Yum China Reports Third Quarter Results

Robust Sales Growth, Margin Expansion and 33% Diluted EPS GrowthSequential Improvement in Same-Store Sales Index and Seventh Consecutive Quarter of Same-Store Transaction Growth Operating Profit Increased by 15% to $371 Million and Core Operating Profit1 Grew 18%Stepping up Capital Returns to Shareholders by 50% to $4.5 Billion for 2024-2026

SHANGHAI, Nov. 4, 2024 /PRNewswire/ -- Yum China Holdings, Inc. (the "Company" or "Yum China") (NYSE:YUMC) today reported unaudited results for the third quarter ended September 30, 2024.

Third Quarter Highlights

Total system sales grew 4% year over year ("YoY"), excluding foreign currency translation ("F/X"). The growth was primarily attributable to 7% of net new unit contribution.2

Total store count reached 15,861 as of September 30, 2024, including 11,283 KFC stores and 3,606 Pizza Hut stores. The Company opened 438 net new stores in the third quarter. 145 net new stores, or 33%, were opened by franchisees.

Total revenues increased 5% YoY to $3.07 billion, an all-time quarter high (a 4% increase excluding F/X).

Delivery sales grew 18% YoY, maintaining the double-digit annual growth Yum China has sustained over the past decade. Delivery contributed approximately 40% of KFC and Pizza Hut's Company sales.

Same-store sales reached 97% of the prior year's level, improved from 96% in the second quarter. Same-store transactions grew 1% YoY, the seventh consecutive quarter of growth.

Operating profit grew 15% YoY to $371 million (a 14% increase excluding F/X). Core operating profit1 grew 18% YoY.

OP margin3 was 12.1%, an increase of 100 basis points YoY, supported by resilient restaurant margins and savings in G&A expenses.

Restaurant margin was 17.0%, steady YoY. Excluding $15 million in items affecting comparability, restaurant margin increased by 50 basis points YoY, driven by improved operational efficiencies.

Diluted EPS increased 33% YoY to $0.77 (a 32% increase excluding F/X). Excluding the impact of the mark-to-market equity investments in the third quarter of 2024 and 2023, Diluted EPS increased 19% YoY.

Digital sales4 reached $2.61 billion, with digital ordering accounting for approximately 90% of total Company sales.

Total membership of KFC and Pizza Hut exceeded 510 million. Member sales accounted for approximately 64% of KFC and Pizza Hut's system sales in aggregate.

Yum China returned $248 million to shareholders in the third quarter, through $187 million in share repurchases and $61 million in cash dividends. In the first nine months, the Company returned $1.24 billion to shareholders, nearly three times the amount returned in the same period last year.

Joey Wat, CEO of Yum China, commented, "We delivered strong results again in the third quarter. Operating profit increased by 15%, core operating profit grew 18%, and diluted EPS increased by 33%. OP margin expanded by 100 basis points, and restaurant margin improved year-over-year on a comparable basis. We also achieved seven consecutive quarters of same-store transaction growth and decade-long double-digit delivery sales growth. Our RGM 2.0 strategy is executing effectively, with a dual focus on operational efficiency and innovation. Savings generated from improved efficiency allowed us to reinvest in food innovation and our value-for-money offerings, driving incremental traffic to our stores. Same-store sales index improved sequentially for both KFC and Pizza Hut. These results demonstrate the effectiveness of our strategy and our ability to outperform in a challenging and fluid environment."

Wat added, "We regard both system sales and same-store sales growth as equally important. With these priorities in mind, we continue to drive menu innovations, infusing fresh energy into our flagship products. By optimizing our delivery strategy, we have captured more smaller order transactions and gained market share on aggregator platforms. Our breakthrough business models, side-by-side KCOFFEE Cafes and Pizza Hut WOW, enabled us to broaden our addressable market and capture new customer demand, reaching 500 and 150 stores, respectively."

 Wat concluded, "We see ample opportunities across China to enter underserved markets and enhance customer access. With tailored store models, we are accelerating franchise store openings to unlock additional opportunities. Our franchise strategy focuses on accessing strategic and remote locations as well as lower tier cities previously beyond our reach. We anticipate the franchise mix of net new stores will gradually increase to 40-50% for KFC and 20-30% for Pizza Hut over the next few years. Looking ahead, we are committed to returning excess capital to shareholders as we continue investing in driving business growth. With our confidence in our cash generating capabilities, we plan to step up capital returns to shareholders, increasing from $3 billion to $4.5 billion between 2024 and 2026."

[1] Core operating profit is defined as operating profit adjusted for special items, further excluding items affecting comparability and the impact of F/X. The Company uses core operating profit for the purposes of evaluating the performance of its core operations. Please refer to "Reconciliation of Reported GAAP Results to Non-GAAP Measures" included in the accompanying tables of this release for further details.

[2] Net new unit contribution refers to sales contribution from net new stores.

[3] OP margin refers to operating profit as a percentage of total revenues.

[4] Digital sales refer to sales at Company-owned stores where orderings were placed digitally.

Key Financial Results

Third Quarter

Year to Date Ended 9/30

%/ppts Change

%/ppts Change

2024

2023

Reported

Ex F/X

2024

2023

Reported

Ex F/X

System Sales Growth (5) (%)

4

15

NM

NM

5

20

NM

NM

Same-Store Sales Growth (5) (%)

(3)

4

NM

NM

(3)

8

NM

NM

Operating Profit ($mn)

371

323

+15

+14

1,011

996

+1

+5

Adjusted Operating Profit (6) ($mn)

371

327

+13

+13

1,011

1,005

+1

+4

Core Operating Profit (6) (7) ($mn)

369

312

NM

+18

1,040

951

NM

+10

OP Margin (%)

12.1

11.1

+1.0

+1.0

11.6

11.7

(0.1)

—

Core OP Margin (6) (8) (%)

12.1

10.7

NM

+1.4

11.7

11.2

NM

+0.5

Net Income ($mn)

297

244

+22

+21

796

730

+9

+12

Adjusted Net Income (6) ($mn)

297

248

+20

+19

796

739

+8

+11

Diluted Earnings   Per Common Share ($)

0.77

0.58

+33

+32

2.03

1.73

+17

+20

Adjusted Diluted Earnings   Per Common Share (6) ($)

0.77

0.59

+31

+30

2.03

1.75

+16

+19

[5] System sales and same-store sales percentages exclude the impact of F/X. Effective January 1, 2018, temporary store closures are normalized in the same-store sales calculation by excluding the period during which stores are temporarily closed.

[6] See "Reconciliation of Reported GAAP Results to Non-GAAP Measures" included in the accompanying tables of this release for further details.

[7] Current period amounts are derived by translating results at average exchange rates of the prior year period.

[8] Core OP margin refers to core operating profit as a percentage of total revenues excluding F/X.Note: All comparisons are versus the same period a year ago.Percentages may not recompute due to rounding.NM refers to not meaningful.

Stepping Up Capital Returns to Shareholders

The Company plans to step up the capital returns to shareholders from $3 billion to $4.5 billion between 2024 and 2026, representing an increase of 50%.

As part of the enlarged capital returns program, the Company plans to return $1.5 billion for the full year 2024. In the first nine months, the Company returned a record $1.24 billion to shareholders, including $1.06 billion in share repurchases and $187 million in cash dividends. Yum China repurchased 27.3 million shares of common stock, which is equivalent to approximately 7% of its outstanding shares as of December 31, 2023.

In November 2024, Yum China's board of directors (the "Board") increased the Company's share repurchase authorization by $1 billion, bringing total authorization since 2017 to an aggregate of $4.4 billion. From 2017 to November 1, 2024, the Company repurchased approximately 71.8 million shares of common stock for $3.0 billion. Our remaining authorization is approximately $1.4 billion.

The Board declared a cash dividend of $0.16 per share on Yum China's common stock, payable on December 17, 2024, to shareholders of record as of the close of business on November 26, 2024.

KFC

Third Quarter

Year to Date Ended 9/30

%/ppts Change

%/ppts Change

2024

2023

Reported

Ex F/X

2024

2023

Reported

Ex F/X

Restaurants

11,283

9,917

+14

NM

11,283

9,917

+14

NM

System Sales Growth (%)

6

15

NM

NM

6

21

NM

NM

Same-Store Sales Growth (%)

(2)

4

NM

NM

(2)

9

NM

NM

Total Revenues ($mn)

2,311

2,186

+6

+5

6,555

6,368

+3

+5

Operating Profit ($mn)

364

342

+6

+6

1,000

1,035

(3)

(1)

Core Operating Profit ($mn)

362

332

NM

+9

1,027

991

NM

+4

OP Margin (%)

15.7

15.6

+0.1

+0.2

15.2

16.3

(1.1)

(1.0)

Restaurant Margin (%)

18.3

18.6

(0.3)

(0.3)

18.0

19.4

(1.4)

(1.4)

System sales for KFC grew 6% YoY in the quarter, primarily driven by net new unit contribution of 8%.

Same-store sales reached 98% of the prior year's level, improved from 97% in the second quarter.

Delivery sales grew 19% YoY, continuing the double-digit annual growth trend since the spin-off and contributing approximately 40% of KFC's Company sales for the quarter. Off-premises dining accounted for approximately 68% of KFC's Company sales.

KFC opened 352 net new stores during the quarter. 134 net new stores, or 38%, were opened by franchisees. Total store count reached 11,283 as of September 30, 2024.

Operating profit grew 6% YoY to $364 million, a record level for the third quarter since the spin-off. Core operating profit increased 9% YoY.

OP margin was 15.7%, an increase of 10 basis points YoY.

Restaurant margin was 18.3% for the quarter. Excluding items affecting comparability, restaurant margin increased by 30 basis points, primarily due to improved operational efficiency and favorable commodity prices, partially offset by increased value-for-money offerings to drive traffic and wage inflation.

Pizza Hut

Third Quarter

Year to Date Ended 9/30

%/ppts Change

%/ppts Change

2024

2023

Reported

Ex F/X

2024

2023

Reported

Ex F/X

Restaurants

3,606

3,202

+13

NM

3,606

3,202

+13

NM

System Sales Growth (%)

2

13

NM

NM

2

19

NM

NM

Same-Store Sales Growth (%)

(6)

2

NM

NM

(6)

7

NM

NM

Total Revenues ($mn)

615

599

+2

+1

1,750

1,750

—

+2

Operating Profit ($mn)

52

47

+13

+13

139

137

+2

+5

Core Operating Profit ($mn)

52

43

NM

+20

143

129

NM

+12

OP Margin (%)

8.6

7.8

+0.8

+0.8

8.0

7.8

+0.2

+0.2

Restaurant Margin (%)

12.8

12.7

+0.1

+0.1

12.8

13.1

(0.3)

(0.3)

System sales for Pizza Hut grew 2% YoY in the quarter, primarily driven by net new unit contribution of 7%.

Same-store sales reached 94% of the prior year's level, improved from 92% in the second quarter.

Delivery sales grew 11% YoY, contributing approximately 39% of Pizza Hut's Company sales for the quarter. Off-premises dining accounted for approximately 49% of Pizza Hut's Company sales.

Pizza Hut opened 102 net new stores during the quarter. 15 net new stores, or 15%, were opened by franchisees. Total store count reached 3,606 as of September 30, 2024.

Operating profit grew 13% YoY to $52 million. Core operating profit increased 20% YoY.

OP margin was 8.6%, an increase of 80 basis points YoY.

Restaurant margin was 12.8% for the quarter. Excluding items affecting comparability, restaurant margin was up 60 basis points YoY. Higher operational efficiency and favorable commodity prices offset the impact of increased value-for-money offerings to drive traffic and wage inflation, resulting in an increased margin.

Outlook

The Company's targets for the 2024 fiscal year remain unchanged from the prior period's disclosures.

Open approximately 1,500 to 1,700 net new stores.

Make capital expenditures in the range of approximately $700 million to $850 million.

Return a Company record-setting $1.5 billion to shareholders through quarterly cash dividends and share repurchases.

Note on Non-GAAP Measures

Reported GAAP results include items that are excluded from non-GAAP measures. See "Reconciliation of Reported GAAP Results to Non-GAAP Measures" and "Segment Results" within this release for non-GAAP reconciliation details. 

Conference Call

Yum China's management will hold an earnings conference call at 7:00 a.m. U.S. Eastern Time on Monday, November 4, 2024 (8:00 p.m. Beijing/Hong Kong Time on Monday, November 4, 2024).  

This change from the Company's previous practice of releasing earnings after the U.S. market closes (before the trading hours of the Hong Kong Stock Exchange) is designed to better serve our global investor base by offering a more convenient time.

A live webcast of the call may be accessed at https://edge.media-server.com/mmc/p/asco39nb.

To join by phone, please register in advance of the conference through the link provided below. Upon registering, you will be provided with participant dial-in numbers, a passcode and a unique access PIN.

Pre-registration link: https://s1.c-conf.com/diamondpass/10042700-y56ut2.html

A replay of the conference call will be available one hour after the call ends until Monday, November 11, 2024, and may be accessed by phone at the following numbers:

U.S.:

1 855 883 1031

Mainland China:                       

400 1209 216

Hong Kong:

800 930 639

U.K.:

0800 031 4295

Replay PIN:

10042700

Additionally, this earnings release, the accompanying slides, as well as the live and archived webcast of this conference call will be available at Yum China's Investor Relations website at http://ir.yumchina.com. 

For important news and information regarding Yum China, including our filings with the U.S. Securities and Exchange Commission and the Hong Kong Stock Exchange, visit Yum China's Investor Relations website at http://ir.yumchina.com. Yum China uses this website as a primary channel for disclosing key information to its investors, some of which may contain material and previously non-public information.

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including under "2024 Outlook." We intend all forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the fact that they do not relate strictly to historical or current facts and by the use of forward-looking words such as "expect," "expectation," "believe," "anticipate," "may," "could," "intend," "belief," "plan," "estimate," "target," "predict," "project," "likely," "will," "continue," "should," "forecast," "outlook," "commit" or similar terminology. These statements are based on current estimates and assumptions made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we believe are appropriate and reasonable under the circumstances, but there can be no assurance that such estimates and assumptions will prove to be correct. Forward-looking statements include, without limitation, statements regarding the future strategies, growth, business plans, investments, store openings, capital expenditures, dividend and share repurchase plans, CAGR for system sales, operating profit and EPS, earnings, performance and returns of Yum China, anticipated effects of population and macroeconomic trends, pace of recovery of Yum China's business, the anticipated effects of our innovation, digital and delivery capabilities and investments on growth and beliefs regarding the long-term drivers of Yum China's business. Forward-looking statements are not guarantees of performance and are inherently subject to known and unknown risks and uncertainties that are difficult to predict and could cause our actual results or events to differ materially from those indicated by those statements. We cannot assure you that any of our expectations, estimates or assumptions will be achieved. The forward-looking statements included in this press release are only made as of the date of this press release, and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances, except as required by law. Numerous factors could cause our actual results or events to differ materially from those expressed or implied by forward-looking statements, including, without limitation: whether we are able to achieve development goals at the times and in the amounts currently anticipated, if at all, the success of our marketing campaigns and product innovation, our ability to maintain food safety and quality control systems, changes in public health conditions, our ability to control costs and expenses, including tax costs, as well as changes in political, economic and regulatory conditions in China, and those set forth under the caption "Risk Factors" in our Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q. Our plan of capital returns to shareholders is based on current expectations, which may change based on market conditions, capital needs or otherwise. In addition, other risks and uncertainties not presently known to us or that we currently believe to be immaterial could affect the accuracy of any such forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. You should consult our filings with the Securities and Exchange Commission (including the information set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q) for additional detail about factors that could affect our financial and other results.

About Yum China Holdings, Inc.

Yum China is the largest restaurant company in China with a mission to make every life taste beautiful. The Company has approximately 400,000 employees and operates over 15,000 restaurants under six brands across around 2,200 cities in China. KFC and Pizza Hut are the leading brands in the quick-service and casual dining restaurant spaces in China, respectively. In addition, Yum China has partnered with Lavazza to develop the Lavazza coffee concept in China. Little Sheep and Huang Ji Huang specialize in Chinese cuisine. Taco Bell offers innovative Mexican-inspired food. Yum China has a world-class, digitalized supply chain, which includes an extensive network of logistics centers nationwide and an in-house supply chain management system. Its strong digital capabilities and loyalty program enable the Company to reach customers faster and serve them better. Yum China is a Fortune 500 company with the vision to be the world's most innovative pioneer in the restaurant industry. For more information, please visit http://ir.yumchina.com. 

Contacts

Investor Relations Contact:Tel: +86 21 2407

Media Contact:Tel: +86 21 2407 8288 / +852 2267

 

Yum China Holdings, Inc.

Condensed Consolidated Statements of Income

(in US$ million, except per share data)

(unaudited)

Quarter Ended

% Change

Year to Date Ended

% Change

9/30/2024

9/30/2023

B/(W)

9/30/2024

9/30/2023

B/(W)

Revenues

Company sales

$     2,895

$     2,759

5

$      8,217

$      8,048

2

Franchise fees and income

25

23

8

72

69

3

Revenues from transactions with franchisees

116

100

16

319

282

13

Other revenues

35

32

14

100

86

17

Total revenues

3,071

2,914

5

8,708

8,485

3

Costs and Expenses, Net

Company restaurants

Food and paper

918

858

(7)

2,611

2,466

(6)

Payroll and employee benefits

728

699

(4)

2,102

2,047

(3)

Occupancy and other operating expenses

755

732

(3)

2,126

2,098

(1)

Company restaurant expenses

2,401

2,289

(5)

6,839

6,611

(3)

General and administrative expenses

139

169

18

412

485

15

Franchise expenses

10

9

(11)

29

28

(6)

Expenses for transactions with franchisees

110

95

(16)

306

270

(13)

Other operating costs and expenses

32

29

(10)

90

77

(17)

Closures and impairment expenses, net

8

—

 NM 

22

17

(32)

Other expenses (income), net

—

—

 NM 

(1)

1

 NM 

Total costs and expenses, net

2,700

2,591

(4)

7,697

7,489

(3)

Operating Profit

371

323

15

1,011

996

1

Interest income, net

31

46

(32)

100

124

(19)

Investment gain (loss)

34

(4)

 NM 

50

(32)

 NM 

Income Before Income Taxes and   Equity in Net Earnings (Losses) from   Equity Method Investments

436

365

20

1,161

1,088

7

Income tax provision

(119)

(100)

(19)

(309)

(296)

(5)

Equity in net earnings (losses) from    equity method investments

2

2

(11)

2

2

(11)

Net income, including noncontrolling interests

319

267

20

854

794

8

Net income, noncontrolling interests

22

23

3

58

64

9

Net Income, Yum China Holdings, Inc.

$        297

$        244

22

$         796

$         730

9

Effective tax rate

27.3 %

27.5 %

0.2

 ppts. 

26.6 %

27.2 %

0.6

 ppts. 

Basic Earnings Per Common Share

$       0.77

$       0.59

$        2.04

$        1.75

Weighted-average shares outstanding     (in millions)

384

416

391

417

Diluted Earnings Per Common Share

$       0.77

$       0.58

$        2.03

$        1.73

Weighted-average shares outstanding     (in millions)

385

420

393

421

OP margin

12.1 %

11.1 %

1.0

ppts.

11.6 %

11.7 %

(0.1)

ppts.

Company sales

100.0 %

100.0 %

100.0 %

100.0 %

Food and paper

31.7

31.1

(0.6)

 ppts. 

31.8

30.6

(1.2)

ppts.

Payroll and employee benefits

25.1

25.3

0.2

 ppts. 

25.6

25.4

(0.2)

ppts.

Occupancy and other operating expenses

26.2

26.6

0.4

 ppts. 

25.8

26.1

0.3

ppts.

Restaurant margin

17.0 %

17.0 %

—

 ppts. 

16.8 %

17.9 %

(1.1)

ppts.

Percentages may not recompute due to rounding. NM refers to not meaningful.

 

Yum China Holdings, Inc.

KFC Operating Results

(in US$ million)

(unaudited)

Quarter Ended

% Change

Year to Date Ended

% Change

9/30/2024

9/30/2023

B/(W)

9/30/2024

9/30/2023

B/(W)

Revenues

Company sales

$      2,276

$      2,154

6

$      6,452

$      6,274

3

Franchise fees and income

19

16

15

53

48

10

Revenues from transactions with franchisees

15

12

23

41

33

25

Other revenues

1

4

(63)

9

13

(29)

Total revenues

2,311

2,186

6

6,555

6,368

3

Costs and Expenses, Net

Company ...