Yum China tramples expectations; profit up 31%
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Yum China’s first earnings report as an independent company proves that sometimes breaking up can be a very beautiful thing. In fact, its first report since the October spin-off from Louisville-based Yum Brands not only surpassed estimated sales projections for the company but showed its full-year operating profit was up 31 percent year over year to $640 million, according to a news release.
For the year and fourth quarter that ended Dec. 31, Yum China reported a profit of 17 cents a share, up from the average estimate of 10 cents. The company also attributed much of the financial success of the last year to expansion and new openings, as well as same-store sales growth at KFC.
The only clouds inside this silver-lined report came from the direction of the performance of Pizza Hut, which was worse than expected, according to the news release.
Yum China’s board of directors also authorized the repurchase of up to $300 million of common stock.
“This was a momentous year for Yum China,” CEO Micky Pant said in the news release. “We successfully became an independent, publicly traded company while simultaneously improving our business performance and investing for future growth. At year end 2016 with over 7,500 restaurants nationwide, we extended our market-leading position in China.”
“This was a momentous year for Yum China,”
Full-Year Highlights
• Total system sales grew 5 percent, including growth of 6 percent at KFC and 3 percent at Pizza Hut Casual Dining, excluding foreign currency translation.
• Opened 575 new restaurants for the full year, or 5 percent net growth, surpassing 7,500 restaurants in China.
• Same-store sales were flat, with an increase of 3 percent at KFC, offset by a decline of 7 percent at Pizza Hut Casual Dining.
• Total restaurant margin increased 2.7 percentage points to 15.3 percent, primarily aided by the impact of retail tax structure reform implemented on May 1, 2016.
• Reported operating profit grew 31 percent, primarily aided by the impact of retail tax structure reform. Foreign currency translation negatively impacted operating profit by $36 million. Excluding foreign currency translation and special items, and Special Items, operating profit grew 37 percent.
Fourth-Quarter Highlights
• Total system sales grew 4 percent, including growth of 4 percent at KFC and 6 percent at Pizza Hut Casual Dining, excluding foreign currency translation.
• Opened 302 new restaurants during the quarter.
• Same-store sales were flat, with an increase of 1 percent at KFC, offset by a decline of 3 percent at Pizza Hut Casual Dining.
• Foreign currency translation negatively impacted operating profit by $5 million.
“For our shareholders, we exceeded our 2016 financial targets in operating profit, restaurant margin and adjusted EBITDA,” Pant said. “We continue to focus on our long-term growth formula: new unit development, same-store sales growth, and continued restaurant margin improvement. Right now, our top priority is consistently delivering positive same-store sales growth. During 2016, we continued to build a foundation for long-term growth with emphasis on product innovation, investments in refurbishing our restaurants, and focus on digital engagement with our customers.”
New leaders named
Yum China also announced Tuesday afternoon that it has appointed Joey Wat as president and COO of Yum China and Johnson Huang as KFC business general manager. Wat was previously CEO of the company’s KFC business and Huang was previously chief information and marketing support officer
Questions & Answers
Q.What factors did the company attribute to its financial success over the last year?
What factors did the company attribute to its financial success over the last year?
Yum China attributed much of its financial success to expansion and new restaurant openings. Same-store sales growth at KFC also contributed positively to the strong performance.
Q.What was the main area of concern mentioned in Yum China's earnings report?
What was the main area of concern mentioned in Yum China's earnings report?
The main area of concern highlighted in the report was the performance of Pizza Hut. Its results were worse than expected, which created the only clouds in an otherwise positive report.
Q.How many new restaurants did Yum China open during the full year and the fourth quarter?
How many new restaurants did Yum China open during the full year and the fourth quarter?
Yum China opened 575 new restaurants for the full year, achieving 5 percent net growth. Also, 302 new restaurants were opened during the fourth quarter alone.
Q.What is Yum China's current top priority for its long-term growth formula?
What is Yum China's current top priority for its long-term growth formula?
The company's top priority is consistently delivering positive same-store sales growth. This forms part of their broader long-term strategy, which also includes new unit development and continued restaurant margin improvement.
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