Yum China Holdings Inc. (NYSE:YUMC) stock traded higher Thursday after the company reported second-quarter results that topped Wall Street expectations.
Yum China Quarterly Results
Adjusted earnings came in at 70 cents per share, beating the analyst consensus estimate of 67 cents. Revenue rose 13% year over year to $3.14 billion, exceeding analysts’ estimate of $3.06 billion.
Total system sales increased 6% year over year, excluding foreign currency translation. Same-store transactions rose 5%, marking the company’s 14th consecutive quarter of growth.
Margins And Digital Growth
Core operating profit increased 7% year over year, while operating margin expanded 20 basis points to 11.1%.
Restaurant margin was unchanged at 16.1%, as higher delivery rider costs from a greater mix of delivery orders were offset by operational efficiencies.
Delivery sales climbed 26% year over year and accounted for about 54% of total company sales, up from 45% a year earlier. Active KFC and Pizza Hut loyalty members exceeded 270 million, up 6% from the prior year.
Yum China ended the quarter with $485 million in cash and cash equivalents.
KFC Expansion Drives Growth
Chief Executive Officer Joey Wat said the company delivered system sales growth, operating profit growth and operating margin expansion for the ninth consecutive quarter, with KFC remaining its primary growth engine through menu innovation, store expansion and new formats.
Wat said KCOFFEE Cafe is expected to nearly double sales to about 2 billion Chinese yuan in 2026, while KPRO is projected to quadruple sales this year and exceed 1 billion Chinese yuan in 2027.
Chief Financial Officer Adrian Ding said KCOFFEE Cafe generated a mid-single-digit sales lift at parent stores, while KPRO increased sales by about 20%. He added that capital investment for both formats has fallen by roughly half from earlier designs, while profitability continues to improve.
Pizza Hut Acquisition To Boost Margins
Yum China said acquiring ownership of the Pizza Hut brand in mainland China will improve restaurant economics by eliminating ongoing license payments while giving the company greater flexibility to expand the chain.
Wat said Yum China is nearing completion of its acquisition of the Pizza Hut brand in mainland China after operating the business there for 36 years, a move she said will allow the company to respond more quickly to changing consumer demand.
Ding said the transaction is expected to eliminate the 3% brand license fee paid to Yum! Brands and increase Pizza Hut’s restaurant operating margin by about 2.8 percentage points after tax, adding roughly 60 basis points to Yum China’s overall margin.
Wat said the company now expects to open more than 800 net new Pizza Hut restaurants annually in 2027 and 2028, up from its previous target of more than 600.
Yum China Outlook
Yum China expects full-year same-store sales, excluding the Pizza Hut acquisition, to range from flat to up 2%. The company reaffirmed expectations for mid- to high-single-digit system sales growth, high-single-digit operating profit growth and double-digit earnings-per-share growth.
Ding said Yum China remains on track to reach 20,000 stores by the end of 2026 and expects modest improvement in restaurant and operating margins through operational efficiencies, store-cost optimization and easing delivery cost pressures.
The company reiterated plans for $600 million to $700 million in capital expenditures and approximately $1.5 billion in shareholder returns. It also continues to target a 40% to 50% franchise mix for new KFC and Pizza Hut restaurants.
YUMC Price Action: Yum China Holdings shares were up 1.07% at $46.34 at the time of publication on Thursday, according to Benzinga Pro data.
Photo via Shutterstock
Login to comment