $62 million from $222 million in the prior year period, primarily due to the decline in Operating Profit and mark-to-market loss from our equity investment in Meituan Dianping.
• Adjusted Net Income declined to $63 million from $230 million in the prior year period. (68% decline excluding the mark-to-market loss of $8 million in the first quarter of 2020 and mark-to-market gain of $10 million in the first quarter of 2019 from our equity investment in Meituan Dianping, 67% decline excluding F/X).
• Diluted EPS declined 72% to $0.16 from $0.57 in the prior year period.
• Adjusted Diluted EPS declined to $0.16 from $0.59 in the prior year period (68% decline excluding the mark-to-market loss and gain from our equity investment in Meituan Dianping in 2020 and 2019, respectively, 67% decline excluding F/X).
• Opened 179 new stores during the quarter, bringing total store count to 9,295 across more than 1,400 cities.

CEO and CFO Comments

"First and foremost, we wholeheartedly thank all the medical staff and frontline workers who put public health and safety above their own in fighting the COVID-19 outbreak," said Joey Wat, CEO of Yum China. "I am also incredibly proud of how the Yum China team rose to meet the challenges of this outbreak. Our top priority was—and still is—the health and safety of our employees and customers. We did not hesitate to close stores where appropriate, and put in place strict sanitation procedures at all of our stores that remained open. We also proactively expanded our Family Care Program to provide health insurance coverage for all restaurant management team members. In addition, our board members and senior executives have agreed to voluntarily forgo 10% of their base compensation for the balance of 2020 as contributions to fund additional assistance for frontline employees and their families impacted by COVID-19 as well as other emergency relief."

Wat continued, "Furthermore, we leveraged our culture of innovation to both protect our stakeholders and support our business. Most importantly, we quickly implemented a safe way to reach our customers through highly sanitary contactless delivery and contactless takeaway. Our digital infrastructure enabled us to stay nimble and communicate quickly with customers and employees online and through mobile technology. We were able to inform our members about compelling offers through our APPs, while efficiently adjusting labor hours based on rapidly changing traffic and sales patterns."

Wat concluded, "We were able to sustain operating profitability while extending much needed support to our employees, business partners and franchisees. This achievement under extraordinary circumstances is a testament to our resilient and flexible business model. Weathering this storm of all storms gives us great confidence in our ability to thrive in the years ahead by serving our employees, customers, and shareholders."

Andy Yeung, CFO of Yum China, added, "After a strong start to the year, the outbreak significantly impacted our business starting in late January. System sales declined 20% due to the temporary store closures combined with the 15% decline in same-store sales. Solid execution and aggressive cost controls allowed us to partially mitigate sales deleverage. Together with one-time relief from landlords and government agencies, we were able to generate an operating profit for the quarter."

Yeung continued, "The situation in China is gradually stabilizing, but we remain cautious as our restaurant traffic is still below pre-outbreak levels. We expect an extended recovery period, and that the pace will be uneven across regions, dayparts and segments. We will continue to implement aggressive measures to control our costs. On the other hand, global infections continue to rise. It remains difficult to predict the full impact of the pandemic on the broader economy and how consumer behavior may change. So, despite having a strong balance sheet, we will temporarily suspend our share repurchases and, for the next two quarters, dividends. We have taken these actions out of an abundance of caution as we navigate through these challenging times. We believe the strength of our balance sheet and capital structure will offer us flexibility to respond to contingencies, if needed, and to continue investments in long-term value-creating opportunities, where appropriate."

2020 Outlook

The Company provides the following fiscal year 2020 targets, subject to revision based on future impacts of COVID-19 that cannot be predicted at this time:

• To open between 800 and 850 new stores (gross), excluding Huang Ji Huang.
• To make capital expenditures between $500 million and $550 million

The Company believes that the COVID-19 outbreak is likely to have a material and extended adverse impact on its operational and financial results for full year 2020. Future operations, as well as the Company's cash flows and financial position, may be materially and adversely influenced by further developments related to this global outbreak, including potential additional announcements and actions from governments and local authorities, disruption in our supply chain, our inability to provide safety measures to protect our employees, or other reasons.

For earnings history and earnings-related data on Yum China (YUMC) click here.