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Yum China announces financial results

Yum! Brands

Yum China Holdings, Inc. reported unaudited results for the third quarter ended 30th September, 2020.

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Third quarter operations improved, although still impacted by reduced traffic at transportation and tourist locations, the delayed and shortened school holiday and the other lingering effects of the COVID-19 outbreak. Dine-in volume has been recovering, while delivery and takeaway remained popular options. The company’s primary focus continues to be safety, efficiency and driving traffic. It launched attractive digital and membership campaigns with strong value propositions to drive sales recovery.

Through proactive cost structure realignment and productivity improvements, the company achieved restaurant margin and operating profit expansions compared to the prior year period. Labor productivity improved year over year, partially due to part-time worker shortages. The company intends to increase staffing levels in the coming months to balance service and efficiency.

Yum China completed its secondary listing on the main board of the Hong Kong Stock Exchange and global offering on 10th September, 2020, with net proceeds of $2.2 billion. The acquisition of an additional 25% equity interest in an unconsolidated affiliate that operates KFC stores in and around Suzhou, China (“Suzhou KFC”), for cash consideration of $149 million was completed, bringing Yum China’s equity interest in Suzhou KFC to 72%. In connection with the acquisition, a non-cash gain of $239 million was recorded from the re-measurement of its previously held equity interest in Suzhou KFC at fair value.

It is reported that the total revenues increased 1% year over year to $2.35 billion from $2.32 billion (flat excluding foreign currency translation (“F/X”)). Total system sales increased 1% year over year, with declines of 1% at KFC and 6% at Pizza Hut, excluding F/X. Same-store sales declined 6% year over year, with a 6% decline at KFC and 7% decline at Pizza Hut, excluding F/X.

The company opened 312 new stores during the quarter; total store count reached 10,150 as of 30th September, 2020. Restaurant margin was 18.6%, compared with 17.7% in the prior year period. Operating Profit increased 86% year over year to $556 million from $300 million (83% increase excluding F/X), primarily due to the re-measurement gain of Suzhou KFC acquisition. The adjusted Operating Profit increased 7% year over year to $320 million from $300 million (5% increase excluding F/X). Effective tax rate was 25.6%.

Net Income increased 96% to $439 million from $223 million in the prior year period, primarily due to the increase in Operating Profit and gains from our equity investment in Meituan Dianping (“Meituan”). Adjusted Net Income increased 17% to $263 million from $223 million in the prior year period (10% increase excluding the $29 million and $12 million net gains in the third quarter of 2020 and 2019, respectively, from our equity investment in Meituan; 8% increase if further excluding F/X).

Diluted EPS increased 90% to $1.10 from $0.58 in the prior year period. Adjusted Diluted EPS increased 14% to $0.66 from $0.58 in the prior year period (5% increase excluding the gains from our equity investment in Meituan in 2020 and 2019; 4% increase if further excluding F/X).

Joey Wat, CEO of Yum China, commented, “Our strong third quarter performance again demonstrated our resilience and world-class execution capabilities. Thanks to the hard work and commitment of our employees and business partners, and the trust of our customers, system sales returned to year-over-year growth, while same-store sales recovered to 94% of the prior year period. Despite the COVID-19 pandemic, we continued to generate meaningful profit. Our profitability allowed us to preserve jobs during this difficult period. We accelerated our store expansion and exceeded 10,000 stores, a significant milestone. With new and more flexible store models supported by our strong financial position, we are well-positioned to capture market opportunities in China.”

“We are also excited by our secondary listing on the main board of the Hong Kong Stock Exchange in September. This listing enables us to broaden our investor base and provide an additional access point for our stakeholders to invest in our company, in a market that is closer to where we operate, and where our customers and communities thrive. Looking ahead, we are confident in our ability to capture long-term growth opportunities due to our resilient business model, culture of innovation, digital and delivery capabilities and financial strength,” continued Ms. Wat.

Andy Yeung, CFO of Yum China, added, “Third quarter operations overall improved sequentially. As we entered the quarter, sales were pressured by reduced travel, a shortened school holiday and some regional outbreaks, but our compelling value proposition and effective digital initiatives drove a sales recovery. We expanded restaurant margin by realigning our cost structure and improving productivity. Labor productivity improvement was partially due to the shortage in part-time workers. We intend to increase staffing levels in coming months to balance service and efficiency.”

Andy continued, “Looking ahead, we now expect to open more than 900 gross new stores in 2020. We remain cautiously optimistic and continue to expect the recovery to be non-linear and uneven. Although the COVID-19 outbreak in China has improved over the past months, we are not out of the woods yet. The lingering effect remains unpredictable. However, given our strong liquidity position, we will resume our quarterly cash dividend in the fourth quarter. We remain committed to driving sustainable growth and creating long-term value to our shareholders.”

The Board of Directors declared a cash dividend of $0.12 per share on Yum China’s common stock, payable as of the close of business on 16th December, 2020 to shareholders of record as of the close of business on 25th November, 2020.

The KFC and Pizza Hut loyalty programs and member sales contributed to year-over-year growth. Delivery contributed to approximately 28% of KFC and Pizza Hut’s company sales in the third quarter of 2020. Digital orders, including delivery, mobile orders and kiosk orders, accounted for approximately 78% of KFC and Pizza Hut’s company sales in the third quarter of 2020.

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The company opened 312 new stores in the third quarter 2020, mainly driven by development of the KFC brand. It also remodeled 301 stores in the third quarter 2020.