Yum China, the largest restaurant company in China, reported record levels of total revenues (9% increase year over year, or 15% in constant currency) and net new store openings (500 net new stores) in the third quarter. Strategic traffic-driving campaigns during the peak summer trading season have helped drive solid same-store sales growth. Initiatives such as widening price ranges and collaboration with popular icons have enabled the Company to reach more customers.
As a result, the Company wrapped up the third quarter with total system sales growing by 15% and adjusted operating profit growing by 21% year over year in constant currency (excluding temporary relief). Year to date, both operating profit and adjusted operating profit set new records, reaching around $1 billion, with operating profit growing 79% year on year in constant currency.
The Company also maintained its impressive store expansion momentum, reaching a record 1,155 net new stores for the first nine months of the year. Yum China remains on track to meet its full year target of 1,400 to 1,600 net new stores.
During the Company’s third quarter earnings call, Yum China CEO Joey Wat explained that the Company’s robust supply chain, industry-leading digital ecosystem and strong innovation capabilities have been key to staying agile amid evolving market conditions.
Additionally, recent innovations have helped the Company continue to address diverse customer preferences. This includes KFC’s Juicy Whole Chicken and Beef Burger, which accounted for over 6% of sales in the third quarter, higher than KFC’s Original Recipe Chicken. Innovative menu items performed well at Pizza Hut as well, with durian pizza accounting for one out of every five pizzas sold at Pizza Hut – that is over 20 million durian pizzas out of over 100 million total pizzas sold year to date. Yum China also launched products such as that utilize existing or affordable ingredients to offer great value for money while protecting the margin.
Widening the price range, KFC introduced premium products like the Ultra Cheese 2.0 Beef Burger (RMB 40+ for a combo) and added more products as part of its RMB 19.9 value offering to appeal to value-conscious customers. Pizza Hut continued to expand pizza selections below RMB 50 to capture this very significant segment of the overall pizza market. Currently around 20% of pizzas offered by Pizza Hut are priced below RMB 50. Yum China also introduced products such as Spicy Nuggets at KFC, aiming to make use of existing or cost-effective ingredients to provide excellent value for customers while safeguarding profit margins.
In response to the post-pandemic wave-like recovery pattern, Yum China has remained agile and continues to execute its RGM 2.0 strategy to expand its store portfolio, grow sales, and boost profits. Yum China CFO Andy Yeung explained, “The overall trend towards recovery is evident this year, and many of our performance metrics are setting new records. We will continue to focus on driving sales and cost control. We’ve demonstrated our ability to quickly adapt to shifting consumer preferences and seize opportunities in all types of market conditions.”
Looking ahead, the Company plans to continue its impressive store growth momentum, by leveraging flexible store formats and modules, while ensuring a healthy new store payback. With over 14,000 stores in its portfolio, Yum China is confident to capture growth opportunities in China and achieve its stated target of 20,000 stores by 2026.
Commenting on the Company’s prospects in a research report following Yum China’s third quarter earnings, Jefferies stated, “YUMC, as the leader in China’s QSR segment, enjoys the benefit of scale. YUMC has a resilient model with strong cash flow. It is aligning its interests with those of investors by increasing the dividend payout and implementing a share buyback program. For 2024-2026, it earmarked RGM 2.0 with focus on growth, targeting 20,000 stores in China by end of 2026. We rate YUMC as Buy.”
