Yum China Reports Second Quarter 2019 Results

Total revenues grew 3% or 10% in constant currency

Yum China Holdings, Inc has reported unaudited results for the second quarter ended June 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. 

Second Quarter Highlights

• Total revenues increased 3% year over year to $2.12 billion from $2.07 billion (10% year over year increase excluding foreign currency translation (“F/X”)).
• Total system sales grew 10% year over year, with growth of 12% at KFC and 4% at Pizza Hut, excluding F/X.
• Same-store sales grew 4% year over year, with a 5% increase at KFC and a 1% increase at Pizza Hut, excluding F/X.
• Restaurant margin was 14.7%, as compared with 15.1% in the prior year period.
• Operating Profit increased 6% year over year to $204 million from $193 million (14% year over year increase excluding F/X).
• Effective tax rate was 20.0%.
• Net Income increased 24% to $178 million from $143 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 28% to $0.46 from $0.36 in the prior year period (14% year over year increase excluding the $0.04 per share mark to market gain from our equity investment in Meituan Dianping).
• Opened 178 new restaurants during the quarter, bringing total store count to 8,751 across more than 1,300 cities.

Joey Wat, CEO of Yum China said, “We are pleased to report another set of strong operating results for the second quarter, reflecting the resilience of our business model and our ability to capitalize on our digital, data and delivery capabilities. We delivered a 10% increase in system sales in constant currency, marking our eleventh consecutive quarter of system sales growth since the spin-off. This strong result was driven by solid second quarter sales performance at both core brands with KFC and Pizza Hut delivering 5% and 1% same-store sales growth, respectively, and an ongoing acceleration of new store openings at KFC. We are also pleased to have delivered a 14% increase in operating profit in constant currency despite margin pressure from ongoing promotions and chicken and wage inflation.”

“Looking forward, we expect overall sales growth to moderate as KFC begins to lap several key sales drivers, including successful value campaigns that we initiated in the second half of 2018. However, we remain confident that our strong foundation and commitment to innovation throughout our business will power continued growth for Yum China. We will continue to create new and exciting menu items, and leverage our leadership in digital, data and delivery to meet the evolving needs of our consumers.”

Jacky Lo, CFO of Yum China, added, “We continued to capitalize on market opportunities across China with aggressive, KFC-led store expansion and achieved a total store count of 8,751 at the end of the second quarter. With a strong cash payback period for new KFC stores and many untapped opportunities, we intend to continue to rapidly expand our store footprint in the second half of the year. We now expect full year 2019 gross new store openings to be between 800 and 850 units with accelerating development of new units across multiple brands.”

“The ongoing expansion and strong operating performance fueled robust free cash flow generation in the second quarter, enabling us to return capital to our shareholders by repurchasing $75 million of shares and paying $45 millionin dividends during the period. We are confident that our focus on profitable and sustainable growth will enable us to continue to generate significant value for our shareholders over the long term.”

2019 Outlook

The Company is updating its fiscal year 2019 targets as follows:
– Between 800 and 850 gross new units. The increased store count reflects the accelerating development of multiple brands with the majority of the incremental new units coming from KFC and the new inclusion of COFFii & JOY.
– Capital expenditures between $475 million and $525 million.