Yum China Reports Second Quarter 2022 Results

 

Source: Yum China Holdings, Inc.

via PRNewswire - Jul 28, 2022

 

Delivered $81 million Operating Profit. Extraordinary efforts partly mitigated impact from profound COVID-related disruptions

Sales recovery remains gradual and uneven as COVID outbreaks persist

Full year net new store target unchanged, powered by healthy new store performance

 

SHANGHAI, July 28, 2022 /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, 2022.

 

Impact of COVID Outbreak and Mitigation Efforts

 

The most severe COVID outbreaks to date in China continued to significantly affect the restaurant industry and our operations in the second quarter. According to government statistics, the restaurant industry in China experienced a revenue decline of approximately 16% year over year in the quarter.

 

         Nationwide, regional COVID outbreaks impacted large portions of the country. During peak outbreak periods, hundreds of millions of people were in some type of lockdown.

         During April and May, over 2,500 of our stores in China, on average, were either temporarily closed or offered only takeaway and delivery services. Of these stores, approximately 45% were temporarily closed. Same-store sales declined by more than 20% year over year.

         Shanghai was in city-wide lockdown throughout April and May. During this period, only approximately 30% of our stores in Shanghai were open and able to offer limited services. Closed stores gradually re-opened in June with dine-in services resuming at reduced capacity in late June.

         Beijing tightened COVID control measures in May, including partial lockdowns and suspension of restaurant dine-in services. Dine-in services at reduced capacity subsequently resumed in early June.

         In June, COVID-related restrictive measures began to ease across the country. The number of stores temporarily closed or offering only takeaway and delivery services reduced to approximately 800 by the end of the month. Sales performance improved sequentially with same-store sales recording a decline of approximately high single digits year over year.

 

Yum China demonstrated exemplary resilience in the second quarter. In cities experiencing lockdowns, we reacted quickly by innovating and introducing initiatives to sustain operations. We immediately paused all promotional activities. Leveraging community purchasing as early as mid-March and packaged food products, we captured sharply changed consumer demand despite having a limited number of open stores and significant staff shortages. Our real-time inventory visibility from logistics centers to stores helped enable us to lessen supply disruptions with timely and accurate deployment of raw materials. We continued to rebase our cost structure to be more flexible. Across the country, we took prompt actions to rationalize advertising and promotional discounts, drive productivity gains with simplified menu offerings and shortened operating hours, as well as actively secure relief from landlords and government agencies. Through these extraordinary efforts we averted an operating loss, and delivered a profitable quarter, recording $81 million in operating profit for the period.

 

Entering the third quarter, we are seeing a gradual recovery. However, the COVID situation remains tenuous with potential intermittent outbreaks. We continue to expect the recovery of restaurant traffic to take time and likely be uneven and nonlinear. The number of cases has increased significantly in July, compared to June, as the highly transmissible new COVID sub-variant reached more cities. Many cities across a large swath of China have tightened COVID curbs or undergone full, partial lockdowns, or district-based control measures as new clusters have emerged. Nationwide, strict COVID-related health measures continue to restrict mobility, curtail travel and dampen consumer spending. As of the third week of July, approximately 2% of our stores remained temporarily closed or offered only delivery or takeaway services. Against this backdrop we remain committed to driving customer traffic with good food at great value. Moreover, we have developed multiple scenario-based operating plans with regional focus that are ready to be deployed. Moving forward we will be sharp-eyed in capturing consumer demand and further strengthening our business model to be more nimble and agile.

 

Second Quarter Highlights

 

         Total revenues decreased 13% year over year to $2.13 billion from $2.45 billion (an 11% decrease excluding foreign currency translation ("F/X")).

         Total system sales decreased 16% year over year, with decreases of 15% at KFC and 14% at Pizza Hut, excluding F/X, primarily due to same-store sales decline and temporary store closures.

         Same-store sales decreased 16% year over year, with decreases of 16% at KFC and 15% at Pizza Hut, excluding F/X.

         Opened 53 net new stores during the quarter; total store count reached 12,170 as of June 30, 2022.

         Restaurant margin was 12.1%, compared with 15.8% in the prior year period, primarily due to sales deleveraging resulting from the most severe COVID-related disruptions to date in the quarter.

         Operating Profit decreased 65% year over year to $81 million from $233 million (a 63% decrease excluding F/X).

         Adjusted Operating Profit decreased 65% year over year to $82 million from $237 million (a 63% decrease excluding F/X).

         Effective tax rate was 26.5%.

         Net Income decreased 54% to $83 million from $181 million in the prior year period, primarily due to the decrease in Operating Profit, partially offset by the net gain from our mark-to-market investment in Meituan Dianping.

         Adjusted Net Income decreased 55% to $84 million from $185 million in the prior year period (a 62% decrease excluding the net gains of $16 million and $5 million in the second quarter of 2022 and 2021, respectively, from our mark-to-market equity investments; a 60% decrease if further excluding F/X).

         Diluted EPS decreased 52% to $0.20 from $0.42 in the prior year period.

         Adjusted Diluted EPS decreased 52% to $0.20 from $0.42 in the prior year period (a 61% decrease excluding the net gains from our mark-to-market equity investments in the second quarter of 2022 and 2021, respectively; a 59% decrease if further excluding F/X).

         Results for the current year period include the consolidation of Hangzhou KFC.

 

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