Yum China Reports Third Quarter Results | The Manila Times

Robust Sales Growth, Margin Expansion and 33% Diluted EPS Growth

Sequential Improvement in Same-Store Sales Index and Seventh Consecutive Quarter of Same-Store Transaction Growth

Operating Profit Increased by 15% to $371 Million and Core Operating Profit¹ Grew 18%

Stepping up Capital Returns to Shareholders by 50% to $4.5 Billion for 2024-2026

SHANGHAI, Nov. 4, 2024 /PRNewswire/ -- Yum China Holdings, Inc. (the "Company" or "Yum China") (NYSE: YUMC and HKEX: 9987) today reported unaudited results for the third quarter ended September 30, 2024.

Third Quarter Highlights

Total system sales grew 4% year over year ("YoY"), excluding foreign currency translation ("F/X"). The growth was primarily attributable to 7% of net new unit contribution.^{2

Advertisement}
Total store count reached 15,861 as of September 30, 2024, including 11,283 KFC stores and 3,606 Pizza Hut stores. The Company opened 438 net new stores in the third quarter. 145 net new stores, or 33%, were opened by franchisees.
Total revenues increased 5% YoY to $3.07 billion, an all-time quarter high (a 4% increase excluding F/X).

Advertisement
Delivery sales grew 18% YoY, maintaining the double-digit annual growth Yum China has sustained over the past decade. Delivery contributed approximately 40% of KFC and Pizza Hut's Company sales.
Same-store sales reached 97% of the prior year's level, improved from 96% in the second quarter. Same-store transactions grew 1% YoY, the seventh consecutive quarter of growth.

Advertisement
Operating profit grew 15% YoY to $371 million (a 14% increase excluding F/X). Core operating profit¹ grew 18% YoY.
OP margin³ was 12.1%, an increase of 100 basis points YoY, supported by resilient restaurant margins and savings in G&A expenses.

Advertisement
Restaurant margin was 17.0%, steady YoY. Excluding $15 million in items affecting comparability, restaurant margin increased by 50 basis points YoY, driven by improved operational efficiencies.
Diluted EPS increased 33% YoY to $0.77 (a 32% increase excluding F/X). Excluding the impact of the mark-to-market equity investments in the third quarter of 2024 and 2023, Diluted EPS increased 19% YoY.

Advertisement
Digital sales⁴ reached $2.61 billion, with digital ordering accounting for approximately 90% of total Company sales.
Total membership of KFC and Pizza Hut exceeded 510 million. Member sales accounted for approximately 64% of KFC and Pizza Hut's system sales in aggregate.

Advertisement
Yum China returned $248 million to shareholders in the third quarter, through $187 million in share repurchases and $61 million in cash dividends. In the first nine months, the Company returned $1.24 billion to shareholders, nearly three times the amount returned in the same period last year.

Joey Wat, CEO of Yum China, commented, "We delivered strong results again in the third quarter. Operating profit increased by 15%, core operating profit grew 18%, and diluted EPS increased by 33%. OP margin expanded by 100 basis points, and restaurant margin improved year-over-year on a comparable basis. We also achieved seven consecutive quarters of same-store transaction growth and decade-long double-digit delivery sales growth. Our RGM 2.0 strategy is executing effectively, with a dual focus on operational efficiency and innovation. Savings generated from improved efficiency allowed us to reinvest in food innovation and our value-for-money offerings, driving incremental traffic to our stores. Same-store sales index improved sequentially for both KFC and Pizza Hut. These results demonstrate the effectiveness of our strategy and our ability to outperform in a challenging and fluid environment."

Wat added, "We regard both system sales and same-store sales growth as equally important. With these priorities in mind, we continue to drive menu innovations, infusing fresh energy into our flagship products. By optimizing our delivery strategy, we have captured more smaller order transactions and gained market share on aggregator platforms. Our breakthrough business models, side-by-side KCOFFEE Cafes and Pizza Hut WOW, enabled us to broaden our addressable market and capture new customer demand, reaching 500 and 150 stores, respectively."

Wat concluded, "We see ample opportunities across China to enter underserved markets and enhance customer access. With tailored store models, we are accelerating franchise store openings to unlock additional opportunities. Our franchise strategy focuses on accessing strategic and remote locations as well as lower tier cities previously beyond our reach. We anticipate the franchise mix of net new stores will gradually increase to 40-50% for KFC and 20-30% for Pizza Hut over the next few years. Looking ahead, we are committed to returning excess capital to shareholders as we continue investing in driving business growth. With our confidence in our cash generating capabilities, we plan to step up capital returns to shareholders, increasing from $3 billion to $4.5 billion between 2024 and 2026."

[1] Core operating profit is defined as operating profit adjusted for special items, further excluding items affecting comparability and the impact of F/X. The Company uses core operating profit for the purposes of evaluating the performance of its core operations. Please refer to "Reconciliation of Reported GAAP Results to Non-GAAP Measures" included in the accompanying tables of this release for further details.

[2] Net new unit contribution refers to sales contribution from net new stores.

[3] OP margin refers to operating profit as a percentage of total revenues.

[4] Digital sales refer to sales at Company-owned stores where orderings were placed digitally.

Key Financial Results

Third Quarter

Year to Date Ended 9/30

%/ppts Change

2024

2023

Reported

Ex F/X

2024

2023

Reported

Ex F/X

System Sales Growth ⁽⁵⁾ (%)

Same-Store Sales Growth ⁽⁵⁾ (%)

(3)

Operating Profit ($mn)

371

323

+15

+14

1,011

996

Adjusted Operating Profit ⁽⁶⁾($mn)

371

327

+13

1,011

1,005

Core Operating Profit ⁽⁶⁾ ⁽⁷⁾($mn)

369

312

+18

1,040

951

+10

OP Margin (%)

12.1

11.1

+1.0

11.6

11.7

(0.1)

Core OP Margin ⁽⁶⁾ ⁽⁸⁾ (%)

12.1

10.7

+1.4

11.7

11.2

+0.5

Net Income ($mn)

297

244

+22

+21

796

730

+12

Adjusted Net Income ⁽⁶⁾($mn)

297

248

+20

+19

796

739

+11

Diluted Earnings

Per Common Share ($)

0.77

0.58

+33

+32

2.03

1.73

+17

+20

Adjusted Diluted Earnings

Per Common Share ⁽⁶⁾($)

0.77

0.59

+31

+30

2.03

1.75

+16

+19

[5] System sales and same-store sales percentages exclude the impact of F/X. Effective January 1, 2018, temporary store closures are normalized in the same-store sales calculation by excluding the period during which stores are temporarily closed.

[6] See "Reconciliation of Reported GAAP Results to Non-GAAP Measures" included in the accompanying tables of this release for further details.

[7] Current period amounts are derived by translating results at average exchange rates of the prior year period.

[8] Core OP margin refers to core operating profit as a percentage of total revenues excluding F/X.

Note: All comparisons are versus the same period a year ago.

Percentages may not recompute due to rounding.

NM refers to not meaningful.

Stepping Up Capital Returns to Shareholders

The Company plans to step up the capital returns to shareholders from $3 billion to $4.5 billion between 2024 and 2026, representing an increase of 50%.
As part of the enlarged capital returns program, the Company plans to return $1.5 billion for the full year 2024. In the first nine months, the Company returned a record $1.24 billion to shareholders, including $1.06 billion in share repurchases and $187 million in cash dividends. Yum China repurchased 27.3 million shares of common stock, which is equivalent to approximately 7% of its outstanding shares as of December 31, 2023.
In November 2024, Yum China's board of directors (the "Board") increased the Company's share repurchase authorization by $1 billion, bringing total authorization since 2017 to an aggregate of $4.4 billion. From 2017 to November 1, 2024, the Company repurchased approximately 71.8 million shares of common stock for $3.0 billion. Our remaining authorization is approximately $1.4 billion.
The Board declared a cash dividend of $0.16 per share on Yum China's common stock, payable on December 17, 2024, to shareholders of record as of the close of business on November 26, 2024.