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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): February 8, 2022

 

Yum China Holdings, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware		001-37762		81-2421743
(State or other jurisdiction of incorporation or organization)		(Commission File Number)		(I.R.S. Employer Identification No.)

 

7100 Corporate Drive Plano, Texas 75024 United States of America		Yum China Building 20 Tian Yao Qiao Road Shanghai 200030 People’s Republic of China
(Address, including zip code, of principal executive offices)

 

(469) 980-2898

(Registrant's telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	YUMC	New York Stock Exchange
	9987	The Stock Exchange of Hong Kong Limited

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

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Item 2.02.

Results of Operations and Financial Condition.

 

On February 8, 2022, Yum China Holdings, Inc. issued a press release announcing its unaudited results for the full year and fourth quarter ended December 31, 2021. A copy of the press release is being furnished as Exhibit 99.1 to this Current Report on Form 8-K.

 

Item 9.01.

Financial Statements and Exhibits.

 

(d)    Exhibits.

 

The following exhibits are furnished with this report:

 

Exhibit No.		Exhibit Description
99.1		Press Release of Yum China Holdings, Inc. issued February 8, 2022.
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

		YUM CHINA HOLDINGS, INC.
		By:		/s/ Joseph Chan
				Name:		Joseph Chan
				Title:		Chief Legal Officer
Date: February 8, 2022

 

 

Exhibit 99.1

Yum China Reports Fourth Quarter and Full Year 2021 Results

 

Fourth quarter Total Revenues grew 1%; remained profitable amid COVID-19 impact

Full year Total Revenues grew 19% with Operating Profit of $1.39 billion and Adjusted Operating Profit of $766 million

Accelerated store expansion with record openings of 1,806 gross new stores or 1,282 net new stores in 2021

 

Shanghai, China (February 8, 2022) – Yum China Holdings, Inc. (the “Company” or “Yum China”) (NYSE: YUMC and HKEX: 9987) today reported unaudited results for the fourth quarter and year ended December 31, 2021.

 

Impact of COVID-19 Outbreak and Mitigation Efforts  

 

Multiple waves of Delta variant outbreaks persisted throughout the fourth quarter, spreading to nearly all provinces in China. Case counts in the fourth quarter were the highest since the first quarter of 2020. These widespread outbreaks resulted in more stringent public health measures nationwide in pursuit of a zero-COVID-19 case goal. These preventive measures, which include mass testing, regional lockdowns and travel restrictions, negatively affected the restaurant industry and our business. According to government statistics, total revenues of the restaurant industry in China declined year over year in the fourth quarter. Reduced traveling, fewer social activities and softened consumption demand were observed.

 

Fluid COVID-19 conditions caused significant volatilities in our fourth quarter operations. From a timing prospective, same-store sales recovered sequentially in early October when COVID-19 conditions were relatively stable. However, as COVID-19 outbreaks resurged, the same-store sales percentage declined by mid-teens year over year in November. Although sales trends recovered moderately, same-store sales still declined by more than 10% year over year in December. By region, the most impacted areas were northern and western China, especially Shaanxi province where the cases were concentrated. Eastern China was also impacted, especially Zhejiang province, which is one of the most economically vibrant provinces and our largest regional market.

 

Same-store sales in January 2022 improved modestly from the fourth quarter. But comparing to the comparable Chinese New Year holiday period in 2021, same-store sales were still down year over year. The situation remains volatile. In January, cases of the Omicron variant emerged in China, spreading to major cities including Beijing, Shanghai, Tianjin and Shenzhen. A lockdown in Xi’an, which started in December, lasted nearly the whole month of January. A number of regions were identified as medium to high risk with restrictive measures put in place. At the peak in January, over 500 of our stores were temporarily closed or offered only takeaway and delivery services, compared to nearly 300 stores in the fourth quarter. Many provinces have measures discouraging travel during the Chinese New Year holiday, which is one of the most important trading periods in the year. We have launched numerous campaigns to drive traffic and engage customers online and offline. We will also continue to adjust operations and promotional offers as the situation evolves.

 

Fourth Quarter Highlights

Yum China Holdings, Inc. •  Shanghai, China •  Website http://ir.yumchina.com

 

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Full Year Highlights

 

Key Financial Results

 

 

 

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¹ See “Reconciliation of Reported GAAP Results to non-GAAP Adjusted Measures” included in the accompanying tables of this release for further details.

Note:  All comparisons are versus the same period a year ago.

Percentages may not recompute due to rounding.

System sales and same-store sales percentages exclude the impact of F/X. Effective January 1, 2018, temporary store closures are normalized in the same-store sales calculation by excluding the period during which stores are temporarily closed.

 

CEO and CFO Comments

 

Joey Wat, CEO of Yum China, commented, “As I reflect on the past year, I want to thank our team for their unwavering commitment and tremendous effort. Together, we overcame operating challenges, grew the business and delivered substantial profits for the full year. We continue to focus on offering good food, great value and a seamless customer experience. At KFC, new menu categories such as beef burgers and whole chicken have received great customer feedback and are now permanent items on the menu. With the strong brand positioning, KFC continues to set new records for its restaurant openings. Pizza Hut improved profitability and reaccelerated its store openings to the highest level since 2016. Lavazza expanded from four stores to 58 stores. Our new retail business is also gaining momentum in capturing at-home consumption. We continue to build our industry leading membership program, which has grown 20% in the past year to over 360 million members. With enhanced digital capabilities, digital sales exceeded $7 billion, or over 85% of Company sales. Moreover, we strengthened our market leadership with record openings of over 1,200 net new stores while maintaining healthy new store payback.”

 

Wat continued, “Looking ahead, we continue to face significant uncertainties from the COVID-19 situation and other headwinds from the external environment. But with our product innovation capabilities, world-class operational excellence and agility, I am confident that we will emerge from the pandemic even stronger than before. We are staying the course to reach our next milestone of 20,000 stores. Our innovative store models are creating new opportunities, enabling us to penetrate further into lower-tier cities and expand more flexibly in higher-tier cities. We will continue to apply a disciplined and systematic approach in opening new stores to ensure profitable growth of the business.”

 

Andy Yeung, CFO of Yum China, added, “The COVID-19 situation presented tremendous volatility to our operations. We delivered strong performance in the first half of the year when COVID-19 conditions were relatively stable. In the second half, our business was significantly affected by regional outbreaks and tighter public health measures. The fourth quarter was particularly challenging with multiple widespread outbreaks and also being the seasonally smallest quarter. Nonetheless, with great effort from the entire team, we delivered positive revenue growth in the quarter. Proactive cost management and productivity enhancement enabled us to partially mitigate the headwinds from substantial sales deleveraging and cost inflation, generating profit in a very difficult quarter. For 2022, we expect our business and operating environment to remain challenging and volatile given the uncertainties of COVID-19, the weak macro environment, softening consumer sentiment and inflation headwinds. Despite the challenges, we have strong capabilities and are taking actions to drive sales and manage costs. We are also stepping up investments in supply chain, infrastructure and digital in 2022 to drive long-term sustainable growth of the business.”

 

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Dividends and Share Repurchases

 

Digital and Delivery

 

New-Unit Development and Asset Upgrade

² Others include Taco Bell, Little Sheep, Huang Ji Huang, East Dawning, COFFii & JOY and Lavazza.

 

Restaurant Margin

 

2022 Outlook

The Company currently expects:

 

 

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Other Updates

 

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 7:00 p.m. U.S. Eastern Time on Tuesday, February 8, 2022 (8:00 a.m. Beijing/Hong Kong Time on Wednesday, February 9, 2022).  

 

A live webcast of the call may be accessed at https://edge.media-server.com/mmc/p/vs49ywki.

 

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.

 

 

A replay of the conference call will be available two hours after the call ends until 8:00 a.m. U.S. Eastern Time on Wednesday, February 16, 2022 (9:00 p.m. Beijing/Hong Kong Time on Wednesday, February 16, 2022) and may be accessed by phone at the following numbers:

 

 

 

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 “2022 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,

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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 outbreaks caused by existing or new COVID-19 variants, 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 11,788 restaurants in over 1,600 cities at the end of December 2021.

 

In 2021, Yum China ranked # 363 on the Fortune 500 list and was named to TIME100 Most Influential Companies list. Yum China has also been selected as member of both Dow Jones Sustainability Indices (DJSI): World Index and Emerging Market Index. In 2022, the Company was named to the Bloomberg Gender-Equality Index and was certified as a Top Employer 2022 in China by the Top Employers Institute, both for the fourth consecutive year. For more information, please visit http://ir.yumchina.com.

 

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Yum China Holdings, Inc.

Condensed Consolidated Statements of Income

(in US$ million, except per share data)

(unaudited)

 

 

Percentages may not recompute due to rounding. NM refers to not meaningful.

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Yum China Holdings, Inc.

KFC Operating Results

(in US$ million)

(unaudited)

 

 

Percentages may not recompute due to rounding. NM refers to not meaningful.

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Yum China Holdings, Inc.

Pizza Hut Operating Results

(in US$ million)

(unaudited)

 

 

Percentages may not recompute due to rounding. NM refers to not meaningful.

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Yum China Holdings, Inc.

Condensed Consolidated Balance Sheets

(in US$ million)

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Yum China Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(in US$ million)

(unaudited)

 

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In this press release:

 

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Reconciliation of Reported GAAP Results to Non-GAAP Adjusted Measures

(in millions, except per share data)

(unaudited)

 

In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) in this press release, the Company provides non-GAAP measures adjusted for Special Items, which include Adjusted Operating Profit, Adjusted Net Income, Adjusted Earnings Per Common Share ("EPS"), Adjusted Effective Tax Rate and Adjusted EBITDA, which we define as net income including noncontrolling interests adjusted for income tax, interest income, net, investment gain or loss, certain non-cash expenses, consisting of depreciation and amortization as well as store impairment charges, and Special Items.

 

The following table set forth the reconciliation of the most directly comparable GAAP financial measures to the non-GAAP adjusted financial measures.

 

 

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

 

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Details of Special Items are presented below:

 

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The Company excludes impact from Special Items for the purpose of evaluating performance internally. Special Items are not included in any of our segment results. In addition, the Company provides Adjusted EBITDA because we believe that investors and analysts may find it useful in measuring operating performance without regard to items such as income tax, interest income, net, investment gain or loss, depreciation and amortization, store impairment charges, and Special Items. Store impairment charges included as an adjustment item in Adjusted EBITDA primarily resulted from our semi-annual impairment evaluation of long-lived assets of individual restaurants, and additional impairment evaluation whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. If these restaurant-level assets were not impaired, depreciation of the assets would have been recorded and included in EBITDA. Therefore, store impairment charges were a non-cash item similar to depreciation and amortization of our long-lived assets of restaurants. The Company believes that investors and analyst may find it useful in measuring operating performance without regard to such non-cash item.

 

These adjusted measures are not intended to replace the presentation of our financial results in accordance with GAAP.  Rather, the Company believes that the presentation of these adjusted measures provides additional information to investors to facilitate the comparison of past and present results, excluding those items that the Company does not believe are indicative of our ongoing operations due to their nature.  

 

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Unit Count by Brand

 

KFC

 

 

Pizza Hut

 

 

Others

 

 

 

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Yum China Holdings, Inc.

Segment Results

(in US$ million)

(unaudited)

 

 

 

 

 

 

 

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The above tables reconcile segment information, which is based on management responsibility, with our Condensed Consolidated Statements of Income.  

 

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