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Yum China: Reports Second Quarter 2018 Results

Shanghai / CN. (yb) Yum China Holdings Inc. reported unaudited results for the second quarter ended June 30, 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.

Second Quarter Highlights

  • Total revenues increased 12 percent year over year to USD 2.1 billion from USD 1.8 billion (5 percent year over year increase excluding foreign currency translation (F/X)).
  • Total system sales grew 3 percent year over year, with 5 percent growth at KFC partially offset by 1 percent decline at Pizza Hut, excluding F/X.
  • Same-store sales declined 1 percent year over year, with flat same-store sales at KFC and a 4 percent decrease at Pizza Hut, excluding F/X.
  • Restaurant margin was 15.1 percent, as compared with 16.6 percent in the prior year period.
  • Operating Profit increased 13 percent year over year to USD 193 million from USD 171 million (5 percent year over year increase excluding F/X).
  • Net Income increased 14 percent to USD 143 million from USD 125 million in the prior year period (6 percent year over year increase excluding F/X).
  • Effective tax rate was 26.0 percent.
  • Diluted EPS was USD 0.36, as compared with USD 0.31 in the prior year period.
  • Repurchased approximately 1.9 million shares for USD 73.4 million at an average price of USD 38.41 per share.
  • Opened 164 new restaurants during the quarter, bringing total store count to 8,198 across more than 1,200 cities.

Digital and Delivery

  • As of June 30, 2018, the KFC loyalty program had more than 135 million members and the Pizza Hut loyalty program had over 45 million members, an increase of 50 million and 20 million, respectively, year over year.
  • Mobile payments accounted for approximately 63 percent of Company sales in the quarter, an increase of 21 percentage points year over year.
  • Delivery contributed to 16 percent of Company sales in the second quarter of 2018, an increase of 3 percentage points year over year. Delivery services now available in over 1,000 cities, up from 800 cities in the prior year period.

CEO and CFO Comments

«KFC achieved 5 percent system sales growth in the second quarter as a result of solid business fundamentals and accelerated new store development. We are on track to add 600-650 new stores, led by KFC, by the end of the year. This growth strategy will set us up for long-term growth in both profitability and market share. We are confident in the sustainability of KFC’s leader position in the QSR market in China. While Pizza Hut continued to face challenges in China’s competitive casual dining space, we added new talent to our team and made progress repositioning the brand with our target customers. We remain dedicated to revitalizing the brand and strongly believe that our initiatives including delivering more innovative products and introducing new store formats will restore the brand to the level of consistent growth that our shareholders expect,» said Joey Wat, CEO of Yum China.

«Yum China reported total revenues and operating profit growth of 12 percent and 13 percent respectively in the second quarter. We will continue to invest in strengthening our core competencies as well as building delivery, digital and data capabilities to capture online and offline opportunities and drive future growth,» added Ms. Wat.

«In an increasingly competitive environment, we stepped up food investment and promotional activities, which inevitably had some pressure on our margins. This reflects our strategic decision to invest in our brands for long-term market share gain. Our business continues to generate substantial free cash flow, and during the second quarter, we returned over USD 110 million of cash to our shareholders through share buyback and dividends. We remain committed to creating enduring value for our stockholders,» remarked Jacky Lo, CFO of Yum China.