YUMC Yum China Holdings Inc

Total Revenues grew 29%. System Sales grew 14% and Same-Store Sales were up 5% in constant currency 
Opened 404 new stores; Total stores reached 11,023, an increase of 1,069 stores year over year 
Reported $233 million Operating Profit

SHANGHAI, July 28, 2021 /PRNewswire/ -- Yum China Holdings, Inc. (the "Company" or "Yum China") (NYSE: YUMC and HKEX: 9987) today reported unaudited results for the second quarter ended June 30, 2021.

Impact of COVID-19 Outbreak and Mitigation Efforts 

Second quarter operations improved from a year ago. System sales and operating profit grew year over year. System sales growth was led by accelerated new store openings and same-store sales growth. Operating profit growth was further driven by lower commodity prices, and productivity improvements.

The COVID-19 pandemic continued to impact the Company's operations and results in the second quarter. Same-store sales recovery to pre-COVID levels was interrupted by the Delta variant outbreak in southern China, which started in late May. Local authorities tightened preventive health measures and social distancing requirements. Many communities were locked down. At the peak of this outbreak, approximately 400 of our restaurants were either temporarily closed or provided delivery and takeaway services only. This represents nearly 30% of our restaurants in Guangdong province, which has two of the four tier one cities in China, is the largest economy in China and one of Yum China's largest markets. Across China, cautious consumer behavior persists as sporadic outbreaks remind consumers of the lingering risks. Same-store dine-in volume is still well below 2019 levels while off-premise occasions continue to grow rapidly. Overall, the pace of recovery varied by region with eastern and western China recovering relatively faster.

Traffic at our transportation and tourist locations improved from the first quarter but remained well below pre-COVID levels. According to government statistics, tourism spending for the three holidays in the second quarter was still down 20% to 40% compared to 2019. The impact was more pronounced for KFC, with its higher mix of stores in transportation and tourist locations.

As we entered July, traffic and sales continue to be pressured by lingering effects of COVID-19, such as reduced travel, a shortened school holiday and regional outbreaks in Yunnan. The latest outbreak in Nanjing, the capital city of Jiangsu province, is still evolving. The Company continues to expect that a full recovery of same-store sales will take time, with the recovery path impacted by regional resurgences and the corresponding public health measures. We will continue to focus on the elements of the business under our control, such as food innovation, compelling value propositions, a focus on customer experience, and operating efficiency, to drive sales and protect margins.

Second Quarter Highlights

• Total revenues increased 29% year over year to $2.45 billion from $1.90 billion (a 17% increase excluding foreign currency translation ("F/X")).
• Total system sales increased 14% year over year, with increases of 14% at KFC and 16% at Pizza Hut, excluding F/X.
• Same-store sales increased 5% year over year, with increases of 4% at KFC and 11% at Pizza Hut, excluding F/X.
• Opened 404 new stores during the quarter.
• Total store count reached 11,023 as of June 30, 2021, an increase of 1,069 stores over the past year.
• Restaurant margin was 15.8%, compared with 13.7% in the prior year period.
• Operating Profit increased 83% year over year to $233 million from $128 million (a 65% increase excluding F/X).
• Adjusted Operating Profit increased 80% year over year to $237 million from $132 million (a 63% increase excluding F/X).
• Effective tax rate was 24.8%.
• Net Income increased 37% to $181 million from $132 million in the prior year period, primarily due to the increase in Operating Profit.
• Adjusted Net Income increased 36% to $185 million from $136 million in the prior year period (a 72% increase excluding the net gains of $5 million and $31 million in the second quarter of 2021 and 2020, respectively, from our mark-to-market equity investments; a 55% increase if further excluding F/X).
• Diluted EPS increased 24% to $0.42 from $0.34 in the prior year period.
• Adjusted Diluted EPS increased 20% to $0.42 from $0.35 in the prior year period (a 52% increase excluding the net gains from our mark-to-market equity investments in the second quarter of 2021 and 2020; a 37% increase if further excluding F/X).
• Results include the consolidation of Huang Ji Huang since April 2020, and Suzhou KFC since August 2020.

CEO and CFO Comments

Joey Wat, CEO of Yum China, commented, "We delivered another quarter of solid performance. Pizza Hut achieved stellar performance and is expected to become another growth engine. KFC remained resilient and drove robust system sales and operating profit growth. Yum China continues to accelerate store network expansion. In less than one year, we increased total store count from 10,000 to over 11,000 stores. With 719 gross new stores opened in the first half, we now expect to open around 1,300 new stores in 2021. In addition to unit growth, we are focused on driving consumers back to the stores with our great food and compelling value offers. We are also capturing off-premise demand with our hybrid delivery model and increasing network density. Leveraging our vast membership base and digital platform, we are more nimble than ever."

Wat continued, "Despite the challenges posed by the pandemic, we are well-positioned to capture the market opportunities in China. Consumers love the delicious food and value-for-money that KFC and Pizza Hut offer. COFFii & JOY and Lavazza are also making good progress. Our digital platform and operational excellence help to enhance customer experience. We are committed and confident in achieving sustainable growth for many years to come."

Andy Yeung, CFO of Yum China, added, "We achieved solid system sales and operating profit growth, both comparing to the prior year and to pre-pandemic 2019 levels, even though the recovery trajectory in the quarter was disrupted by the Delta variant outbreak in southern China. On a two-year basis, Pizza Hut's system sales growth returned to positive and KFC's system sales grew an impressive 7% led by rapid new store openings. Our strong operating profit growth reflected operational excellence and continued improvement in operating efficiency."

Yeung continued, "With the lingering effects of the pandemic, we continue to expect full recovery of same-store sales to pre-pandemic 2019 levels to take time, with a recovery path that is nonlinear and uneven. We plan to invest more in marketing, value proposition and customer service to drive traffic. In addition, rising commodity prices will become a headwind and likely turn into inflationary pressure in the later part of this year. Recent wage increases will also put more pressure on the margins for the balance of the year. Nevertheless, we are committed to driving long-term returns for our shareholders. After careful deliberations that balanced the COVID-19 risks and our strong liquidity position, the Board of Directors has approved the resumption of share repurchases."

Dividends and Share Repurchases

• The Board of Directors declared a cash dividend of $0.12 per share on Yum China's common stock, payable as of the close of business on September 16, 2021 to shareholders of record as of the close of business on August 25, 2021.
• The Board of Directors has approved the resumption of share repurchases.

Digital and Delivery 

• The KFC and Pizza Hut loyalty programs exceeded 330 million members combined as of quarter-end. Member sales accounted for approximately 61% of system sales in the second quarter of 2021.
• Delivery contributed approximately 30% of KFC and Pizza Hut's Company sales in the second quarter of 2021, an increase of approximately one percentage point from the prior year period as consumers are still cautious about dine-in.
• Digital orders, including delivery, mobile orders and kiosk orders, accounted for approximately 85% of KFC and Pizza Hut's Company sales in the second quarter of 2021.

New-Unit Development and Asset Upgrade

• The Company opened 404 new stores in the second quarter of 2021, mainly driven by development of the KFC brand and acceleration of the Pizza Hut brand.
• The Company remodeled 316 stores in the second quarter of 2021.

Restaurant Margin

• Restaurant margin was 15.8% in the second quarter of 2021, compared with 13.7% in the prior year period, primarily attributable to improvement in sales, favorable commodity prices and higher productivity, partially offset by lower temporary relief provided by landlords and government agencies and wage inflation.

2021 Outlook

The Company is updating the following fiscal year 2021 targets:

• To open approximately 1,300 gross new stores, an increase compared to the original target of 1,000, primarily due to the acceleration of KFC and Pizza Hut store expansion.
• To make capital expenditures of approximately $700-800 million, an increase compared to the original target of $600 million, as a result of additional new stores and stepped-up investment in infrastructure and digitalization.

Other Updates

• On June 8, 2021, the Company announced that it has signed the Business Ambition for 1.5^oC Commitment Letter, as part of the global Science Based Targets initiative (SBTi). In committing to the SBTi, the Company pledges to align its business with the most ambitious aim of the Paris Agreement, to limit global temperature rise to 1.5 ^oC above pre-industrial levels and reach net-zero global emissions by 2050. The Company will also disclose its climate impact through CDP.
• On June 18, 2021, the Company issued its 2020 Sustainability Report, which highlights Yum China's commitment to sustainability and provides an overview of progress made in 2020 towards its sustainability goals.
• The Company will host a virtual Investor Day on Thursday, September 23, 2021 (Beijing/Hong Kong Time). A webcast will be available at Yum China's Investor Relations website at http://ir.yumchina.com.

Note on Non-GAAP Adjusted Measures

Reported GAAP results include Special Items, which are excluded from non-GAAP adjusted measures. Special Items are not allocated to any segment and therefore only impact reported GAAP results of Yum China. See "Reconciliation of Reported GAAP Results to Non-GAAP Adjusted Measures" within this release.

Conference Call

Yum China's management will hold an earnings conference call at 8:00 p.m. U.S. Eastern Time on Wednesday, July 28, 2021 (8:00 a.m. Beijing/Hong Kong Time on Thursday, July 29, 2021).  

A live webcast of the call may be accessed at https://edge.media-server.com/mmc/p/mn2iyycc.

To join by phone, please register in advance of the conference through the link provided below. Upon registering, you will be provided with participant dial-in numbers, a passcode and a unique registrant ID.

Pre-registration Link:              http://apac.directeventreg.com/registration/event/5196089
Conference ID:                       5196089

A replay of the conference call will be available two hours after the call ends until 10:00 a.m. U.S. Eastern Time on Thursday, August 5, 2021 (10:00 p.m. Beijing/Hong Kong Time on Thursday, August 5, 2021) and may be accessed by phone at the following numbers:

U.S.:                                           1 855 452 5696
Mainland China:                         400 602 2065 or 800 870 0206
Hong Kong:                                +852 3051 2780
U.K.:                                           0808 234 0072
International:                              +61 2 8199 0299

Replay access code:                  5196089

Additionally, this earnings release, the accompanying slides, a live webcast and an archived webcast of this conference call will be available at Yum China's Investor Relations website at http://ir.yumchina.com.  

For important news and information regarding Yum China, including our filings with the U.S. Securities and Exchange Commission and the Hong Kong Stock Exchange, visit Yum China's Investor Relations website at http://ir.yumchina.com. Yum China uses this website as a primary channel for disclosing key information to its investors, some of which may contain material and previously non-public information.

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including under "2021 Outlook." We intend all forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the fact that they do not relate strictly to historical or current facts and by the use of forward-looking words such as "expect," "expectation," "believe," "anticipate," "may," "could," "intend," "belief," "plan," "estimate," "target," "predict," "project," "likely," "will," "continue," "should," "forecast," "outlook" or similar terminology. These statements are based on current estimates and assumptions made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we believe are appropriate and reasonable under the circumstances, but there can be no assurance that such estimates and assumptions will prove to be correct. Forward-looking statements include, without limitation, statements regarding the future strategies, growth, business plans, investment, dividend and share repurchase plans, earnings, performance and returns of Yum China, anticipated effects of population and macroeconomic trends, the expected impact of the COVID-19 pandemic, the anticipated effects of our innovation, digital and delivery capabilities and investments on growth and beliefs regarding the long-term drivers of Yum China's business. Forward-looking statements are not guarantees of performance and are inherently subject to known and unknown risks and uncertainties that are difficult to predict and could cause our actual results or events to differ materially from those indicated by those statements. We cannot assure you that any of our expectations, estimates or assumptions will be achieved. The forward-looking statements included in this press release are only made as of the date of this press release, and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances, except as required by law. Numerous factors could cause our actual results or events to differ materially from those expressed or implied by forward-looking statements, including, without limitation: whether we are able to achieve development goals at the times and in the amounts currently anticipated, if at all, the success of our marketing campaigns and product innovation, our ability to maintain food safety and quality control systems, changes in public health conditions, including the COVID-19 pandemic and regional resurgences, our ability to control costs and expenses, including tax costs, as well as changes in political, economic and regulatory conditions in China. In addition, other risks and uncertainties not presently known to us or that we currently believe to be immaterial could affect the accuracy of any such forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. You should consult our filings with the Securities and Exchange Commission (including the information set forth under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q) for additional detail about factors that could affect our financial and other results.

About Yum China Holdings, Inc.

Yum China Holdings, Inc. is a licensee of Yum! Brands in mainland China. It has exclusive rights in mainland China to KFC, China's leading quick-service restaurant brand, Pizza Hut, the leading casual dining restaurant brand in China, and Taco Bell, a California-based restaurant chain serving innovative Mexican-inspired food. Yum China also owns the Little Sheep, Huang Ji Huang, East Dawning and COFFii & JOY concepts outright. In addition, Yum China has partnered with Lavazza to explore and develop the Lavazza coffee shop concept in China. The Company had 11,023 restaurants in over 1,500 cities at the end of June 2021. Yum China ranked # 363 on the Fortune 500 list and was named to TIME100 Most Influential Companies list in 2021. Yum China has been named the Industry Leader for the Restaurant & Leisure Facilities Industry in the 2020 Dow Jones Sustainability Indices. In 2021, Yum China was named to the Bloomberg Gender-Equality Index and was certified as a Top Employer 2021 in China by the Top Employers Institute, both for the third consecutive year. For more information, please visit http://ir.yumchina.com.