Yum China (YUMC +8%) surged after reporting its Q3 earnings, marking its largest EPS beat since 1Q23. Revenue increased by 5.4% year-over-year to $3.07 billion, exceeding analyst expectations.
- KFC Performance:
- Comps declined by -2%, but segment sales rose 6% year-over-year (+5% constant currency) to $2.31 billion.
- Restaurant count jumped 14% year-over-year to 11,283, driving sales growth.
- Strategies like widening price ranges and capturing lower ticket average delivery orders are yielding results.
- Double-digit growth in entry price combos, coffee, and breakfast items.
- Pizza Hut Performance:
- Comps fell -6%, but sales grew 2% (+1% constant currency) to $615 million.
- Restaurant locations increased by 13% to 3,606, aiding Q3 sales.
- Average ticket was 9% lower year-over-year, aligning with its strategy to boost mass market appeal.
- Entry price items attracted value-conscious consumers and solo diners.
- Strategy and Innovation:
- Despite lower comps, both segments improved sequentially from Q2 (KFC -3%; Pizza Hut -8%).
- Focus on value offerings is driving traffic, impacting the top line.
- Innovation in menu items, like KFC's new Chicken Burger, is well-received without needing new ingredients.
- KFC's coffee sales are robust, with nearly 200 million cups sold in the first nine months of 2024.
- Pizza Hut's entry-priced products and upgraded dough enhance appeal and operational efficiency.
Overall, Yum China's Q3 results impressed investors despite China's challenging economic environment. The focus on value items is resonating with consumers, boosting traffic. Although comps were not strong, they showed improvement from Q2. The stock, previously under pressure due to economic concerns, has gained momentum since early August, buoyed by better-than-expected Q2 and Q3 results.
