SHANGHAI, China – Yum China Holdings, Inc. reported unaudited results for the second quarter ended June 30, 2021. Second quarter operations improved from a year ago. System sales and operating profit grew year over year. System sales growth was led by accelerated new store openings and same-store sales growth. Operating profit growth was further driven by lower commodity prices, and productivity improvements.
The COVID-19 pandemic continued to impact the Company’s operations and results in the second quarter. Same-store sales recovery to pre-COVID levels was interrupted by the Delta variant outbreak in southern China, which started in late May. Local authorities tightened preventive health measures and social distancing requirements. Many communities were locked down. At the peak of this outbreak, approximately 400 of our restaurants were either temporarily closed or provided delivery and takeaway services only. This represents nearly 30% of our restaurants in Guangdong province, which has two of the four tier one cities in China, is the largest economy in China and one of Yum China’s largest markets. Across China, cautious consumer behavior persists as sporadic outbreaks remind consumers of the lingering risks. Same-store dine-in volume is still well below 2019 levels while off-premise occasions continue to grow rapidly. Overall, the pace of recovery varied by region with eastern and western China recovering relatively faster.
Traffic at our transportation and tourist locations improved from the first quarter but remained well below pre-COVID levels. According to government statistics, tourism spending for the three holidays in the second quarter was still down 20% to 40% compared to 2019. The impact was more pronounced for KFC, with its higher mix of stores in transportation and tourist locations.
As we entered July, traffic and sales continue to be pressured by lingering effects of COVID-19, such as reduced travel, a shortened school holiday and regional outbreaks in Yunnan. The latest outbreak in Nanjing, the capital city of Jiangsu province, is still evolving. The Company continues to expect that a full recovery of same-store sales will take time, with the recovery path impacted by regional resurgences and the corresponding public health measures. We will continue to focus on the elements of the business under our control, such as food innovation, compelling value propositions, a focus on customer experience, and operating efficiency, to drive sales and protect margins.
Yum China: Second Quarter Highlights
- Total revenues increased 29% year over year to $2.45 billion from $1.90 billion (a 17% increase excluding foreign currency translation (“F/X”)).
- Total system sales increased 14% year over year, with increases of 14% at KFC and 16% at Pizza Hut, excluding F/X.
- Same-store sales increased 5% year over year, with increases of 4% at KFC and 11% at Pizza Hut, excluding F/X.
- Opened 404 new stores during the quarter.
- Total store count reached 11,023 as of June 30, 2021, an increase of 1,069 stores over the past year.
- Restaurant margin was 15.8%, compared with 13.7% in the prior year period.
- Operating Profit increased 83% year over year to $233 million from $128 million (a 65% increase excluding F/X).
- Adjusted Operating Profit increased 80% year over year to $237 million from $132 million (a 63% increase excluding F/X).
- Effective tax rate was 24.8%.
- Net Income increased 37% to $181 million from $132 million in the prior year period, primarily due to the increase in Operating Profit.
- Adjusted Net Income increased 36% to $185 million from $136 million in the prior year period (a 72% increase excluding the net gains of $5 million and $31 million in the second quarter of 2021 and 2020, respectively, from our mark-to-market equity investments; a 55% increase if further excluding F/X).
- Diluted EPS increased 24% to $0.42 from $0.34 in the prior year period.
- Adjusted Diluted EPS increased 20% to $0.42 from $0.35 in the prior year period (a 52% increase excluding the net gains from our mark-to-market equity investments in the second quarter of 2021 and 2020; a 37% increase if further excluding F/X).
- Results include the consolidation of Huang Ji Huang since April 2020, and Suzhou KFC since August 2020.