Yum China Reports Third Quarter Results

PR Newswire

SHANGHAI, Nov. 4, 2024

Robust Sales Growth, Margin Expansion and 33% Diluted EPS Growth

Sequential 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 Profit(1) 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 and HKEX: 9987) 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. 

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