16 July 2024
English German
Market + Management

Yum China: Reports Third Quarter 2019 Results

Shanghai / CN. (yb) Yum China Holdings Inc. reported unaudited results for the third quarter ended September 30, 2019. Reported GAAP results include Special Items, which are excluded from adjusted measures. Special Items are not allocated to any segment and therefore only impact reported GAAP results of Yum China.

Third Quarter Highlights

  • Total revenues increased 5 percent year over year to USD 2.3 billion from USD 2.2 billion (8 percent year over year increase excluding foreign currency translation (F/X)).
  • Total system sales grew 8 percent year over year, with growth of 10 percent at KFC and 3 percent at Pizza Hut, excluding F/X.
  • Same-store sales grew 2 percent year over year, with a 3 percent increase at KFC and a 1 percent increase at Pizza Hut, excluding F/X.
  • Restaurant margin was 17.7 percent, compared with 17.6 percent in the prior year period.
  • Operating Profit increased 11 percent year over year to USD 300 million from USD 269 million (14 percent year over year increase excluding F/X).
  • Effective tax rate was 26.9 percent.
  • Net Income increased 11 percent to USD 223 million from USD 203 million in the prior year period, primarily due to the increase in operating profit and mark to market gain from our equity investment in Meituan Dianping.
  • Diluted EPS increased 14 percent to USD 0.58 from USD 0.51 in the prior year period (8 percent year over year increase excluding the USD 0.03 per share mark to market gain from our equity investment in Meituan Dianping).
  • Opened 231 new restaurants during the quarter, bringing total store count to 8,917 across more than 1,300 cities.

Key Financial Results

Third Quarter 2019 Year to Date Ended 9/30/2019
% Change % Change
System Sales Same-Store Sales Net New Units Operating Profit System Sales Same-Store Sales Net New Units Operating Profit
Yum China +8 +2 +7 +11 +9 +4 +7 (6)
KFC +10 +3 +9 +12 +11 +4 +9 +4
Pizza Hut +3 +1 +2 (29) +3 +1 +2 +9

.

Third Quarter Year to Date Ended 9/30
(in USD million, except for per share data and percentages) % Change % Change
2019 2018 Reported Ex F/X 2019 2018 Reported Ex F/X
Operating Profit USD 300 USD 269 +11 +14 USD 807 USD 857 (6) (1)
Adjusted Operating Profit USD 300 USD 269 +11 +14 USD 807 USD 759 +6 +12
Net Income USD 223 USD 203 +11 +14 USD 623 USD 634 (2) +4
Adjusted Net Income USD 223 USD 203 +11 +14 USD 631 USD 560 +13 +19
Basic Earnings Per Common Share USD 0.59 USD 0.53 +11 +15 USD 1.65 USD 1.64 +1 +6
Adjusted Basic Earnings Per
Common Share USD 0.59 USD 0.53 +11 +15 USD 1.67 USD 1.45 +15 +21
Diluted Earnings Per Common Share USD 0.58 USD 0.51 +14 +16 USD 1.60 USD 1.59 +1 +6
Adjusted Diluted Earnings Per
Common Share USD 0.58 USD 0.51 +14 +16 USD 1.62 USD 1.41 +15 +21

.

CEO and CFO Comments

Joey Wat, CEO of Yum China, commented, «We are pleased with our continued strong performance in the third quarter, which was driven by our competitive positioning, leading digital capabilities and ongoing innovation across the business. We achieved our 12th consecutive quarter of system sales growth since the spin-off, highlighting the strength of our business model and demonstrating our ability to effectively adapt to changing market conditions. KFC delivered solid sales and profit growth as we strategically decreased promotion intensity to protect margins. Pizza Hut maintained positive sales momentum with a decline in margin during the quarter due to the important and necessary long-term investments in the revitalization program.»

«We will continue to build on KFC’s resilient business model, cement the revitalization of Pizza Hut, invest in the growth of our smaller brands and sharpen our industry-leading digital ecosystem, which enables us to meet customer demands and manage the business effectively,» continued Ms. Wat. «We are cautiously optimistic about the future because we see significant growth opportunities in China, and we will focus on leveraging our competitive advantages to succeed in this dynamic environment.»

Andy Yeung, CFO of Yum China, added, «I am very excited to have joined the Yum China team and am pleased to be reporting another strong set of quarterly results, which highlight Yum China’s strength in many areas. We continued rapid expansion of our store network and maintained very healthy cash payback for our new stores. We also delivered strong sales, operating profit and EPS growth despite continued pressure from higher chicken and labor costs. In addition, we returned USD 109 million to shareholders through dividends and share repurchases in the quarter. Looking ahead, we will continue to focus on driving sales and managing costs while making prudent investments to drive long-term growth. As always, we remain committed to driving significant overall value to our shareholders.»

Dividend and Share Repurchase

  • The Board of Directors declared a cash dividend of USD 0.12 per share on Yum China’s common stock, payable as of the close of business on December 17, 2019 to shareholders of record as of the close of business on November 26, 2019.
  • During the third quarter, we repurchased approximately 1.4 million shares of Yum China common stock for USD 64.0 million at an average price of USD 44.70 per share.

Digital and Delivery

  • As of September 30, 2019, the KFC loyalty program had over 200 million members and the Pizza Hut loyalty program had over 65 million members, an increase of 55 million and 15 million, respectively, year over year.
  • Digital payments accounted for 91 percent of Company sales in the quarter, an increase of 9 percentage points year over year.
  • Delivery contributed to 20 percent of Company sales in the third quarter of 2019, an increase of 3 percentage points year over year. Delivery services are now available in 1,225 cities, up from 1,063 cities at the end of the prior year period.

New-Unit Development and Asset Upgrade

  • The Company opened 231 new restaurants and remodeled 222 restaurants in the third quarter of 2019.
New Units Restaurant Count
Third Quarter Year to Date As of 09/30
2019 Ended 9/30/2019 2019 2018
Yum China 231 646 8,917 8,313
KFC 174 501 6,324 5,800
Pizza Hut 24 84 2,255 2,215
Others 33 61 338 298

.

Restaurant Margin

  • In the third quarter of 2019, Yum China restaurant margin was 17.7 percent, as compared with 17.6 percent in the prior year period, primarily attributable to sales leverage, productivity improvement and other cost savings, partially offset by wage and commodity inflation and promotional activities.

.

Third Quarter Year to Date Ended 9/30
2019 2018 % pts change 2019 2018 % pts change
Yum China 17.7 % 17.6 % +0.1 17.0 % 16.9 % +0.1
KFC 20.1 % 19.2 % +0.9 18.8 % 19.0 % (0.2)
Pizza Hut 11.4 % 13.8 % (2.4) 12.4 % 11.8 % +0.6

.

2019 Outlook

  • The Company continues to expect fiscal year 2019 targets as follows:
    • Between 800 and 850 gross new units.
    • Capital expenditures between USD 475 million and USD 525 million.
    • Effective tax rate below 28 percent, excluding any impact from the Company’s equity investment in Meituan Dianping.

The Company provides its effective tax rate outlook excluding any impact from its investment in Meituan Dianping, which will be subject to mark to market accounting and may be significant.


 OTHER TOPICS FROM THIS SECTION FOR YOU: