Yum China: Reports Fourth Quarter and FY 2021 Results

Shanghai / CN. (yb) Yum China Holdings Inc. reported unaudited results for the fourth quarter and year ended December 31, 2021.

Impact of Covid-19 Outbreak and Mitigation Efforts

Multiple waves of Delta variant outbreaks persisted throughout the fourth quarter, spreading to nearly all provinces in China. Case counts in the fourth quarter were the highest since the first quarter of 2020. These widespread outbreaks resulted in more stringent public health measures nationwide in pursuit of a zero-Covid-19 case goal. These preventive measures, which include mass testing, regional lockdowns and travel restrictions, negatively affected the restaurant industry and our business. According to government statistics, total revenues of the restaurant industry in China declined year over year in the fourth quarter. Reduced traveling, fewer social activities and softened consumption demand were observed.

Fluid Covid-19 conditions caused significant volatilities in our fourth quarter operations. From a timing prospective, same-store sales recovered sequentially in early October when Covid-19 conditions were relatively stable. However, as Covid-19 outbreaks resurged, the same-store sales percentage declined by mid-teens year over year in November. Although sales trends recovered moderately, same-store sales still declined by more than 10 percent year over year in December. By region, the most impacted areas were northern and western China, especially Shaanxi province where the cases were concentrated. Eastern China was also impacted, especially Zhejiang province, which is one of the most economically vibrant provinces and our largest regional market.

Same-store sales in January 2022 improved modestly from the fourth quarter. But comparing to the comparable Chinese New Year holiday period in 2021, same-store sales were still down year over year. The situation remains volatile. In January, cases of the Omicron variant emerged in China, spreading to major cities including Beijing, Shanghai, Tianjin and Shenzhen. A lockdown in Xi’an, which started in December, lasted nearly the whole month of January. A number of regions were identified as medium to high risk with restrictive measures put in place. At the peak in January, over 500 of our stores were temporarily closed or offered only takeaway and delivery services, compared to nearly 300 stores in the fourth quarter. Many provinces have measures discouraging travel during the Chinese New Year holiday, which is one of the most important trading periods in the year. We have launched numerous campaigns to drive traffic and engage customers online and offline. We will also continue to adjust operations and promotional offers as the situation evolves.

Fourth Quarter Highlights

  • In December 2021, the Company completed its investment of approximately USD 255 million for a 28 percent equity interest in Hangzhou Catering Service Group. As a result, the Company directly and indirectly holds an approximately 60 percent equity interest in the Hangzhou KFC joint venture. In connection with the transaction, the Company recognized a non-cash gain of USD 618 million from the fair value re-measurement of our previously held equity interest in Hangzhou KFC. The non-cash gain is recorded as a Special Item that impacts only the reported GAAP results of Yum China.
  • Total revenues increased 1 percent year over year to USD 2.29 billion from USD 2.26 billion (a 2 percent decrease excluding foreign currency translation (“F/X”)).
  • Total system sales decreased 3 percent year over year, with decreases of 3 percent at KFC and 2 percent at Pizza Hut, excluding F/X.
  • Same-store sales decreased 11 percent year over year, with decreases of 12 percent at KFC and 8 percent at Pizza Hut, excluding F/X.
  • Opened 563 gross new stores, or 373 net new stores.
  • Restaurant margin was 7.5 percent, compared with 15.1 percent in the prior year period, primarily due to sales deleveraging as a result of worsened Covid-19 conditions.
  • Operating Profit increased to USD 633 million from USD 180 million, primarily due to the non-cash gain of USD 618 million from the re-measurement of our previously held equity interest in Hangzhou KFC.
  • Adjusted Operating Profit decreased 91 percent year over year to USD 16 million from USD 182 million (a 92 percent decrease excluding F/X).
  • Effective tax rate was 25.1 percent.
  • Net Income increased to USD 475 million from USD 151 million in the prior year period, primarily due to the increase in Operating Profit and partially offset by the loss from mark-to-market investment in Meituan Dianping (“Meituan”).
  • Adjusted Net Income decreased 93 percent to USD 11 million from USD 153 million in the prior year period (an 85 percent decrease excluding the net loss of USD 9 million in the fourth quarter of 2021 and the net gain of USD 23 million in the fourth quarter of 2020, respectively, from the mark-to-market equity investment in Meituan; an 85 percent decrease if further excluding F/X).
  • Diluted EPS increased to USD 1.10 from USD 0.35 in the prior year period.
  • Adjusted Diluted EPS decreased 91 percent to USD 0.03 from USD 0.35 in the prior year period (an 83 percent decrease excluding the net loss in the fourth quarter of 2021 and the net gain in the fourth quarter of 2020, respectively, from the mark-to-market investment; an 83 percent decrease if further excluding F/X).
  • Results include the consolidation of Hangzhou KFC since December 2021.

Full Year Highlights

  • Total revenues increased 19 percent year over year to USD 9.85 billion from USD 8.26 billion (a 12 percent increase excluding F/X).
  • Total system sales increased 10 percent year over year, with increases of 8 percent at KFC and 14 percent at Pizza Hut, excluding F/X.
  • Same-store sales decreased 1 percent year over year, with a decrease of 3 percent at KFC and an increase of 7 percent at Pizza Hut, excluding F/X.
  • Total store count reached 11,788 as of December 31, 2021, with record gross new store openings of 1,806, or 1,282 net new store openings during the year.
  • Restaurant margin was 13.7 percent, compared with 14.9 percent in the prior year.
  • Operating Profit increased 44 percent year over year to USD 1.39 billion from USD 961 million (a 34 percent increase excluding F/X), primarily due to the non-cash gain from the re-measurement of our previously held equity interest in Hangzhou KFC in the fourth quarter of 2021.
  • Adjusted Operating Profit increased 5 percent year over year to USD 766 million from USD 732 million (a 2 percent decrease excluding F/X).
  • Effective tax rate was 26.5 percent.
  • Net Income increased 26 percent to USD 990 million from USD 784 million in the prior year, primarily due to the increase in Operating Profit partially offset by loss from mark-to-market investments.
  • Adjusted Net Income decreased 15 percent to USD 525 million from USD 615 million in the prior year (a 7 percent increase excluding the net loss of USD 52 million in 2021 and the net gain of USD 75 million in 2020, respectively, from mark-to-market investments; or a 1 percent decrease if further excluding F/X).
  • Diluted EPS increased 17 percent to USD 2.28 from USD 1.95 in the prior year.
  • Adjusted Diluted EPS decreased 21 percent to USD 1.21 from USD 1.53 in the prior year (a 1 percent decrease excluding the net loss in 2021 and the net gain in 2020, respectively, from mark-to-market investments; a 7 percent decrease if further excluding F/X).
  • Approximately 41.9 million shares of common stock were issued as a result of the secondary listing in Hong Kong in September 2020. On a year over year basis, the dilution impact from the weighted average share count was 7 percent in 2021.

For additional information please read the company’s PDF file below (227 KB):

20220210-YUM-CHINA-Q4-2021.

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