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Yum China reports 3Q sales up 5% despite temporary closures

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Demuslab

SHANGHAI, China – Yum China Holdings, Inc. today reported unaudited results for the third quarter ended September 30, 2022. The COVID pandemic continued to impact the Company’s operations and results in the third quarter. COVID-related health measures remained in effect across China, impacting travel and social activities. Here are excerpts from the company’s statement:

“Despite the volatile environment, the Company grew system sales in the quarter by 5% year over year and outpaced the 2% national restaurant industry average for the period.

We captured the growing demand for delivery and takeaway which offset the subdued dine-in volume. Same-store sales for the quarter recovered to the same level a year ago but remain below pre-COVID 2019 levels. From a timing perspective, same-store sales recovered sequentially in July and August, with August exceeding the prior year level.

This is primarily due to lapping the Delta variant outbreak in the prior year period. However, same-store sales percentage declined year over year in September as preventive health measures were tightened.

In September, on average, approximately 900 of our stores were temporarily closed or offered only takeaway and delivery services, compared to approximately 400 stores on average in July and August.

Entering the fourth quarter, new infections continued to increase in October with resurgent outbreaks across China. In October, approximately 1,400 of our stores were either temporarily closed or offered only takeaway and delivery services.

Nationwide, consumers are traveling less and reducing expenditures. According to government statistics, for the seven-day National Day holiday starting October 1, the number of travelers and related travel spending was down 18% and 26%, respectively, compared to the same holiday period last year.

The COVID situations remain uncertain with regional outbreaks continuing to impact our operations. Against this backdrop, we will stay nimble with our contingency planning, ready to pivot with changing market conditions.”

Yum China Holdings: Third quarter highlights

  • Total revenues of Yum China Holdings, Inc. increased 5% year over year to $2.68 billion from $2.55 billion (an 11% increase excluding foreign currency translation (“F/X”)).
  • Total system sales increased 5% year over year, with increases of 5% at KFC and 7% at Pizza Hut, excluding F/X.
  • Same-store sales were flat year over year, with flat growth at KFC and an increase of 2% at Pizza Hut, excluding F/X.
  • Opened 239 net new stores during the quarter; total store count reached 12,409 as of September 30, 2022.
  • Restaurant margin was 18.8%, compared with 12.2% in the prior year period.
  • Operating Profit increased 77% year over year to $316 million from $178 million (an 86% increase excluding F/X).
  • Adjusted Operating Profit increased 89% year over year to $318 million from $168 million (a 99% increase excluding F/X).
  • Effective tax rate was 29.9%.
  • Net Income increased 98% to $206 million from $104 million in the prior year period, primarily due to the increase in Operating Profit, partially offset by the net loss from our mark-to-market investment in Meituan Dianping.
  • Adjusted Net Income increased 117% to $208 million from $96 million in the prior year period (a 72% increase excluding the net losses of $12 million and $32 million in the third quarter of 2022 and 2021, respectively, from our mark-to-market equity investments; an 81% increase if further excluding F/X).
  • Diluted EPS increased 104% to $0.49 from $0.24 in the prior year period.
  • Adjusted Diluted EPS increased 123% to $0.49 from $0.22 in the prior year period (a 79% increase excluding the net losses from our mark-to-market equity investments in the third quarter of 2022 and 2021, respectively, a 90% increase if further excluding F/X).
  • Results for the current year period include the consolidation of Hangzhou KFC.
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