Shanghai / CN. (yb) Yum China Holdings Inc. reported unaudited results for the third quarter ended September 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.
Third Quarter Highlights
- Total revenues increased 4 percent year over year to USD 2.2 billion from USD 2.1 billion (6 percent year over year increase excluding foreign currency translation (F/X)).
- Total system sales grew 4 percent year over year, with 6 percent growth at KFC partially offset by 2 percent decline at Pizza Hut, excluding F/X.
- Same-store sales declined 1 percent year over year, with a 1 percent increase at KFC and a 5 percent decrease at Pizza Hut, excluding F/X.
- Restaurant margin was 17.6 percent, as compared with 18.0 percent in the prior year period.
- Operating Profit increased 2 percent year over year to USD 269 million from USD 264 million (4 percent year over year increase excluding F/X).
- Net Income increased 15 percent to USD 203 million from USD 176 million in the prior year period (17 percent year over year increase excluding F/X).
- Effective tax rate was 24.2 percent.
- Diluted EPS increased 16 percent to USD 0.51 from USD 0.44 in the prior year period (18 percent year over year increase excluding F/X).
- Opened 195 new restaurants during the quarter, bringing total store count to 8,313 across more than 1,200 cities.
Dividend and Share Repurchase
- The Board of Directors declared a cash dividend of USD 0.12 per share on Yum China’s common stock, payable as of the close of business on December 18, 2018 to stockholders of record as of the close of business on November 27, 2018.
- During the third quarter, we repurchased approximately 2.7 million shares of Yum China common stock for USD 93.7 million at an average price of USD 35.14 per share.
- In October 2018, the Board of Directors increased Yum China’s existing share repurchase authorization from USD 550 million to an aggregate of USD 1.4 billion.
Recent Development
- As of today, the Company has repurchased approximately 11.3 million shares for USD 406 million, including 3.4 million shares for USD 110 million in October 2018. There is approximately USD 1 billion remaining under the new share repurchase authorization.
*System sales growth rate excludes the impact of F/X.
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Key Financial Results
| Percent Change Third Quarter 2018 | Percent Change Year to Date Ended 09/30/2018 | |||||||||||||||||||
| System Sales | Same-Store Sales | Net New Units | Operating Profit | System Sales | Same-Store Sales | Net New Units | Operating Profit | |||||||||||||
| Yum China | +4 | (1) | +6 | +2 | +4 | – | +6 | +17 | ||||||||||||
| KFC | +6 | +1 | +8 | +3 | +6 | +2 | +8 | +11 | ||||||||||||
| Pizza Hut | (2) | (5) | +3 | – | (1) | (5) | +3 | (38) | ||||||||||||
| (in USD millions, except share data and percentages) | Percent Change Third Quarter | Percent Change Year to Date Ended 09/30/2018 | ||||||||||||||||||
| 2018 | 2017 | Reported | Ex F/X | 2018 | 2017 | Reported | Ex F/X | |||||||||||||
| Operating Profit | USD 269 | USD 264 | 2 | 4 | USD 857 | USD 731 | 17 | 12 | ||||||||||||
| Adjusted Operating Profit1 | USD 269 | USD 261 | 3 | 4 | USD 759 | USD 728 | 4 | (1) | ||||||||||||
| Net Income | USD 203 | USD 176 | 15 | 17 | USD 634 | USD 505 | 26 | 19 | ||||||||||||
| Basic Earnings Per Common Share | USD 0.53 | USD 0.46 | 15 | 15 | USD 1.64 | USD 1.30 | 26 | 20 | ||||||||||||
| Adjusted Basic Earnings Per Common Share1 | USD 0.53 | USD 0.45 | 18 | 18 | USD 1.45 | USD 1.30 | 12 | 6 | ||||||||||||
| Diluted Earnings Per Common Share | USD 0.51 | USD 0.44 | 16 | 18 | USD 1.59 | USD 1.27 | 25 | 19 | ||||||||||||
| Adjusted Diluted Earnings Per Common Share1 | USD 0.51 | USD 0.43 | 19 | 21 | USD 1.41 | USD 1.26 | 12 | 6 | ||||||||||||
| 1 See “Reconciliation of Reported GAAP Results to Adjusted Measures” included in the accompanying tables of this release for further details. | ||||||||||||||||||||
| Note: All comparisons are versus the same period a year ago. | ||||||||||||||||||||
| NM refers to changes over 100 percent, from negative to positive amounts or from zero to an amount. | ||||||||||||||||||||
| Yum China’s fiscal third quarter 2018 includes July, August and September results. | ||||||||||||||||||||
| Percentages may not recompute due to rounding. | ||||||||||||||||||||
| System sales and same-store sales percentages exclude the impact of F/X. | ||||||||||||||||||||
| Prior period results have been recast for the change of fiscal quarter, same-store sales growth definition and adoption of the new revenue accounting standard. | ||||||||||||||||||||
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CEO and CFO Comments
«We recorded 4 percent system sales growth during the third quarter, excluding foreign exchange impact, as we expanded our portfolio and delivered more value-oriented offerings to address growing competition and softer trading conditions,» said Joey Wat, CEO of Yum China. «KFC continued to perform well, posting 1 percent same-store sales growth during the quarter, on top of a 10 percent growth in the same period last year. Pizza Hut recorded a 5 percent decline in same-store sales during the quarter, as healthy growth in delivery was offset by lower dine-in traffic. We made further progress on the revitalization program as we launched a refreshed brand identity, improved our value proposition, expanded our digital capabilities to include tableside ordering via mobile, and generated greater delivery traffic through our own channels.»
«Looking ahead, we are excited by the opportunity to grow our portfolio in China’s western quick service restaurant and casual dining markets. We will continue to add a range of store formats across the spectrum of low and high tier cities to drive growth. We will also build out our digital and delivery eco-system so that we can better serve our customers and create a seamless online to offline experience,» said Ms. Wat.
«We are pleased to report that we effectively managed restaurant margins at both brands during the quarter, despite an increase in promotional activities,» said Jacky Lo, CFO of Yum China. «Pizza Hut maintained operating profit at the same level as the year ago period due to more targeted investments in new products and better labor efficiencies.»
«With a solid balance sheet and strong cash generation, we returned over USD 132 million of capital to our shareholders through a combination of share buybacks and dividends in the third quarter. We are pleased to announce that we increased our quarterly cash dividend by 20 percent to USD 0.12 per share, and expanded our share repurchase authorization by USD 850 million to a total of USD 1.4 billion. We are committed to continuing to create long-term value for our shareholders,» added Lo.
Digital and Delivery
- As of September 30, 2018, the KFC loyalty program had over 145 million members and the Pizza Hut loyalty program had over 50 million members, an increase of 45 million and 20 million, respectively, year over year.
- Mobile payments accounted for 64 percent of Company sales in the quarter, an increase of 17 percentage points year over year. Digital payments accounted for 82 percent of Company sales in the quarter, an increase of 18 percentage points year over year.
- Delivery contributed to 17 percent of Company sales in the third quarter of 2018, an increase of 3 percentage points year over year. Delivery services are now available in 1,063 cities, up from 864 cities in the prior year period.
New-Unit Development and Asset Upgrade
- The Company opened 195 new restaurants and remodeled 209 restaurants in the third quarter of 2018.
| New Units Third Quarter | New Units Year to Date | Rastaurant Count as of 09/30/2018 | ||||||||||||||
| 2018 | Ended 09/30/2018 | 2018 | 2017 | |||||||||||||
| Yum China | 195 | 562 | 8,313 | 7,813 | ||||||||||||
| KFC | 139 | 411 | 5,800 | 5,393 | ||||||||||||
| Pizza Hut | 38 | 106 | 2,215 | 2,157 | ||||||||||||
| Others2 | 18 | 45 | 298 | 263 | ||||||||||||
| 2 Others include Little Sheep, East Dawning, Taco Bell and COFFii + JOY, a coffee concept recently developed by Yum China. | ||||||||||||||||
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Restaurant Margin
- In the third quarter of 2018, Yum China restaurant margin was 17.6 percent, as compared with 18.0 percent in the prior year period, primarily attributable to same-store sales deleverage at Pizza Hut and investment in product upgrades and promotions at both KFC and Pizza Hut.
| Third Quarter | Year to Date Ended 09/30 | |||||||||||
| 2018 | 2017 | percent pts change | 2018 | 2017 | percent pts change | |||||||
| Yum China | 17.6% | 18.0 % | (0.4) | 16.9% | 18.3% | (1.4) | ||||||
| KFC | 19.2% | 19.6% | (0.4) | 19.0% | 19.3% | (0.3) | ||||||
| Pizza Hut | 13.8% | 14.4% | (0.6) | 11.8% | 16.3% | (4.5) | ||||||
