Shanghai / CN. (yb) Yum China Holdings Inc. reported unaudited results for the second quarter ended June 30, 2020.
Impact of Covid-19 Outbreak and Mitigation Efforts
Second quarter operations improved since the Covid-19 outbreak. More than 99 percent of stores in China are now open, with sales and profits trending unevenly. Sales improved sequentially in April and May but softened in June. Sales were primarily impacted by significantly reduced traffic at transportation and tourist locations, delayed and shortened school holidays and resurging regional infections. These factors and the lingering effect of Covid-19 continue to impact operations in July.
The unevenness in recovery was most pronounced in the differences between regions and trade zones. Eastern China recovered faster than other regions. Northern China’s recovery was notably slower, primarily due to more stringent public health measures. Transportation and tourist locations, which accounted for high single digits of sales, continue to experience significant year over year traffic declines. The pace of recovery also varies across days of the week. Weekdays recovered the fastest as people returned to work and school, followed by weekends, with holidays lagging behind.
The Company’s primary focus continues to be safety, efficiency and driving traffic. The Company drove traffic during the second quarter by leveraging its digital and operating capabilities and adapting to changing consumer demand. While dine-in improved when compared to the beginning of the Covid-19 outbreak, delivery and takeaway continued to grow year over year and contributed over half of Company sales in the second quarter. Member sales also grew double digits year over year and exceeded 60 percent of system sales. Digital ordering grew in popularity, accounting for approximately 80 percent of Company sales in the quarter.
Sales deleveraging and additional costs reduced restaurant margin and operating profit compared to the prior year period. Those negative impacts were partially offset by the realignment of our cost structure and labor productivity improvements. The Company also received one-time relief from landlords and government agencies.
Second Quarter Highlights
- Results for this quarter include the consolidation of the recently acquired Huang Ji Huang operations from the date of the acquisition on April 8, 2020.
- Total revenues declined 11 percent year over year to USD 1.90 billion from USD 2.12 billion (a 7 percent decline excluding foreign currency translation (F/X).
- Total system sales declined 4 percent year over year, with declines of 6 percent at KFC and 12 percent at Pizza Hut, excluding F/X (7 percent decline excluding the consolidation of Huang Ji Huang).
- Same-store sales declined 11 percent year over year, with a 10 percent decline at KFC and 12 percent decline at Pizza Hut, excluding F/X.
- Opened 169 new stores during the quarter. Including 607 Huang Ji Huang restaurants, total store count reached 9,954.
- Restaurant margin was 13.7 percent, compared with 14.7 percent in the prior year period.
- Operating Profit declined 38 percent year over year to USD 128 million from USD 204 million (35 percent decline excluding F/X). Adjusted Operating Profit declined 36 percent year over year to USD 132 million from USD 204 million (33 percent decline excluding F/X).
- Effective tax rate was 25.2 percent.
- Net Income declined 26 percent to USD 132 million from USD 178 million in the prior year period, primarily due to the decline in Operating Profit partially offset by gains from our equity investment in Meituan Dianping (Meituan).
- Adjusted Net Income declined 23 percent to USD 136 million from USD 178 million in the prior year period (35 percent decline excluding the USD 31 million and USD 17 million net gains in the second quarter of 2020 and 2019, respectively, from our equity investment in Meituan, 31 percent decline if further excluding F/X).
- Diluted EPS declined 26 percent to USD 0.34 from USD 0.46 in the prior year period.
- Adjusted Diluted EPS declined 24 percent to USD 0.35 from USD 0.46 in the prior year period (34 percent decline excluding the gains from our equity investment in Meituan in 2020 and 2019, 31 percent decline if further excluding F/X).
- The Company sold a portion of its equity investment in Meituan during the quarter. The Company currently owns 4.2 million shares of Meituan.
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