• System Sales Growth (Q4): 4% year-over-year.
• Same-Store Sales Index (Q4): Improved to 99% of prior year levels.
• Core Operating Profit Growth (Q4): 35% year-over-year.
• Net New Stores Opened (2024): 1,751, ending the year with 1,395 stores.
• Adjusted Operating Profit (2024): $1.2 billion.
• Diluted EPS Growth (2024): 22% year-over-year.
• KFC System Sales Growth (2024): 6% year-over-year.
• KFC Net New Stores (2024): 1,352, total store count 11,648.
• KFC Delivery Sales Growth (2024): 16% year-over-year.
• Pizza Hut Core Operating Profit Growth (Q4): More than tripled year-over-year.
• Pizza Hut Same-Store Transactions Growth (2024): 5% year-over-year.
• Restaurant Margin (Q4): 12.3%, 160 basis points higher year-over-year.
• Operating Profit (Q4): $151 million, 35% growth year-over-year.
• Net Income (Q4): $115 million, 17% growth year-over-year.
• Free Cash Flow (2024): $740 million.
• Net Cash (End of 2024): $2.8 billion.
• Quarterly Dividend Increase: 50%, from $0.16 to $0.24.
• Capital Expenditure (2024): $705 million.
• Expected Net New Stores (2025): 1,600 to 1,800.

• Warning! GuruFocus has detected 5 Warning Signs with YUMC.

Release Date: February 06, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Yum China Holdings Inc (NYSE:YUMC) achieved a record-breaking year in 2024, with system sales growing by 4% year-over-year in the fourth quarter, outperforming the industry.
• The company opened a record 1,751 net new stores in 2024, ending the year with 1,395 stores, and plans to reach 20,000 stores by 2026.
• KFC's delivery sales grew by 16%, continuing a decade-long double-digit annual growth momentum, and KCOFFEE sales increased by 30%.
• Pizza Hut's core operating profit more than tripled in the fourth quarter and grew 19% for the full year, with same-store transactions increasing by 5%.
• Yum China Holdings Inc (NYSE:YUMC) returned $1.5 billion to shareholders in 2024, including $248 million in quarterly cash dividends and $1.24 billion in share repurchases.

Negative Points

• Despite positive transaction growth, the company faces a challenging environment with value-minded consumers.
• The average ticket price for KFC in the fourth quarter was 4% lower than the prior year, indicating pressure on pricing.
• Pizza Hut's ticket average was 10% lower year-over-year, reflecting the brand's strategy to become more mass-market, which may impact profitability.
• Yum China Holdings Inc (NYSE:YUMC) anticipates ongoing wage inflation in 2025, which could pressure labor costs.
• The company faces headwinds in cost of labor due to increased delivery mix, despite efforts to improve operational efficiency.

Q & A Highlights

Q: Can you provide insights on the competitive landscape and KFC's pricing strategy? A: Joey Wat, CEO: We observe some rationalization in marketing promotions and modest price increases, including at KFC. This helps manage cost pressures. Pizza Hut has reached an inflection point with significant improvements in same-store sales and operational efficiency. KFC continues to show strong momentum with a diverse price range and growth in KCOFFEE and delivery sales. Despite being the largest player, our market share is still small, offering opportunities for expansion, especially in lower-tier cities.

Q: How does the shift towards smaller stores and more franchise locations impact revenue growth? A: Joey Wat, CEO: We are aggressively expanding in both top-tier and lower-tier cities, focusing on a two-year payback for KFC and two to three years for Pizza Hut. Franchise stores, which are incremental, are being opened in strategic locations and lower-tier cities. Adrian Ding, VP of Corporate Finance: New stores typically generate 50-60% of the revenue of mature stores initially. We expect mid-single-digit system sales growth in 2025, with both new store openings and same-store sales growth contributing.

Q: When do you expect same-store sales growth (SSG) to turn positive for Pizza Hut? A: Joey Wat, CEO: Our strategy focuses on driving traffic and maintaining margins. We aim for a balanced approach to maintain steady transaction averages (TA). For Pizza Hut, we continue to drive TA down to make it more mass-market while improving sales and profit. Our new menu and pricing strategies have been well-received, leading to transaction growth.

Q: What are the expectations for margin improvement in 2025? A: Adrian Ding, VP of Corporate Finance: We aim to keep core operating profit margin stable or slightly improved. Cost of sales (COS) is expected to slightly improve, while cost of labor (COL) may face headwinds due to wage inflation and increased delivery mix. We continue to seek operational efficiencies and savings in occupancy and other costs (O&O), with G&A expenses expected to slightly decrease as a percentage of sales.

Q: Can you provide more details on the Pizza Hut WOW model's performance and potential? A: Adrian Ding, VP of Corporate Finance: Pizza Hut WOW is showing promising results, particularly in dine-in sales, but delivery sales still lag behind regular models. We are focusing on improving delivery sales and margins. The model is being tested in lower-tier cities and competitive trade zones, with high hopes for its potential.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.