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Yum China warns of first quarter losses, 2020 sales hit after virus outbreak

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Via Yahoo Finance

By Sophie Yu and Arunima Kumar

(Reuters) – KFC licensee Yum China <YUMC.N> said it could report an operating loss in the first quarter and take a significant hit to sales and productivity due to a coronavirus outbreak in China, after it was forced to shut nearly a third of its stores.

The company’s warning echoed that of U.S. cafe chain Starbucks <SBUX.O>, which said last week it would delay a planned increase to its outlook for the year and that it expected a material but temporary financial hit.

Yum China shares fell 3% in after-hours trading on Wednesday.

Companies around the world have warned the virus outbreak that has killed more than 500 people and infected over 28,000 could disrupt supply chains or hurt their bottom lines as they are forced to shut factories and shops, and airlines cancel flights.

Since the Lunar New Year holiday period, the busiest time of the year for many companies in China, Yum China’s same-store sales at restaurants that remained open slumped 40%-50% compared with the same period a year earlier.

“This year, the outbreak right before Chinese New Year is causing significant interruption to the business,” Chief Executive Joey Wat said on a conference call with analysts, adding that the new-year period is an important tourist season that usually drives first-quarter performance.

Yum China, spun off from Yum Brands <YUM.N> in 2016, said it could not yet fully quantify the losses. It also warned it could close additional stores, cut operating hours, or take other steps, depending on the situation.

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The company, also the exclusive licensee of the Pizza Hut and Taco Bell brands in China, has over 9,200 restaurants in more than 1,300 cities.

LONG-TERM OPTIMISM

Yum China said, however, that it remained optimistic about the long-term opportunity in China. It expects to open 800-850 new stores in the country this year, subject to any revision based on the impact from the virus.

The company’s same-store sales in the fourth quarter ended Dec. 31 grew 2% thanks to strong demand at its KFC restaurants, versus analysts’ average estimate of 1.9%, according to Refinitiv.

It posted an adjusted profit of 25 cents per share, beating the average estimate of 19 cents per share.

Yum China said it had rolled out “contactless delivery” and services where a customer can pick up food from a store without contacting staff. These were being received well, it said.

A KFC advertisement on Weibo showed a delivery man put a box of food on the ground and stepping back several meters, before the customer picks up the food.

(Reporting by Sophie Yu in Beijing and Arunima Kumar in Bengaluru; Writing by Sayantani Ghosh; Editing by Christopher Cushing)

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