Yum China Reports Second Quarter 2023 Results
07/31/2023 at 4:30 PM EDT

Delivered record-breaking second quarter performance in Total Revenues, Operating Profit and net new adds 
Total Revenues up 25%; System Sales grew 32% in constant currency; Operating Profit increased 216%
Store openings accelerated, 655 net new adds in the first half, on track for full-year net new store target

SHANGHAI, July 31, 2023 /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, 2023.

Second Quarter Highlights

  • Total revenues increased 25% year over year to $2.65 billion from $2.13 billion (a 32% increase excluding foreign currency translation ("F/X")).
  • Total system sales increased 32% year over year, with increases of 32% at KFC and 30% at Pizza Hut, excluding F/X. Growth was mainly attributable to same-store sales, new unit contribution and lapping of temporary store closures in the prior year.
  • Same-store sales increased 15% year over year, with increases of 15% at KFC and 13% at Pizza Hut, excluding F/X.
  • Opened 422 net new stores during the quarter; total store count reached 13,602, as of June 30, 2023.
  • Operating Profit increased 216% year over year to $257 million from $81 million (a 228% increase excluding F/X), primarily driven by sales leveraging and margin expansion.
  • Adjusted Operating Profit increased 215% year over year to $259 million from $82 million (a 227% increase excluding F/X).
  • Restaurant margin was 16.1%, compared with 12.1% in the prior year period.
  • Effective tax rate was 24.7%.
  • Net Income increased 138% to $197 million from $83 million in the prior year period, primarily due to the increase in Operating Profit.
  • Adjusted Net Income increased 137% to $199 million from $84 million in the prior year period (a 207% increase excluding the net loss of $9 million in the second quarter of 2023 and net gain of $16 million in the second quarter of 2022, from the mark-to-market equity investment in Meituan; a 219% increase if further excluding F/X).
  • Diluted EPS increased 135% to $0.47 from $0.20 in the prior year period.
  • Adjusted Diluted EPS increased 135% to $0.47 from $0.20 in the prior year period (a 206% increase excluding the net loss from the mark-to-market equity investments in the second quarter of 2023 and net gain in the second quarter of 2022; a 219% increase if further excluding F/X).

Key Financial Results

 

Second Quarter 2023

   

Year to Date Ended 6/30/2023

 
 

% Change

   

% Change

 
 

System
Sales

 

Same-Store
Sales

 

Net New
Units

 

Operating
Profit

   

System
Sales

 

Same-Store
Sales

 

Net New
Units

 

Operating
Profit

 

Yum China

+32

 

+15

 

+12

 

+216

   

+24

 

+11

 

+12

 

+147

 

   KFC

+32

 

+15

 

+12

 

+125

   

+24

 

+11

 

+12

 

+103

 

   Pizza Hut

+30

 

+13

 

+13

 

+216

   

+23

 

+10

 

+13

 

+120

 

 

   

Second Quarter

     

Year to Date Ended 6/30

(in US$ million, except

           

% Change

             

% Change

per share data and percentages)

 

2023

   

2022

 

Reported

 

Ex F/X

     

2023

   

2022

Reported

 

Ex F/X

Operating Profit

$

257

 

$

81

 

+216

 

+228

   

$

673

 

$

272

+147

 

+164

Adjusted Operating Profit(1)

$

259

 

$

82

 

+215

 

+227

   

$

678

 

$

275

+146

 

+162

Net Income

$

197

 

$

83

 

+138

 

+147

   

$

486

 

$

183

+166

 

+184

Adjusted Net Income(1)

$

199

 

$

84

 

+137

 

+147

   

$

491

 

$

186

+164

 

+181

Basic Earnings Per Common Share

$

0.47

 

$

0.20

 

+135

 

+145

   

$

1.16

 

$

0.43

+170

 

+188

Adjusted Basic Earnings
   Per Common Share(1)

$

0.47

 

$

0.20

 

+135

 

+145

   

$

1.17

 

$

0.44

+166

 

+184

Diluted Earnings Per Common Share

$

0.47

 

$

0.20

 

+135

 

+145

   

$

1.15

 

$

0.43

+167

 

+186

Adjusted Diluted Earnings
   Per Common Share(1)

$

0.47

 

$

0.20

 

+135

 

+145

   

$

1.16

 

$

0.44

+164

 

+182

(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, "We achieved outstanding results, delivering substantial growth in the top-line and bottom-line, in the second quarter, thanks to our teams' dedication and creativity. This once again demonstrates our anti-fragile business model and ability to capture opportunities in good times and stay resilient in bad times. Our innovative products and compelling value captured customer demand and drove double-digit same-store sales growth. KFC's "K-zza" and Pizza Hut's new menu items were hugely popular. Our exciting campaign with Genshin Impact and fun toy offerings with Sanrio and Pokemon spurred strong demand and brought consumers moments of joy. We registered record daily transactions of 8.5 million on Children's Day. Our amazing operations team, robust end-to-end digital capabilities and agile supply chain enabled us to flexibly handle surges in customer traffic through holiday periods and special marketing campaigns, while maintaining consistent quality and customer service. As a result of these collective efforts, our operating profit for the first half of this year already exceeded the entire year of 2022."

Wat continued, "We accelerated the pace of new store openings in the second quarter and celebrated two milestones. Pizza Hut surpassed 3,000 stores in China and KFC exceeded 500 stores in Shanghai alone. With 655 net new stores in the first half of 2023, we are on track to meet our expansion goals for the year. Importantly, new store payback periods remain healthy. Furthermore, we see abundant white space in China. With a presence in 1,900 cities, we are still tracking over 800 cities without a KFC. Similarly, Pizza Hut has a great potential for expanding its footprint. With our flexible store formats, we continue to expand addressable markets across city tiers. By actively pursuing our RGM (Resilience-Growth-Moat) strategy and leveraging our industry-leading strengths, we are confident in our ability to capture long-term growth opportunities."

Andy Yeung, CFO of Yum China, added, "We delivered record second-quarter revenues and profits, despite challenging macro conditions and an uptick of COVID infections during the quarter. When customer demand softened in May, we adjusted nimbly to address consumer needs, captured holiday spending and successfully regained sales momentum. Sales growth and proactive cost structure rebasing helped us improve operating leverage, expanding restaurant margins and delivering record operating profit in the quarter. Even though same-store sales remained below 2019 levels, our revenue in the second quarter has increased by 25% and operating profits have risen by 26% compared to pre-pandemic levels in 2019."

"As we move into the third quarter, driving sales remains our top priority. We have lined up exciting marketing campaigns and resources to seize sales opportunities in the peak summer season. Our efforts on efficiency improvement and cost structure rebasing should continue to benefit profitability in the long run. But, it is worth noting that last year's record third-quarter restaurant margins set a relatively high benchmark, due to austerity measures and temporary reliefs. We will continue to stay agile through evolving market conditions, expand our store network and fortify our competitive moat to drive sustainable long-term growth," Yeung concluded.

Share Repurchases and Dividends

  • During the second quarter, the Company repurchased approximately 1 million shares of Yum China common stock for $62 million at an average price of $60.23 per share. As of June 30, 2023, approximately $1 billion remained available for future share repurchases under the current authorization.
  • The Board declared a cash dividend of $0.13 per share on Yum China's common stock, payable on September 18, 2023 to shareholders of record as of the close of business on August 28, 2023.

Digital and Delivery

  • The KFC and Pizza Hut loyalty programs exceeded 445 million members combined, as of quarter-end. Member sales accounted for approximately 66% of system sales in the second quarter of 2023.
  • Delivery contributed approximately 35% of KFC and Pizza Hut's Company sales in the second quarter of 2023, a decrease of 3% compared with the prior year period.
  • Digital orders, including delivery, mobile orders and kiosk orders, accounted for approximately 90% of KFC and Pizza Hut's Company sales in the second quarter of 2023.

KFC and Pizza Hut Total

 

Second Quarter

   

Year to Date Ended 6/30

 
   

2023

 

2022

   

2023

 

2022

 

Member count (as of period-end)

 

445 million+

 

385 million+

   

445 million+

 

385 million+

 

Member sales as % of system sales

 

~66%

 

~62%

   

~64%

 

~62%

 

Delivery as % of Company sales

 

~35%

 

~38%

   

~36%

 

~37%

 

Digital orders as % of Company sales

 

~90%

 

~89%

   

~90%

 

~88%

 

New-Unit Development and Asset Upgrade

  • The Company opened 422 net new stores in the second quarter of 2023, mainly driven by development of the KFC and Pizza Hut brands.
  • The Company remodeled 171 stores in the second quarter of 2023.
   

Net New Units

   

Restaurant Count

 
   

Second Quarter

 

Year to Date

   

As of June 30

 
   

2023

 

Ended 6/30/2023

   

2023

 

2022

 

Yum China

 

422

 

655

   

13,602

 

12,170

 

   KFC

 

323

 

468

   

9,562

 

8,510

 

   Pizza Hut

 

89

 

169

   

3,072

 

2,711

 

   Others(2)

 

10

 

18

   

968

 

949

 

(2) Others include Taco Bell, Lavazza, Little Sheep, Huang Ji Huang, and, for 2022, COFFii & JOY.

Restaurant Margin

  • Restaurant margin was 16.1% in the second quarter of 2023 compared with 12.1% in the prior year period, driven primarily by sales leveraging and ongoing benefits of cost structure rebasing efforts; partially offset by lapping austerity measures in the prior year, higher promotion costs, and wage inflation.
 

Second Quarter

   

Year to Date Ended 6/30

 
   

2023

 

2022

 

ppts change

   

2023

 

2022

 

ppts change

 

Yum China

 

16.1 %

 

12.1 %

 

+4.0

   

18.3 %

 

13.0 %

 

+5.3

 

   KFC

 

17.3 %

 

13.4 %

 

+3.9

   

19.9 %

 

14.4 %

 

+5.5

 

   Pizza Hut

 

12.4 %

 

8.6 %

 

+3.8

   

13.3 %

 

9.8 %

 

+3.5

 

2023 Outlook

The Company's fiscal year 2023 targets remain unchanged:

  • To open approximately 1,100 to 1,300 net new stores.
  • To make capital expenditures in the range of approximately $700 million to $900 million.

Company Updates

  • On July 17, 2023, the Company announced the appointment of Mr. David Hoffmann to the Board of the Directors. With this appointment, the Board is now comprised of 10 directors, nine of whom are independent.

Note on Non-GAAP 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. In addition, for the non-GAAP measures of Restaurant profit and Restaurant margin, see "Reconciliation of GAAP Operating Profit to Restaurant Profit" under "Segment Results" within this release.

Conference Call

Yum China's management will hold an earnings conference call at 8:00 p.m. U.S. Eastern Time on Monday, July 31, 2023 (8:00 a.m. Beijing/Hong Kong Time on Tuesday, August 1, 2023).  

A live webcast of the call may be accessed at https://edge.media-server.com/mmc/p/4rchbbk4/.

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 access PIN.

Pre-registration Link:              https://s1.c-conf.com/diamondpass/10031360-wcv829.html

A replay of the conference call will be available one hour after the call ends until Tuesday, August 8, 2023 and may be accessed by phone at the following numbers:

U.S.:

1 855 883 1031

Mainland China:

400 1209 216

Hong Kong:

800 930 639

U.K.:

0800 031 4295

   

Replay access code:

10031360

Additionally, this earnings release, the accompanying slides, as well as the live and 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 "2023 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," "commit" 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 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, pace of recovery of Yum China's business, 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, 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 is the largest restaurant company in China with a mission to make every life taste beautiful. The Company has over 400,000 employees and operates over 13,000 restaurants under six brands across 1,900 cities in China. KFC and Pizza Hut are the leading brands in the quick-service and casual dining restaurant spaces in China, respectively. Taco Bell offers innovative Mexican-inspired food. Yum China has also partnered with Lavazza to develop the Lavazza coffee concept in China. Little Sheep and Huang Ji Huang specialize in Chinese cuisine. Yum China has a world-class, digitalized supply chain which includes an extensive network of logistics centers nationwide and an in-house supply chain management system. Its strong digital capabilities and loyalty program enable the Company to reach customers faster and serve them better. Yum China is a Fortune 500 company with the vision to be the world's most innovative pioneer in the restaurant industry. For more information, please visit http://ir.yumchina.com

Investor Relations Contact:

   

Tel: +86 21 2407 7556 / +852 2267 5801

IR@YumChina.com

 

     

Media Contact:

   

Tel: +86 21 2407 7510

Media@YumChina.com

 

 

 

Yum China Holdings, Inc.

Condensed Consolidated Statements of Income

(in US$ million, except per share data)

(unaudited)

                             
   

Quarter Ended

 

% Change

 

Year to Date Ended

 

% Change

   

6/30/2023

 

6/30/2022

 

B/(W)

 

6/30/2023

 

6/30/2022

 

B/(W)

Revenues

                           

Company sales

 

$      2,517

 

$      2,026

 

24

   

$      5,289

 

$      4,574

 

16

 

Franchise fees and income

 

21

 

19

 

16

   

46

 

43

 

8

 

Revenues from transactions with franchisees

 

89

 

62

 

43

   

182

 

139

 

31

 

Other revenues

 

27

 

21

 

33

   

54

 

40

 

38

 

Total revenues

 

2,654

 

2,128

 

25

   

5,571

 

4,796

 

16

 

Costs and Expenses, Net

                           

Company restaurants

                           

Food and paper

 

773

 

627

 

(23)

   

1,608

 

1,419

 

(13)

 

Payroll and employee benefits

 

665

 

549

 

(21)

   

1,348

 

1,216

 

(11)

 

Occupancy and other operating expenses

 

675

 

605

 

(12)

   

1,366

 

1,343

 

(2)

 

Company restaurant expenses

 

2,113

 

1,781

 

(19)

   

4,322

 

3,978

 

(9)

 

General and administrative expenses

 

153

 

141

 

(9)

   

316

 

292

 

(8)

 

Franchise expenses

 

9

 

8

 

(5)

   

19

 

18

 

(1)

 

Expenses for transactions with franchisees

 

84

 

61

 

(40)

   

175

 

136

 

(29)

 

Other operating costs and expenses

 

24

 

18

 

(29)

   

48

 

35

 

(36)

 

Closures and impairment expenses, net

 

14

 

14

 

(7)

   

17

 

16

 

(12)

 

Other expenses, net

 

 

24

 

99

   

1

 

49

 

97

 

Total costs and expenses, net

 

2,397

 

2,047

 

(17)

   

4,898

 

4,524

 

(8)

 

Operating Profit

 

257

 

81

 

216

   

673

 

272

 

147

 

Interest income, net

 

40

 

14

 

184

   

78

 

26

 

203

 

Investment (loss) gain

 

(11)

 

20

 

 NM 

   

(28)

 

(17)

 

(69)

 

Income Before Income Taxes and
  Equity in Net Earnings (Losses) from
  Equity Method Investments

 

286

 

115

 

147

   

723

 

281

 

157

 

Income tax provision

 

(71)

 

(31)

 

(131)

   

(196)

 

(86)

 

(128)

 

Equity in net earnings (losses) from
   equity method investments

 

(1)

 

(1)

 

45

   

 

(2)

 

90

 

Net income – including noncontrolling interests

 

214

 

83

 

157

   

527

 

193

 

173

 

Net income – noncontrolling interests

 

17

 

 

 NM 

   

41

 

10

 

(290)

 

Net Income – Yum China Holdings, Inc.

 

$         197

 

$           83

 

138

   

$         486

 

$         183

 

166

 

Effective tax rate

 

24.7 %

 

26.5 %

 

1.8

 ppts. 

 

27.0 %

 

30.4 %

 

3.4

 ppts. 

                             

Basic Earnings Per Common Share

 

$        0.47

 

$        0.20

       

$        1.16

 

$        0.43

     

Weighted-average shares outstanding
    (in millions)

 

418

 

421

       

418

 

423

     
                             

Diluted Earnings Per Common Share

 

$        0.47

 

$        0.20

       

$        1.15

 

$        0.43

     

Weighted-average shares outstanding
    (in millions)

 

422

 

424

       

423

 

427

     
                             

Company sales

 

100.0 %

 

100.0 %

       

100.0 %

 

100.0 %

     

Food and paper

 

30.7

 

30.9

 

0.2

 ppts. 

 

30.4

 

31.0

 

0.6

ppts.

Payroll and employee benefits

 

26.4

 

27.1

 

0.7

 ppts. 

 

25.5

 

26.6

 

1.1

ppts.

Occupancy and other operating expenses

 

26.8

 

29.9

 

3.1

 ppts. 

 

25.8

 

29.4

 

3.6

ppts.

Restaurant margin

 

16.1 %

 

12.1 %

 

4.0

 ppts. 

 

18.3 %

 

13.0 %

 

5.3

ppts.

Operating margin

 

10.2 %

 

4.0 %

 

6.2

 ppts. 

 

12.7 %

 

6.0 %

 

6.7

ppts.

                             

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

 

 

 

Yum China Holdings, Inc.

KFC Operating Results

(in US$ million)

(unaudited)

                             
   

Quarter Ended

 

% Change

 

Year to Date Ended

 

% Change

   

6/30/2023

 

6/30/2022

 

B/(W)

 

6/30/2023

 

6/30/2022

 

B/(W)

Revenues

                           

Company sales

 

$      1,954

 

$      1,571

 

24

   

$      4,120

 

$      3,562

 

16

 

Franchise fees and income

 

15

 

13

 

18

   

32

 

29

 

11

 

Revenues from transactions with franchisees

 

11

 

7

 

45

   

21

 

15

 

36

 

Other revenues

 

4

 

3

 

42

   

9

 

5

 

101

 

Total revenues

 

1,984

 

1,594

 

24

   

4,182

 

3,611

 

16

 

Costs and Expenses, Net

                           

Company restaurants

                           

Food and paper

 

602

 

484

 

(24)

   

1,248

 

1,105

 

(13)

 

Payroll and employee benefits

 

498

 

413

 

(21)

   

1,010

 

914

 

(10)

 

Occupancy and other operating expenses

 

516

 

464

 

(11)

   

1,043

 

1,031

 

(1)

 

Company restaurant expenses

 

1,616

 

1,361

 

(19)

   

3,301

 

3,050

 

(8)

 

General and administrative expenses

 

67

 

63

 

(6)

   

135

 

128

 

(5)

 

Franchise expenses

 

7

 

6

 

(9)

   

16

 

15

 

(1)

 

Expenses for transactions with franchisees

 

9

 

6

 

(41)

   

18

 

14

 

(32)

 

Other operating costs and expenses

 

4

 

2

 

(61)

   

8

 

3

 

(143)

 

Closures and impairment expenses, net

 

8

 

9

 

11

   

9

 

8

 

(15)

 

Other expenses, net

 

 

25

 

99

   

2

 

51

 

96

 

Total costs and expenses, net

 

1,711

 

1,472

 

(16)

   

3,489

 

3,269

 

(7)

 

Operating Profit

 

$         273

 

$         122

 

125

   

$         693

 

$         342

 

103

 

Company sales

 

100.0 %

 

100.0 %

       

100.0 %

 

100.0 %

     

Food and paper

 

30.8

 

30.8

 

ppts.

 

30.3

 

31.0

 

0.7

ppts.

Payroll and employee benefits

 

25.5

 

26.3

 

0.8

ppts.

 

24.5

 

25.7

 

1.2

ppts.

Occupancy and other operating expenses

 

26.4

 

29.5

 

3.1

ppts.

 

25.3

 

28.9

 

3.6

ppts.

Restaurant margin

 

17.3 %

 

13.4 %

 

3.9

ppts.

 

19.9 %

 

14.4 %

 

5.5

ppts.

Operating margin

 

14.0 %

 

7.7 %

 

6.3

ppts.

 

16.8 %

 

9.6 %

 

7.2

ppts.

                             

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

 

 

 

Yum China Holdings, Inc.

Pizza Hut Operating Results

(in US$ million)

(unaudited)

                             
   

Quarter Ended

 

% Change

 

Year to Date Ended

 

% Change

   

6/30/2023

 

6/30/2022

 

B/(W)

 

6/30/2023

 

6/30/2022

 

B/(W)

Revenues

                           

Company sales

 

$         546

 

$         443

 

23

   

$      1,137

 

$         985

 

15

 

Franchise fees and income

 

2

 

2

 

(1)

   

4

 

4

 

1

 

Revenues from transactions with franchisees

 

1

 

1

 

17

   

2

 

2

 

11

 

Other revenues

 

5

 

2

 

186

   

8

 

4

 

136

 

Total revenues

 

554

 

448

 

24

   

1,151

 

995

 

16

 

Costs and Expenses, Net

                           

Company restaurants

                           

Food and paper

 

166

 

139

 

(19)

   

350

 

305

 

(15)

 

Payroll and employee benefits

 

162

 

131

 

(24)

   

329

 

288

 

(14)

 

Occupancy and other operating expenses

 

151

 

135

 

(12)

   

307

 

296

 

(4)

 

Company restaurant expenses

 

479

 

405

 

(18)

   

986

 

889

 

(11)

 

General and administrative expenses

 

30

 

28

 

(5)

   

59

 

57

 

(3)

 

Franchise expenses

 

1

 

1

 

(6)

   

2

 

2

 

(3)

 

Expenses for transactions with franchisees

 

1

 

1

 

(19)

   

2

 

2

 

(11)

 

Other operating costs and expenses

 

4

 

2

 

(187)

   

7

 

3

 

(130)

 

Closures and impairment expenses, net

 

4

 

 

 NM 

   

5

 

1

 

(603)

 

Total costs and expenses, net

 

519

 

437

 

(19)

   

1,061

 

954

 

(11)

 

Operating Profit

 

$           35

 

$           11

 

216

   

$           90

 

$           41

 

120

 

Company sales

 

100.0 %

 

100.0 %

       

100.0 %

 

100.0 %

     

Food and paper

 

30.3

 

31.4

 

1.1

ppts.

 

30.8

 

31.0

 

0.2

ppts.

Payroll and employee benefits

 

29.7

 

29.5

 

(0.2)

ppts.

 

28.9

 

29.2

 

0.3

ppts.

Occupancy and other operating expenses

 

27.6

 

30.5

 

2.9

ppts.

 

27.0

 

30.0

 

3.0

ppts.

Restaurant margin

 

12.4 %

 

8.6 %

 

3.8

ppts.

 

13.3 %

 

9.8 %

 

3.5

ppts.

Operating margin

 

6.4 %

 

2.5 %

 

3.9

ppts.

 

7.9 %

 

4.2 %

 

3.7

ppts.

                             

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

 

 

 

 

Yum China Holdings, Inc.

Condensed Consolidated Balance Sheets

(in US$ million)

         
   

6/30/2023

 

12/31/2022

   

(Unaudited)

   

ASSETS

       

Current Assets

       

Cash and cash equivalents

 

$        1,189

 

$         1,130

Short-term investments

 

1,762

 

2,022

Accounts receivable, net

 

59

 

64

Inventories, net

 

396

 

417

Prepaid expenses and other current assets

 

281

 

307

Total Current Assets

 

3,687

 

3,940

Property, plant and equipment, net

 

2,049

 

2,118

Operating lease right-of-use assets

 

2,066

 

2,219

Goodwill

 

1,891

 

1,988

Intangible assets, net

 

148

 

159

Long-term bank deposits and notes

 

1,179

 

680

Equity investments

 

323

 

361

Deferred income tax assets

 

72

 

113

Other assets

 

260

 

248

Total Assets

 

11,675

 

11,826

         

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY

       

Current Liabilities

       

Accounts payable and other current liabilities

 

2,064

 

2,098

Income taxes payable

 

88

 

68

Total Current Liabilities

 

2,152

 

2,166

Non-current operating lease liabilities

 

1,773

 

1,906

Non-current finance lease liabilities

 

41

 

42

Deferred income tax liabilities

 

350

 

390

Other liabilities

 

142

 

162

Total Liabilities

 

4,458

 

4,666

         

Redeemable Noncontrolling Interest

 

12

 

12

         

Equity

       

Common stock,  $0.01 par value; 1,000 million shares authorized;
417 million shares and 419 million shares issued and outstanding
at June 30, 2023 and December 31, 2022, respectively

 

4

 

4

Additional paid-in capital

 

4,396

 

4,390

Retained earnings

 

2,465

 

2,191

Accumulated other comprehensive loss

 

(316)

 

(103)

Total Yum China Holdings, Inc. Stockholders' Equity

 

6,549

 

6,482

Noncontrolling interests

 

656

 

666

Total Equity

 

7,205

 

7,148

Total Liabilities, Redeemable Noncontrolling Interest and Equity

 

$      11,675

 

$       11,826

 

 

 

Yum China Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(in US$ million)

(unaudited)

             
     

Year to Date Ended

     

6/30/2023

   

6/30/2022

Cash Flows – Operating Activities

           

Net income – including noncontrolling interests

   

$                   527

   

$                   193

Depreciation and amortization

   

228

   

317

Non-cash operating lease cost

   

202

   

230

Closures and impairment expenses

   

17

   

16

Investment loss

   

28

   

17

Equity in net (earnings) losses from equity method investments

   

   

2

Distributions of income received from equity method investments

   

8

   

Deferred income taxes

   

13

   

(7)

Share-based compensation expense

   

29

   

21

Changes in accounts receivable

   

2

   

(17)

Changes in inventories

   

1

   

59

Changes in prepaid expenses, other current assets and VAT assets

   

19

   

24

Changes in accounts payable and other current liabilities

   

54

   

(51)

Changes in income taxes payable

   

25

   

6

Changes in non-current operating lease liabilities

   

(193)

   

(198)

Other, net

   

(36)

   

(3)

Net Cash Provided by Operating Activities

   

924

   

609

             

Cash Flows – Investing Activities

           

Capital spending

   

(332)

   

(347)

Purchases of short-term investments, long-term bank deposits and notes

   

(2,172)

   

(2,145)

Maturities of short-term investments, long-term bank deposits and notes

   

1,904

   

2,461

Acquisition of business, net of cash acquired

   

   

(23)

Other, net

   

2

   

2

Net Cash Used in Investing Activities

   

(598)

   

(52)

             

Cash Flows – Financing Activities

           

Repurchase of shares of common stock

   

(122)

   

(400)

Cash dividends paid on common stock

   

(108)

   

(101)

Dividends paid to noncontrolling interests

   

(28)

   

(23)

Contributions from noncontrolling interests

   

35

   

18

Payment of acquisition related holdback 

   

(3)

   

(6)

Other, net

   

(4)

   

(1)

Net Cash Used in Financing Activities

   

(230)

   

(513)

Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash

   

(37)

   

(33)

Net Increase in Cash, Cash Equivalents and Restricted Cash

   

59

   

11

Cash, Cash Equivalents, and Restricted Cash - Beginning of Period

   

1,130

   

1,136

Cash, Cash Equivalents, and Restricted Cash - End of Period

   

$                1,189

   

$                1,147

 

 

In this press release:

  • The Company provides certain percentage changes excluding the impact of foreign currency translation ("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 restaurant 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 an average rate of approximately 6% of system sales. Franchise and unconsolidated affiliate restaurant sales are not included in Company sales in the Condensed Consolidated 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.
  • Effective January 1, 2018, the Company revised its definition of same-store sales growth to represent the estimated percentage change in sales of food of all restaurants in the Company system that have been open prior to the first day of our prior fiscal year, excluding the period during which stores are temporarily closed. We refer to these as our "base" stores. Previously, same-store sales growth represented the estimated percentage change in sales of all restaurants in the Company system that have been open for one year or more, including stores temporarily closed, and the base stores changed on a rolling basis from month to month. This revision was made to align with how management measures performance internally and focuses on trends of a more stable base of stores.
  • Company sales represent revenues from Company-owned restaurants. Company Restaurant profit ("Restaurant profit") is defined as Company sales less expenses incurred directly by our Company-owned restaurants in generating Company sales, including cost of food and paper, restaurant-level payroll and employee benefits, rent, depreciation and amortization of restaurant-level assets, advertising expenses, and other operating expenses. Company restaurant margin percentage is defined as Restaurant profit divided by Company sales.
  • Certain comparative items in the Condensed Consolidated Financial Statements have been reclassified to conform to the current period's presentation to facilitate comparison.

 

 

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 equity in net earnings (losses) from equity method investments, 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. We also use Restaurant profit and Restaurant margin (as defined above) for the purposes of internally evaluating the performance of our Company-owned restaurants and we believe Restaurant profit and Restaurant margin provide useful information to investors as to the profitability of our Company-owned restaurants.

The following table set forth the reconciliation of the most directly comparable GAAP financial measures to the non-GAAP adjusted financial measures. The reconciliation of GAAP Operating Profit to Restaurant Profit is presented in Segment Results within this release.

 

   

Quarter Ended

 

Year to Date Ended

   

6/30/2023

 

6/30/2022

 

6/30/2023

 

6/30/2022

Non-GAAP Reconciliations

               
                 

Reconciliation of Operating Profit to Adjusted Operating Profit

               

Operating Profit

 

$              257

 

$              81

 

$         673

 

$         272

Special Items, Operating Profit 

 

(2)

 

(1)

 

(5)

 

(3)

Adjusted Operating Profit

 

$              259

 

$              82

 

$         678

 

$         275

Reconciliation of Net Income to Adjusted Net Income

               

Net Income – Yum China Holdings, Inc.

 

$              197

 

$              83

 

$         486

 

$         183

Special Items, Net Income –Yum China Holdings, Inc.

 

(2)

 

(1)

 

(5)

 

(3)

Adjusted Net Income – Yum China Holdings, Inc.

 

$              199

 

$              84

 

$         491

 

$         186

Reconciliation of EPS to Adjusted EPS

               

Basic Earnings Per Common Share

 

$             0.47

 

$           0.20

 

$        1.16

 

$        0.43

Special Items, Basic Earnings Per Common Share

 

 

 

(0.01)

 

(0.01)

Adjusted Basic Earnings Per Common Share

 

$             0.47

 

$           0.20

 

$        1.17

 

$        0.44

Diluted Earnings Per Common Share

 

$             0.47

 

$           0.20

 

$        1.15

 

$        0.43

Special Items, Diluted Earnings Per Common Share

 

 

 

(0.01)

 

(0.01)

Adjusted Diluted Earnings Per Common Share

 

$             0.47

 

$           0.20

 

$        1.16

 

$        0.44

Reconciliation of Effective Tax Rate to Adjusted Effective Tax Rate

               

Effective tax rate

 

24.7 %

 

26.5 %

 

27.0 %

 

30.4 %

Impact on effective tax rate as a result of Special Items

 

0.1 %

 

0.2 %

 

0.1 %

 

0.3 %

Adjusted effective tax rate

 

24.6 %

 

26.3 %

 

26.9 %

 

30.1 %

 

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

 

   

Quarter Ended

 

Year to Date Ended

   

6/30/2023

 

6/30/2022

 

6/30/2023

 

6/30/2022

                 

Reconciliation of Net Income to Adjusted EBITDA

               

Net Income – Yum China Holdings, Inc.

 

$         197

 

$           83

 

$         486

 

$         183

Net income – noncontrolling interests

 

17

 

 

41

 

10

Equity in net (earnings) losses from equity method investments

 

1

 

1

 

 

2

Income tax provision

 

71

 

31

 

196

 

86

Interest income, net

 

(40)

 

(14)

 

(78)

 

(26)

Investment loss (gain)

 

11

 

(20)

 

28

 

17

Operating Profit

 

257

 

81

 

673

 

272

Special Items, Operating Profit

 

2

 

1

 

5

 

3

Adjusted Operating Profit

 

259

 

82

 

678

 

275

Depreciation and amortization

 

112

 

153

 

228

 

317

Store impairment charges

 

17

 

22

 

21

 

30

Adjusted EBITDA

 

$         388

 

$         257

 

$         927

 

$         622

 

Details of Special Items are presented below:

   

Quarter Ended

 

Year to Date Ended

   

6/30/2023

 

6/30/2022

 

6/30/2023

 

6/30/2022

                 

Share-based compensation expense for Partner PSU Awards(1)

 

$           (2)

 

$           (1)

 

$           (5)

 

$           (3)

Special Items, Operating Profit

 

(2)

 

(1)

 

(5)

 

(3)

Tax effect on Special Items(2)

 

 

 

 

Special Items, net income – including noncontrolling interests

 

(2)

 

(1)

 

(5)

 

(3)

Special Items, net income – noncontrolling interests

 

 

 

 

Special Items, Net Income –Yum China Holdings, Inc.

 

$           (2)

 

$           (1)

 

$           (5)

 

$           (3)

Weighted-average Diluted Shares Outstanding (in millions)

 

422

 

424

 

423

 

427

Special Items, Diluted Earnings Per Common Share

 

$           —

 

$           —

 

$      (0.01)

 

$      (0.01)

 

(1)  In February 2020, the Company granted Partner PSU Awards to select employees who were deemed critical to the Company's execution of its strategic operating plan. These PSU awards will only vest if threshold performance goals are achieved over a four-year performance period, with the payout ranging from 0% to 200% of the target number of shares subject to the PSU awards. Partner PSU Awards were granted to address increased competition for executive talent, motivate transformational performance and encourage management retention. Given the unique nature of these grants, the Compensation Committee does not intend to grant similar, special grants to the same employees during the performance period. The impact from these special awards is excluded from metrics that management uses to assess the Company's performance.

(2)  The tax expense was determined based upon the nature, as well as the jurisdiction, of each Special Item at the applicable tax rate.

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 equity in net earnings (losses) from equity method investments, 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. 

 

Unit Count by Brand

   
                           

KFC

   

12/31/2022

 

New Builds

 

Closures

 

Refranchised

 

6/30/2023

     

Company-owned

 

8,214

 

516

 

(115)

 

(3)

 

8,612

     

Franchisees

 

880

 

75

 

(8)

 

3

 

950

     

Total

 

9,094

 

591

 

(123)