Yum China: Reports Q4 and Fiscal Year 2018 Results

Shanghai / CN. (yb) Yum China Holdings Inc. reported unaudited results for the fourth quarter and year ended December 31, 2018. 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.

Fourth Quarter Highlights

  • Total revenues increased 2 percent year over year to USD 1.91 billion from USD 1.87 billion (7 percent year over year increase excluding foreign currency translation (F/X)).
  • Total system sales grew 6 percent year over year, with 9 percent growth at KFC partially offset by a 2 percent decline at Pizza Hut, excluding F/X.
  • Same-store sales grew 2 percent year over year, with a 3 percent increase at KFC and a 4 percent decrease at Pizza Hut, excluding F/X.
  • Restaurant margin was 11.5 percent, as compared with 11.6 percent in the prior year period.
  • Operating Profit increased 77 percent year over year to USD 84 million from USD 47 million (84 percent year over year increase excluding F/X).
  • Reported an impairment charge of USD 12 million on intangible assets acquired from DAOJIA.com.cn (Daojia). Excluding this special item, Adjusted Operating Profit increased to USD 96 million from USD 47 million in the prior year period.
  • Net Income increased to USD 74 million from a net loss of USD 107 million in the prior year period.
  • Recognized a tax benefit of USD 36 million in the fourth quarter 2018 as a result of adjusting the provisional amount of transition tax related to US tax reform previously recorded in fourth quarter 2017. Excluding the one-time tax benefit and the Daojia impairment, Adjusted Net Income decreased 19 percent to USD 46 million, primarily driven by the mark to market loss of USD 27 million on our equity investment in Meituan Dianping.
  • Diluted EPS increased to USD 0.19 from negative USD 0.28 in the prior year period. Adjusted Diluted EPS decreased 14 percent to USD 0.12 from USD 0.14 in the prior year period (36 percent year over year increase excluding the mark to market loss impact of our equity investment in Meituan Dianping).

Full Year Highlights

  • Total revenues increased 8 percent year over year to USD 8.42 billion from USD 7.77 billion (6 percent year over year increase excluding F/X).
  • Total system sales grew 5 percent year over year, with 7 percent growth at KFC partially offset by a 1 percent decline at Pizza Hut, excluding F/X.
  • Same-store sales increased 1 percent year over year, with a 2 percent increase at KFC and a 5 percent decrease at Pizza Hut, excluding F/X.
  • Restaurant margin was 15.7 percent, as compared with 16.7 percent in the prior year.
  • Operating Profit increased 21 percent year over year to USD 941 million from USD 778 million (16 percent year over year increase excluding F/X). Adjusted Operating Profit increased 10 percent year over year to USD 855 million from USD 775 million (6 percent year over year increase excluding F/X).
  • Net Income increased 78 percent to USD 708 million from USD 398 million in the prior year (70 percent year over year increase excluding F/X). Adjusted Net Income increased 9 percent to USD 606 million from USD 559 million in the prior year (4 percent year over year increase excluding F/X).
  • Effective tax rate was 22.6 percent. Excluding the adjustment made in the fourth quarter 2018 to the provisional amount of transition tax related to US tax reform previously recorded in 2017, the effective tax rate was 26.5 percent.
  • Diluted EPS increased 79 percent to USD 1.79 from USD 1.00 in the prior year. Adjusted Diluted EPS increased 9 percent to USD 1.53 from USD 1.40 in the prior year (14 percent year over year increase excluding the mark to market loss impact of our equity investment in Meituan Dianping).
  • Opened 819 new restaurants during the year, bringing total store count to 8,484 across more than 1,200 cities.

CEO and CFO Comments

«We achieved a 6 percent increase in system sales in constant currency during the fourth quarter, marking our ninth consecutive quarter of system sales growth since the spin-off,» said Joey Wat, CEO of Yum China. «This strong growth was led by accelerated new store openings and a robust performance at KFC, which delivered 3 percent same-store sales growth and 9 percent system sales growth during the quarter. Although Pizza Hut’s sales remained soft, we are pleased to see same-store traffic growth of 1 percent and positive trends in customer feedback.»

«In 2018, we aggressively expanded our footprint with 819 new stores across all city tiers, further strengthening our market position and laying a solid foundation for growth. While the macro backdrop is relatively soft, with our resilient business model and leadership in digital and delivery, we are confident that we have the right strategy and capabilities to maintain our growth trajectory and capitalize on the long-term potential of the China market,» added Wat.

«Our strong sales growth and diligent cost controls across all aspects of our business led to a significant increase in operating profit during the fourth quarter. We also delivered on our commitment to return capital to shareholders with USD 473 million of share repurchases and cash dividends in 2018, including USD 191 million in the fourth quarter.» said Jacky Lo, CFO of Yum China. «Looking into 2019, we are well positioned to face potential market softness while recognizing the first quarter of 2019 will be a tough lap given the excellent performance during the past three Chinese New Year holidays.»

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