Yum China Accelerates New Store Openings, Yet Posts Disappointing Earnings
Shares of Yum China Holdings Inc. (NYSE: YUMC) slid slightly on Wall Street today after falling nearly 7 percent in after-hours trading last night after the company reported disappointing second-quarter earnings late yesterday.
The company, which owns KFC China, Pizza Hut China, Little Sheep Hot Pot Chain, and East Dawning concepts, opened 164 new restaurants and remodeled 365 restaurants in the second quarter of 2018. The aggressive expansion did help the revenue in general but at the risk of cannibalizing sales from existing stores. Yum China faced a sales slowdown in China, with same-store sales falling 1 percent in the most recent quarter and trailing analyst estimates, according to Bloomberg.
"Given our size of operations, driving same-store sales growth is really not easy," Joey Wat, Yum China CEO, said on a call with analysts this morning. "We accelerated new store opening last year, and we continue the new store opening this year. In the short term, it'll put pressure on our same-store sales."
In the long run, Wat said the company was targeting 20,000 stores. Yum China currently has a total of 8,198 stores.
"The China market is still a growing market. It still has a lot of opportunities," said Wat.
Revenue reported by Yum China for the second quarter was $2.1 billion, up 12 percent compared with a year earlier. The company&`#`39;s net income jumped more than 14 percent to $143 million, or 36 cents per fully diluted share excluding certain items, from $125 million, or 31 cents per fully diluted share after adjustment, in the prior-year period. Mobile payments accounted for approximately 63 percent of company sales in the second quarter, as compared with 21 percent in the year-ago period.
Also affecting results was a decline in its average restaurant margin at 15.1 percent for the recent quarter compared with 16.6 percent in a year ago.
"In an increasingly competitive environment, we stepped up food investment and promotional activities, which inevitably had some pressure on our margins," said Jacky Lo, CFO of Yum China. "This reflects our strategic decision to invest in our brands for long-term market share gain."
Yum China, a spin off from Yum Brands, began trading on the New York Stock Exchange on Nov. 1, 2016. The company closed at $35.30 per share today in New York, down nearly 1 percent.