Yum China Margins Improve While Sales Slip for Third Quarter

(Bloomberg) -- Yum China Holdings Inc. reported its third straight quarter of negative same-store sales, but an effort to cut costs and improve productivity helped boost margins, sending shares higher.

• The chain -- which has the rights to KFC, Pizza Hut and Taco Bell in China -- reported comparable sales that fell 6% in the third quarter ended Sept. 30, better than the projection for a 7.9% drop by Consensus Metrix. A slowdown at tourist hubs and a shortened school holiday were behind the continued lag.
• The fast-food company resumed its regular quarterly cash dividend at 12 cents per share, equal to the previous paid dividend before it was suspended on April 28, in line with forecast from Jefferies analysts including Anne Ling

Key Insights

• The restaurant company warned in July that the recovery was “non-linear and uneven,” and it used the same exact language again in this report. Still, “third quarter operations overall improved sequentially,” Andy Yeung, finance chief, said in the statement.
• With tensions elevated between the U.S. and China, there’s some concern American brands are losing some luster in the important Chinese market. Yum China in September recorded the worst stock debut in more than a year among billion-dollar listings in Hong Kong with its $2.2 billion secondary offering. Still, the company said the listing was the right choice. “This listing enables us to broaden our investor base and provide an additional access point for our stakeholders,” CEO Joey Wat said.
• Pandemic or not, Yum China continues to grow. The company now plans to open 900 new stores in fiscal 2020, up from the earlier target of 800 to 850.
• Delivery has grown rapidly in importance for restaurants amid the pandemic. Digital ordering made up more than three quarters of sales for Pizza Hut and KFC in the latest quarter, with delivery accounting for 28%.

Market Reaction

• Yum China rises as much as 2.7% in Hong Kong Thursday to the highest since its September listing
• Shares rose 2.5% at 4:38 p.m. after the close of regular trading in New York. The stock had risen 8.8% year to date.

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