Yum China Holdings ((YUMC)) has held its Q3 earnings call. Read on for the main highlights of the call.
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Yum China Holdings recently held its earnings call, revealing a balanced sentiment with notable achievements and some operational challenges. The company celebrated record store openings and strong operating profit growth, alongside successful product innovations. However, these were tempered by increased delivery costs and the impact of its Meituan investment.
Record Store Openings
Yum China accelerated its store openings, adding 536 net new stores in the third quarter, bringing the total to over 17,500. The company is on track to reach its ambitious goal of 20,000 stores by the end of 2026, highlighting its aggressive expansion strategy.
Strong Operating Profit Growth
The company reported an 8% year-over-year increase in operating profit, reaching $400 million, setting a new record for adjusted operating profit in the third quarter. This growth underscores Yum China’s effective cost management and operational efficiency.
Pizza Hut and KFC Performance
KFC experienced a 2% growth in same-store sales, while Pizza Hut achieved a remarkable 17% growth in same-store transactions for three consecutive quarters. These figures reflect the strong brand loyalty and customer satisfaction at Yum China’s flagship brands.
Innovative Product Launches
Yum China introduced new products like KFC’s Crackling Golden Chicken Wings and Pizza Hut’s hand-crafted thin-crust pizza, both of which have shown strong sales growth. These innovations are part of the company’s strategy to attract and retain customers.
Expansion in Delivery Sales
Delivery sales have surged, now accounting for 51% of total sales, up from 40% in the same quarter last year. This shift demonstrates Yum China’s adaptability to changing consumer preferences and the growing demand for convenience.
Challenges with Delivery Costs
The higher delivery mix has led to increased rider costs, impacting the cost of labor by 110 basis points year-over-year. This presents a challenge for Yum China as it balances growth with cost management.
Impact of Meituan Investment
Yum China’s investment in Meituan negatively impacted its financials by $8 million in the third quarter, a significant shift from a positive impact of $26 million in the same period last year. This highlights the volatility and risk associated with strategic investments.
Lower Ticket Averages
KFC and Pizza Hut both experienced declines in ticket averages, with KFC down by 1% and Pizza Hut by 13% year-over-year. This trend suggests a shift in consumer spending patterns that Yum China will need to address.
Forward-Looking Guidance
Yum China provided optimistic forward-looking guidance, with a 4% year-over-year increase in system sales and a 2% growth in same-store sales for KFC. Restaurant margins expanded to 17.3%, contributing to the record $400 million operating profit for the quarter. The company remains on track to meet its 2025 targets of mid-single-digit system sales growth and moderately improved margins.
In summary, Yum China’s earnings call presented a balanced outlook with significant achievements in store expansion and profit growth, tempered by challenges in delivery costs and investment impacts. The company’s forward-looking guidance remains positive, with strategic goals set for continued growth and margin improvement.