On November 4, 2024, Yum China Holdings Inc (YUMC, Financial) released its 8-K filing for the third quarter ended September 30, 2024, showcasing a remarkable performance that surpassed analyst expectations. As the largest restaurant chain in China, Yum China operates nearly 13,000 units, including well-known brands such as KFC and Pizza Hut, and reported a significant increase in both revenue and earnings per share (EPS).
Performance Highlights and Strategic Initiatives
Yum China reported a 5% year-over-year increase in total revenues, reaching an all-time quarterly high of $3.07 billion, surpassing the analyst estimate of $3.05 billion. The company's diluted EPS rose by 33% to $0.77, exceeding the estimated $0.65. This growth was driven by a 4% increase in total system sales, primarily due to a 7% net new unit contribution.
The company opened 438 net new stores in the quarter, bringing the total store count to 15,861, with KFC and Pizza Hut leading the expansion. Delivery sales continued their double-digit growth, contributing approximately 40% of KFC and Pizza Hut's sales. This strategic focus on delivery and digital sales, which accounted for 90% of total company sales, underscores Yum China's adaptability in a rapidly evolving market.
Financial Achievements and Operational Efficiency
Yum China's operating profit increased by 15% to $371 million, with a core operating profit growth of 18%. The operating profit margin expanded by 100 basis points to 12.1%, supported by resilient restaurant margins and savings in general and administrative expenses. The restaurant margin remained steady at 17.0%, with improvements in operational efficiencies offsetting increased value-for-money offerings.
Income Statement and Key Metrics
The income statement revealed a net income of $297 million, a 22% increase from the previous year. The company's effective tax rate slightly decreased to 27.3%. Yum China returned $248 million to shareholders through share repurchases and cash dividends, reflecting a strong commitment to capital returns.
| Metric | Q3 2024 | Q3 2023 | % Change |
|---|---|---|---|
| Total Revenues ($mn) | 3,071 | 2,914 | 5% |
| Operating Profit ($mn) | 371 | 323 | 15% |
| Diluted EPS ($) | 0.77 | 0.58 | 33% |
Analysis and Future Outlook
Yum China's strategic focus on expanding its store network and enhancing digital capabilities has positioned it well for continued growth. The company's ability to maintain strong delivery sales and improve operational efficiencies highlights its resilience in a competitive market. The planned increase in capital returns to shareholders, from $3 billion to $4.5 billion between 2024 and 2026, further demonstrates confidence in its cash-generating capabilities.
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.”
Yum China's robust performance in the third quarter, coupled with its strategic initiatives, positions the company for sustained growth and value creation for shareholders. As the company continues to innovate and expand, it remains a key player in the Chinese restaurant industry.
Explore the complete 8-K earnings release (here) from Yum China Holdings Inc for further details.
