Yum China Achieved a Strong First Quarter with Same-Store Sales Growth of 1%; Operating Profit Grew 22%; Restaurant Margin Expanded to 23%
April 5, 2017 at 4:30 PM EDT

SHANGHAI, April 6, 2017 /PRNewswire/ -- Yum China Holdings, Inc. (the "Company" or "Yum China") (NYSE: YUMC) today reported unaudited results for the first quarter ended February 28, 2017.

First-Quarter Highlights

  • Same-store sales grew 1%, including growth of 1% at KFC and 2% at Pizza Hut Casual Dining.
  • Total system sales grew 4%, including growth of 3% at KFC and 9% at Pizza Hut Casual Dining, excluding foreign currency translation ("F/X").
  • Opened 133 new restaurants during the quarter.
  • Total restaurant margin increased 3.7 percentage points to 23.0%, primarily aided by the impact of retail tax structure reform implemented on May 1, 2016.
  • Operating profit grew 22%, and 27% excluding F/X, primarily aided by the impact of retail tax structure reform. F/X negatively impacted operating profit by $12 million.
  • Net income increased 21% to $175 million.
  • Adjusted EBITDA increased 14% to $320 million.
  • Basic EPS increased 14% to $0.45 and diluted EPS increased 12% to $0.44.

Key Results

 

% Change

 

System Sales

 

Same-Store

Sales

 

Net New

Units

 

Operating

Profit

               

Yum China

+4

 

+1

 

+6

 

+22

KFC

+3

 

+1

 

+5

 

+9

Pizza Hut Casual Dining

+9

 

+2

 

+9

 

+67

 

 

First Quarter

(in US$ million, except

   

% Change

for per share data and percentages)

2017

 

2016

 

Reported

 

Ex F/X

Operating Profit

$

254

 

$

209

 

+22

 

+27

Net Income

$

175

 

$

145

 

+21

 

+27

Adjusted EBITDA

$

320

 

$

279

 

+14

 

+20

Basic EPS

$

0.45

 

$

0.40

 

+14

 

+19

Diluted EPS

$

0.44

 

$

0.40

 

+12

 

+17

 

Note: All comparisons are versus the same period a year ago. 
Consistent with prior years, Yum China's fiscal first quarter includes January and February results. First quarter 2016 had an extra day resulting from leap year.
No Special Items in the first quarter 2016 or 2017. 
Percentages may not recompute due to rounding.

CEO Comments

"I am very pleased with our performance in the first quarter of 2017, and at Yum China we are facing the future with increasing confidence. Both KFC and Pizza Hut Casual Dining delivered positive same-store sales in the first quarter of 2017, with KFC successfully lapping a particularly strong year ago performance. In addition to a good sales performance, our new unit builds, restaurant margin and operating profit showed strong improvement. We have over 7,600 restaurants, with a two-to-one lead over the nearest Western Quick-Service Restaurant competitor and an approximately six-to-one lead over the nearest Western Casual Dining Restaurant competitor, in China", said Micky Pant, CEO.

"We are especially gratified with the progress made on two key drivers of growth – Digital and Delivery. A network of over 4,400 restaurants in our system offer delivery services and we believe we have established an infrastructure for continued growth.  In the first quarter of 2017, delivery represented about 12% of our company sales. With approximately 93 million loyalty program members between KFC and Pizza Hut Casual Dining, we believe we have unprecedented insights into consumer behavior and have been engaging with them across the digital eco-system: from pre-order to payment.

We remain confident in our ability to deliver 550-600 new builds while delivering a double digit growth in operating profit, excluding F/X, in 2017. More importantly we feel our foundation is even stronger to capitalize on the long-term potential of China, and generate strong returns for our stockholders."

New-Unit Development and Asset Upgrades

  • Opened 133 new restaurants during the quarter. Remodeled 32 restaurants, led by KFC.
 

New Units

Restaurant Count

 

First

As of First Quarter End

 

Quarter

 

2017

 

2016

Yum China

 

133

 

7,663

 

7,205

KFC

 

72

 

5,276

 

5,019

Pizza Hut Casual Dining

 

30

 

1,738

 

1,596

Pizza Hut Home Service, Little Sheep, East Dawning
     and Taco Bell

 

31

 

649

 

590

Total Restaurant Count

 

Restaurant Count

 

As of First Quarter End

 

2017

 

2016

Restaurants

7,663

 

7,205

Company-owned

6,080

 

5,779

Unconsolidated Affiliates

848

 

803

Franchisees

735

 

623

 

Digital and Delivery

  • Members in the loyalty programs increased to approximately 70 million for KFC and 23 million for Pizza Hut Casual Dining at the end of the first quarter of 2017.
  • Mobile payments reached about 30% of company sales in the first quarter of 2017, with over $500 million in company sales paid using cashless payment methods.
  • As of the end of the first quarter, over 4,400 restaurants across China offered delivery services. Delivery represented about 12% of company sales in the quarter.

Restaurant Margin

  • Restaurant margin for Yum China increased 3.7 percentage points to 23.0%, primarily aided by the impact of retail tax structure reform and profit generated from additional sales at KFC and Pizza Hut Casual Dining, partially offset by wage inflation and commodity inflation.
 

First Quarter

 

2017

 

2016

 

% ppts
change

     

Yum China

23.0%

 

19.3%

 

3.7

KFC

23.6%

 

21.2%

 

2.4

Pizza Hut Casual Dining

23.0%

 

15.8%

 

7.2

 

Conference Call

Yum China Holdings, Inc. will host a conference call to review the Company's financial performance and strategies at 8:00 p.m. U.S. Eastern Time on Wednesday, April 5, 2017 (8:00 a.m. Beijing/Hong Kong Time on Thursday, April 6, 2017).  A copy of the presentation will be available on the Yum China Holdings, Inc. website, http://ir.yumchina.com.

U.S.:

 

+1-845-675-0437

Hong Kong:

 

+852-3018-6771

Mainland China:

 

400-6208-038 or 800-8190-121

International:

 

+65-6713-5090

Passcode:

 

Yum China

A live webcast of the call may also be accessed at http://edge.media-server.com/m/p/r6vbwxvk.

A replay of the conference call may be accessed by phone at the following numbers two hours after the call ends until 9:00 a.m. U.S. Eastern Time on Thursday, April 13, 2017 (9:00 p.m.Beijing/Hong Kong Time on Thursday, April 13, 2017):

U.S.:

 

+1-855-452-5696

International:

 

+61-2-8199-0299

Passcode:

 

83022079

The webcast and the playback can be accessed via the internet by visiting the Yum China Holdings, Inc. website, http://ir.yumchina.com.

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. 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," "likely," "will," "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 business plans and earnings and performance of Yum China, anticipated effects of population and macroeconomic trends, and statements regarding the capital structure of Yum China. 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 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 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, 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 "Forward-Looking Statements" in our Annual Report on Form 10-K) 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, which opened its first restaurant in China at the end of 2016. Yum China also owns the Little Sheep and East Dawning concepts outright. Yum China is well positioned for growth thanks to its strong competitive position, integration of its brands into Chinese popular culture and consumers' daily lives, expanding geographic footprint in China and existing operational expertise. It has a strong capital position, no external debt and expects to continue growing its system sales and profit by adding new restaurants and through growing same-store sales. Yum China had more than 7,600 restaurants and more than 420,000 employees in over 1,100 cities at the end of February 2017. A new generation of younger consumers who are digitally sophisticated and brand driven are fueling growth in consumption in China. The ongoing growth of the middle class and urban population in China is expected to create the world's largest market for restaurant brands, with Yum China poised to be the market leader.

Analysts are invited to contact:

   

Christie Ju, Vice President - Finance, Investor Relations, at +86 21 2407 8090

Elaine Lai, Director - Finance, Investor Relations, at +86 21 2407 8278

     

Members of the media are invited to contact:

   

Forest Liu, Director, Public Affairs, at +86 21 2407 7505

 

 

 

Yum China Holdings, Inc.

Condensed Consolidated and Combined Summary of Results

(amounts in US$ million, except for number of shares and per share amounts)

(unaudited)

 
   

Quarter ended

   

% Change

   

2/28/2017

   

2/29/2016

   

B/(W)

Revenues

                         

Company sales

 

$

1,257

   

$

1,278

     

(2)

   

Franchise fees and income

   

27

     

25

     

5

   

Total revenues

   

1,284

     

1,303

     

(2)

   

Costs and Expenses, Net

                         

Company restaurants

                         

Food and paper

   

345

     

385

     

10

   

Payroll and employee benefits

   

257

     

245

     

(5)

   

Occupancy and other operating expenses

   

366

     

402

     

9

   

Company restaurant expenses

   

968

     

1,032

     

6

   

General and administrative expenses

   

67

     

66

     

-

   

Franchise expenses

   

13

     

14

     

10

   

Refranchising gain, net

   

(1)

     

(3)

     

(64)

   

Other income, net

   

(17)

     

(15)

     

12

   

Total costs and expenses, net

   

1,030

     

1,094

     

6

   

Operating Profit

   

254

     

209

     

22

   

Interest income, net

   

2

     

2

     

47

   

Income Before Income Taxes

   

256

     

211

     

22

   

Income tax provision

   

(76)

     

(62)

     

(23)

   

Net income - including noncontrolling interests

   

180

     

149

     

21

   

Net income - noncontrolling interests

   

5

     

4

     

10

   

Net Income - Yum China Holdings, Inc.

 

$

175

   

$

145

     

21

   

Effective tax rate

   

29.9

%

   

29.5

%

   

(0.4)

 

ppts.

                           

Basic Earnings Per Common Share

 

$

0.45

   

$

0.40

     

14

   

Weighted average shares outstanding

   

387,525,034

     

363,758,219

   

NM

   
                           

Diluted Earnings Per Common Share

 

$

0.44

   

$

0.40

     

12

   

Weighted average shares outstanding

   

395,347,021

     

363,758,219

   

NM

   
                           

Company sales

   

100.0

%

   

100.0

%

         

Food and paper

   

27.5

     

30.1

     

2.6

 

ppts.

Payroll and employee benefits

   

20.5

     

19.2

     

(1.3)

 

ppts.

Occupancy and other operating expenses

   

29.0

     

31.4

     

2.4

 

ppts.

Restaurant margin

   

23.0

%

   

19.3

%

   

3.7

 

ppts.

Operating margin

   

20.2

%

   

16.4

%

   

3.9

 

ppts.

 

Percentages may not recompute due to rounding.

 

 

Yum China Holdings, Inc.

KFC Operating Results

(amounts in US$ million)

(unaudited)

 
   

Quarter ended

   

% Change

   

2/28/2017

 

2/29/2016

 

B/(W)

Revenues

                         

Company sales

 

$

870

   

$

897

     

(3)

   

Franchise fees and income

   

26

     

24

     

3

   

Total revenues

   

896

     

921

     

(3)

   

Costs and Expenses, Net

                         

Company restaurants

                         

Food and paper

   

251

     

275

     

9

   

Payroll and employee benefits

   

167

     

159

     

(6)

   

Occupancy and other operating expenses

   

247

     

272

     

10

   

Company restaurant expenses

   

665

     

706

     

6

   

General and administrative expenses

   

25

     

24

     

(7)

   

Franchise expenses

   

13

     

14

     

10

   

Closures and impairment expenses, net

   

1

     

-

   

NM

   

Other income, net

   

(15)

     

(14)

     

13

   

Total costs and expenses, net

   

689

     

730

     

6

   

Operating Profit

 

$

207

   

$

191

     

9

   

Company sales

   

100.0

%

   

100.0

%

         

Food and paper

   

28.9

     

30.7

     

1.8

 

ppts.

Payroll and employee benefits

   

19.3

     

17.7

     

(1.6)

 

ppts.

Occupancy and other operating expenses

   

28.2

     

30.4

     

2.2

 

ppts.

Restaurant margin

   

23.6

%

   

21.2

%

   

2.4

 

ppts.

Operating margin

   

23.8

%

   

21.3

%

   

2.5

 

ppts.

 

Percentages may not recompute due to rounding.

 

 

Yum China Holdings, Inc.

Pizza Hut Casual Dining Operating Results

(amounts in US$ million)

(unaudited)

 
   

Quarter ended

   

% Change

   

2/28/2017

 

2/29/2016

 

B/(W)

Revenues

                         

Company sales

 

$

339

   

$

328

     

3

   

Franchise fees and income

   

-

     

-

   

NM

   

Total revenues

   

339

     

328

     

3

   

Costs and Expenses, Net

                         

Company restaurants

                         

Food and paper

   

80

     

92

     

13

   

Payroll and employee benefits

   

75

     

71

     

(6)

   

Occupancy and other operating expenses

   

106

     

113

     

6

   

Company restaurant expenses

   

261

     

276

     

6

   

General and administrative expenses

   

14

     

13

     

-

   

Closures and impairment expenses, net

   

(1)

     

-

   

NM

   

Total costs and expenses, net

   

274

     

289

     

5

   

Operating Profit

 

$

65

   

$

39

     

67

   

Company sales

   

100.0

%

   

100.0

%

         

Food and paper

   

23.7

     

28.2

     

4.5

 

ppts.

Payroll and employee benefits

   

22.2

     

21.7

     

(0.5)

 

ppts.

Occupancy and other operating expenses

   

31.1

     

34.3

     

3.2

 

ppts.

Restaurant margin

   

23.0

%

   

15.8

%

   

7.2

 

ppts.

Operating margin

   

19.3

%

   

12.0

%

   

7.3

 

ppts.

 

Percentages may not recompute due to rounding.

 

 

Yum China Holdings, Inc.

Condensed Consolidated Balance Sheets

(amounts in US$ million, except for number of shares)

(unaudited)

 
   

2/28/2017

 

12/31/2016

ASSETS

             

Current Assets

             

Cash and cash equivalents

 

$

1,074

   

$

885

Short-term investments

   

180

     

79

Accounts receivable, net

   

68

     

74

Inventories, net

   

231

     

268

Prepaid expenses and other current assets

   

169

     

120

Total Current Assets

   

1,722

     

1,426

Property, plant and equipment, net

   

1,627

     

1,647

Goodwill

   

80

     

79

Intangible assets, net

   

87

     

88

Investments in unconsolidated affiliates

   

37

     

71

Other assets

   

261

     

254

Deferred income taxes

   

163

     

162

Total Assets

   

3,977

     

3,727

LIABILITIES AND EQUITY

             

Current Liabilities

             

Accounts payable and other current liabilities

   

984

     

971

Income taxes payable

   

84

     

33

Total Current Liabilities

   

1,068

     

1,004

Capital lease obligations

   

28

     

28

Other liabilities and deferred credits

   

251

     

252

Total Liabilities

   

1,347

     

1,284

               

Equity

             

Common stock,  $0.01 par value; 1,000,000,000 shares authorized; 384,311,143 shares

   and 383,344,835.42 shares issued and outstanding at February 28, 2017

   and December 31, 2016, respectively

   

4

     

4

Treasury stock

   

(20)

     

(20)

Additional paid-in capital

   

2,359

     

2,352

Retained earnings

   

215

     

40

Accumulated other comprehensive income

   

22

     

1

Total  Equity - Yum China Holdings, Inc.

   

2,580

     

2,377

Noncontrolling interests

   

50

     

66

Total Equity

   

2,630

     

2,443

Total Liabilities and Equity

 

$

3,977

   

$

3,727

 

 

Yum China Holdings, Inc.

Condensed Consolidated and Combined Statements of Cash Flows

(amounts in US$ million)

(unaudited)

 
   

Quarter ended

   

2/28/2017

 

2/29/2016

Cash Flows - Operating Activities

             

Net income - including noncontrolling interests

 

$

180

   

$

149

Depreciation and amortization

   

64

     

68

Refranchising gain

   

(1)

     

(3)

Deferred income taxes

   

(1)

     

(19)

Equity income from investments in unconsolidated affiliates

   

(17)

     

(16)

Share-based compensation expense

   

3

     

3

Changes in accounts receivable

   

8

     

(8)

Changes in inventories

   

40

     

17

Changes in prepaid expenses and other current assets

   

5

     

7

Changes in accounts payable and other current liabilities

   

31

     

113

Changes in income taxes payable

   

51

     

56

Other, net

   

(6)

     

6

Net Cash Provided by Operating Activities

   

357

     

373

Cash Flows - Investing Activities

             

Capital spending

   

(74)

     

(80)

Purchase of short-term investments

   

(100)

     

(54)

Proceeds from refranchising of restaurants

   

2

     

7

Other, net

   

(1)

     

(1)

Net Cash Used in Investing Activities

   

(173)

     

(128)

Cash Flows - Financing Activities

             

Net transfers from Parent

   

-

     

7

Payment of capital lease obligations

   

(1)

     

-

Net Cash (Used in) Provided by Financing Activities

   

(1)

     

7

Effect of Exchange Rates on Cash and Cash Equivalents

   

6

     

(5)

Net Increase in Cash and Cash Equivalents

   

189

     

247

Cash and Cash Equivalents - Beginning of Period

   

885

     

425

Cash and Cash Equivalents - End of Period

 

$

1,074

   

$

672

 

Reconciliation of Reported Results to Non-GAAP Measures
(amounts in US$ million)
(unaudited)

In this press release:

  • The Company provides certain percentage changes excluding the impact of F/X. These amounts are derived by translating current year results at prior year average exchange rates. We believe the elimination of the F/X impact provides better year-to-year comparability without the distortion of foreign currency fluctuations.
  • System sales growth reflects the results of all restaurants regardless of ownership, including Company-owned, franchise and unconsolidated affiliate restaurants that operate our concepts, except for non-Company-owned restaurants for which we do not receive a sales-based royalty. Sales of franchise and unconsolidated affiliate restaurants typically generate ongoing franchise fees for the Company at a rate of approximately 6% of system sales. Franchise and unconsolidated affiliate restaurant sales are not included in Company sales on the Condensed Consolidated and Combined Statements of Income; however, the franchise fees are included in the Company's revenues. We believe system sales growth is useful to investors as a significant indicator of the overall strength of our business as it incorporates all of our revenue drivers, Company and franchise same-store sales as well as net unit growth.
  • Same-store sales growth is the estimated percentage change in sales of all restaurants that have been open and in the Company system one year or more.
  • Company Restaurant profit ("Restaurant profit") is defined as Company sales less expenses incurred directly by our Company-owned restaurants in generating Company sales. Company restaurant margin percentage is defined as Restaurant profit divided by Company sales.

In addition to the results provided in accordance with US Generally Accepted Accounting Principles ("GAAP") in this press release, the Company provides Adjusted EBITDA, which we define as net income including noncontrolling interests adjusted for income tax, interest income, depreciation, amortization and other items. This non-GAAP measure is not intended to replace the presentation of our financial results in accordance with GAAP.  Rather, the Company believes that the presentation of this non-GAAP measure provides additional information to investors to facilitate the comparison of past and present results.  This non-GAAP measure should not be considered in isolation or as a substitute for GAAP financial results, but should be read in conjunction with the unaudited Condensed Consolidated and Combined Summary of Results and other information presented herein. A reconciliation of this non-GAAP measure to its most directly comparable GAAP measure follows.

Reconciliation of Net Income to Adjusted EBITDA

(amounts in US$ million)

(unaudited)

 

Net income, along with the reconciliation to Adjusted EBITDA, is presented below.

 
   

Quarter ended

   

2/28/2017

 

2/29/2016

Reconciliation of Net Income to Adjusted EBITDA

             

Net Income - Yum China Holdings, Inc.

 

$

175

   

$

145

Net income - noncontrolling interests

   

5

     

4

Income tax provision

   

76

     

62

Interest income, net

   

(2)

     

(2)

Operating Profit

   

254

     

209

Depreciation and amortization

   

64

     

68

Store impairment charges

   

2

     

2

Adjusted EBITDA

 

$

320

   

$

279

 

 

Yum China Holdings, Inc.

Segment Results

(amounts in US$ million)

(unaudited)

 

Quarter Ended 2/28/2017

 

KFC

   

Pizza Hut

Casual
Dining

   

Others

   

Corporate

and

Unallocated

   

Total

 

Total revenues

 

$

896

   

$

339

   

$

49

   

$

-

   

$

1,284

 

Company restaurant expenses

   

665

     

261

     

42

     

-

     

968

 

General and administrative expenses

   

25

     

14

     

5

     

23

     

67

 

Franchise expenses

   

13

     

-

     

-

     

-

     

13

 

Closures and impairment expenses, net

   

1

     

(1)

     

-

     

-

     

-

 

Refranchising gain, net

   

-

     

-

     

-

     

(1)

     

(1)

 

Other income, net

   

(15)

     

-

     

(2)

     

-

     

(17)

 
     

689

     

274

     

45

     

22

     

1,030

 

Operating Profit (Loss)

 

$

207

   

$

65

   

$

4

   

$

(22)

   

$

254

 
 
 

Quarter Ended  2/29/2016

 

KFC

   

Pizza Hut

Casual
Dining

   

Others

   

Corporate

and

Unallocated

   

Total

 

Total revenues

 

$

921

   

$

328

   

$

54

   

$

-

   

$

1,303

 

Company restaurant expenses

   

706

     

276

     

50

     

-

     

1,032

 

General and administrative expenses

   

24

     

13

     

5

     

24

     

66

 

Franchise expenses

   

14

     

-

     

-

     

-

     

14

 

Refranchising gain, net

   

-

     

-

     

-

     

(3)

     

(3)

 

Other income, net

   

(14)

     

-

     

(1)

     

-

     

(15)

 
     

730

     

289

     

54

     

21

     

1,094

 

Operating Profit (Loss)

 

$

191

   

$

39

   

$

-

   

$

(21)

   

$

209

 

 

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/yum-china-achieved-a-strong-first-quarter-with-same-store-sales-growth-of-1-operating-profit-grew-22-restaurant-margin-expanded-to-23-300435069.html

SOURCE Yum China Holdings, Inc