Yum China Q3 Earnings Surprise: KFC & Pizza Hut Power Earnings Beat, Reiterates Capex Plan To Open ~1,500-1,700 Net New Stores

Yum China Holdings, Inc. YUMC shares are trading higher after the company reported third-quarter results.

Revenue increased 5% year over year to $3.07 billion, beating the consensus of $3.05 billion.

Total system sales rose 4% year over year, excluding currency effects, due to a 7% increase in net new units.

Same-store sales were at 97% of last year’s level, with same-store transactions up 1% in the quarter.

Yum China’s delivery sales rose 18% year-over-year, continuing the double-digit annual growth trend the company has maintained for over a decade.

Digital sales hit $2.61 billion in the quarter, with digital ordering comprising about 90% of total company sales.

KFC’s system sales grew 6%, driven by an 8% contribution from new units, while Pizza Hut’s system sales rose 2%, also boosted by a 7% increase from new units.

Core operating profit grew 18% to $369 million, with a margin of 12.1% vs. 10.7% a year ago quarter. Adjusted EPS of $0.77 surpassed the street view of $0.68.

As of September 30, 2024, the total store count was 15,861, comprising 11,283 KFC and 3,606 Pizza Hut locations.

The company added 438 net new stores in the quarter, with 145 opened by franchisees.

In the third quarter, Yum China returned $248 million to shareholders through share repurchases and cash dividends.

Buyback: In November 2024, Yum China’s board raised the company’s share repurchase authorization by $1 billion, totaling $4.4 billion in buyback capacity since 2017.

By November 1, Yum China repurchased about 71.8 million shares for $3.0 billion, leaving $1.4 billion in remaining authorization.

Dividend: The board declared a cash dividend of $0.16 per share, payable on December 17, 2024, to shareholders of record on November 26, 2024.

Joey Wat, CEO of Yum China, said, “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.”

“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.”

“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.”

Outlook: Yum China reiterated FY24 targets to open 1,500 to 1,700 new stores, invest $700 million to $850 million in capital expenditures, and return $1.5 billion to shareholders through dividends and share repurchases.

Investors can gain exposure to the stock via AdvisorShares Restaurant ETF EATZ and Invesco Golden Dragon China ETF PGJ.

Price Action: YUMC shares are up 10.1% at $49.60 premarket at the last check Monday.

Photo by aleks-dorohovich- for Unsplash

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