Total Revenues grew 9%. System Sales grew 1% in constant currency
Opened a record of 524 new stores
Reported $178 million Operating Profit despite Delta variant outbreak, demonstrating resiliency and agility
SHANGHAI, Oct. 28, 2021 /PRNewswire/ -- Yum China Holdings, Inc. (the "Company" or "Yum China") (NYSE: YUMC and HKEX: 9987) today reported unaudited results for the third quarter ended September 30, 2021.
Impact of COVID-19 Outbreak and Mitigation Efforts
As we described in the business update released on September 14, 2021, third quarter results were significantly impacted by the Delta variant outbreak that started in late July. This regional outbreak was the most widely spread wave since the first quarter of 2020. Several major cities were locked down, including Nanjing and Yangzhou, which are key cities for us in eastern China. Zhengzhou and Wuhan, the capital cities of Henan and Hubei provinces, respectively, were also significantly affected. In mid-September, there were also smaller regional outbreaks in Fujian and Heilongjiang provinces, in southeastern and northeastern China, respectively. Strict public health measures were implemented across the country, including the closure of many tourist locations. These actions led to fewer social activities, substantially lower travel volume, and cancelled holiday trips. According to government statistics, the restaurant industry in China was considerably impacted in August with a revenue decline of approximately 10% compared to August 2019. Despite a mild recovery, the restaurant industry's revenue growth of approximately 2% in September compared to 2019 was the slowest since March 2021.
Going into the fourth quarter, strict public health measures remain in effect nationwide. The effects of COVID-19 persist, such as fewer social activities, cautious consumer spending and subdued travel volume. According to government statistics, for the seven-day National Day holiday that started on October 1, the number of travelers was down 2% compared to the same period last year and down 30% versus the corresponding period in 2019. Related travel spending was down 5% compared to 2020 and 40% compared to 2019. With latest regional outbreaks resurging across 12 provinces and rigorous preventative health measures in force across the country, we continue to expect same-store sales recovery to take time. Same-store sales are gradually recovering but remain below the prior year and pre-COVID 2019 levels, since overall dine-in volume as well as traffic at transportation hubs are still significantly impacted. We are focused on driving sales by leveraging our member base and digital channels, launching great food for both dine-in and home consumption and enhancing our hybrid delivery model.
Third Quarter Highlights
Key Financial Results |
|||||||||||||||||
Third Quarter 2021 |
Year to Date Ended 9/30/2021 |
||||||||||||||||
% Change |
% Change |
||||||||||||||||
System |
Same- |
Net New |
Operating |
System |
Same- |
Net New |
Operating |
||||||||||
Yum China |
+1 |
(7) |
+12 |
(68) |
+15 |
+2 |
+12 |
(4) |
|||||||||
KFC |
+1 |
(8) |
+14 |
(31) |
+12 |
- |
+14 |
+27 |
|||||||||
Pizza Hut |
+1 |
(5) |
+10 |
(69) |
+20 |
+11 |
+10 |
+141 |
Third Quarter |
Year to Date Ended 9/30 |
||||||||||||||||||||
(in US$ million, except |
% Change |
% Change |
|||||||||||||||||||
per share data and percentages) |
2021 |
2020 |
Reported |
Ex F/X |
2021 |
2020 |
Reported |
Ex F/X |
|||||||||||||
Operating Profit |
$ |
178 |
$ |
556 |
(68) |
(70) |
$ |
753 |
$ |
781 |
(4) |
(11) |
|||||||||
Adjusted Operating Profit(1) |
$ |
168 |
$ |
320 |
(48) |
(52) |
$ |
750 |
$ |
550 |
+36 |
+26 |
|||||||||
Net Income |
$ |
104 |
$ |
439 |
(76) |
(79) |
$ |
515 |
$ |
633 |
(19) |
(26) |
|||||||||
Adjusted Net Income(1) |
$ |
96 |
$ |
263 |
(63) |
(67) |
$ |
514 |
$ |
462 |
+11 |
+2 |
|||||||||
Basic Earnings Per Common Share |
$ |
0.25 |
$ |
1.13 |
(78) |
(81) |
$ |
1.23 |
$ |
1.67 |
(26) |
(33) |
|||||||||
Adjusted Basic Earnings Per |
|||||||||||||||||||||
Common Share(1) |
$ |
0.23 |
$ |
0.68 |
(66) |
(71) |
$ |
1.22 |
$ |
1.21 |
+1 |
(7) |
|||||||||
Diluted Earnings Per Common Share |
$ |
0.24 |
$ |
1.10 |
(78) |
(81) |
$ |
1.19 |
$ |
1.62 |
(27) |
(33) |
|||||||||
Adjusted Diluted Earnings Per |
|||||||||||||||||||||
Common Share(1) |
$ |
0.22 |
$ |
0.66 |
(67) |
(70) |
$ |
1.18 |
$ |
1.18 |
- |
(8) |
|||||||||
(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 |
CEO and CFO Comments
Joey Wat, CEO of Yum China, commented, "The third quarter was challenging as the regional outbreaks heavily impacted the restaurant industry. I am grateful for our teams who worked nimbly and tirelessly to navigate these adverse conditions. We quickly adjusted operations, strengthened value promotions and product innovation to drive off-premise demand. Our digital channels enabled us to more quickly reach members with targeted promotions. We sustained system sales growth in the third quarter, with new unit openings more than offsetting same-store sales declines. Despite the near-term challenges, we continue to execute on the strategies we outlined in our September investor day to fortify resiliency and accelerate growth. With record openings of 524 new stores during the quarter and after a review of our current pipeline, we now expect to open over 1,700 gross new stores in 2021. We deepened our partnership with Lavazza to accelerate the growth of its footprint in China, aiming to open 1,000 stores by 2025. We are also excited to become a strategic investor in Hangzhou Catering Service Group, which is an important shareholder of the Hangzhou KFC joint venture and was instrumental in making Hangzhou one of our largest markets, to accelerate growth across our brands in Zhejiang province."
Andy Yeung, CFO of Yum China, added, "Our third quarter results are in line with expectations that we indicated in the September business update. We took immediate action to manage costs and leverage technology to drive productivity. Looking ahead, we expect the near-term environment to be challenging. We expect that COVID-19, especially the Delta variant outbreaks, will continue to affect consumer behavior and impact our same-store sales recovery. Keep in mind that fourth quarter is the seasonally lowest quarter for sales and profit margins, so small changes in sales and operations will considerably impact profitability. We expect restaurant margins in the fourth quarter and near-term to be pressured by the significant headwinds in (1) sales deleveraging impact, (2) rising commodity prices, and (3) wage inflation. Against this backdrop, we plan to continue to manage costs and stay agile. We will also continue to invest with discipline in store network expansion, supply chain, and digitalization for sustainable growth."
Dividends and Share Repurchases
Digital and Delivery
KFC and Pizza Hut Total |
Third Quarter |
Year to Date Ended 9/30 |
||||||||||
2021 |
2020 |
2021 |
2020 |
|||||||||
Member count (as of period-end) |
350 million+ |
285 million+ |
350 million+ |
285 million+ |
||||||||
Member sales as % of system sales |
~60% |
~60% |
~61% |
~60% |
||||||||
Delivery as % of Company sales |
~34% |
~28% |
~32% |
~30% |
||||||||
Digital orders as % of Company sales |
~87% |
~78% |
~86% |
~78% |
New-Unit Development and Asset Upgrade
New Units |
Restaurant Count |
|||||||||
Third Quarter |
Year to Date |
As of September 30 |
||||||||
2021 |
Ended 9/30/2021 |
2021 |
2020 |
|||||||
Yum China |
524 |
1,243 |
11,415 |
10,150 |
||||||
KFC |
362 |
895 |
7,908 |
6,925 |
||||||
Pizza Hut |
103 |
211 |
2,503 |
2,277 |
||||||
Others(2) |
59 |
137 |
1,004 |
948 |
||||||
(2) Others include Taco Bell, Little Sheep, Huang Ji Huang, East Dawning, COFFii & JOY and Lavazza. |
Restaurant Margin
Third Quarter |
Year to Date Ended 9/30 |
|||||||||||||
2021 |
2020 |
ppts change |
2021 |
2020 |
ppts change |
|||||||||
Yum China |
12.2% |
18.6% |
(6.4) |
15.6% |
14.7% |
+0.9 |
||||||||
KFC |
13.6% |
19.4% |
(5.8) |
16.8% |
16.2% |
+0.6 |
||||||||
Pizza Hut |
8.2% |
16.7% |
(8.5) |
12.2% |
10.6% |
+1.6 |
2021 Outlook
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 8:00 p.m. U.S. Eastern Time on Wednesday, October 27, 2021 (8:00 a.m. Beijing/Hong Kong Time on Thursday, October 28, 2021).
A live webcast of the call may be accessed at https://edge.media-server.com/mmc/p/5tbn4t8f.
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.
Pre-registration Link: http://apac.directeventreg.com/registration/event/5193096
Conference ID: 5193096
A replay of the conference call will be available two hours after the call ends until 9:00 a.m. U.S. Eastern Time on Thursday, November 4, 2021 (9:00 p.m. Beijing/Hong Kong Time on Thursday, November 4, 2021) and may be accessed by phone at the following numbers:
U.S.: 1 855 452 5696
Mainland China: 400 602 2065 or 800 870 0206
Hong Kong: +852 3051 2780
U.K.: 0808 234 0072
International: +61 2 8199 0299
Replay access code: 5193096
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 "2021 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, 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 closing of the Hangzhou Catering investment, 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 11,415 restaurants in over 1,600 cities at the end of September 2021. Yum China ranked # 363 on the Fortune 500 list and was named to TIME100 Most Influential Companies list in 2021. Yum China has been named the Industry Leader for the Restaurant & Leisure Facilities Industry in the 2020 Dow Jones Sustainability Indices. In 2021, Yum China was named to the Bloomberg Gender-Equality Index and was certified as a Top Employer 2021 in China by the Top Employers Institute, both for the third consecutive year. For more information, please visit http://ir.yumchina.com.
Investor Relations Contact: |
||
Tel: +86 21 2407 7556 / +852 2267 5801
|
||
Media Contact: |
||
Tel: +86 21 2407 7510 |
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 |
|||||||||||
9/30/2021 |
9/30/2020 |
B/(W) |
9/30/2021 |
9/30/2020 |
B/(W) |
|||||||||
Revenues |
||||||||||||||
Company sales |
$ 2,310 |
$ 2,118 |
9 |
$ 6,874 |
$ 5,358 |
28 |
||||||||
Franchise fees and income |
40 |
40 |
— |
120 |
112 |
7 |
||||||||
Revenues from transactions with |
184 |
170 |
8 |
519 |
488 |
7 |
||||||||
Other revenues |
20 |
20 |
2 |
49 |
46 |
7 |
||||||||
Total revenues |
2,554 |
2,348 |
9 |
7,562 |
6,004 |
26 |
||||||||
Costs and Expenses, Net |
||||||||||||||
Company restaurants |
||||||||||||||
Food and paper |
743 |
660 |
(13) |
2,133 |
1,711 |
(25) |
||||||||
Payroll and employee benefits |
591 |
458 |
(29) |
1,675 |
1,236 |
(35) |
||||||||
Occupancy and other operating expenses |
694 |
606 |
(15) |
1,995 |
1,621 |
(23) |
||||||||
Company restaurant expenses |
2,028 |
1,724 |
(18) |
5,803 |
4,568 |
(27) |
||||||||
General and administrative expenses |
142 |
127 |
(13) |
408 |
339 |
(21) |
||||||||
Franchise expenses |
17 |
17 |
(1) |
50 |
50 |
2 |
||||||||
Expenses for transactions with |
180 |
164 |
(9) |
509 |
480 |
(6) |
||||||||
Other operating costs and expenses |
17 |
15 |
(16) |
41 |
38 |
(9) |
||||||||
Closures and impairment expenses, net |
2 |
1 |
(62) |
13 |
30 |
57 |
||||||||
Other income, net |
(10) |
(256) |
(96) |
(15) |
(282) |
(95) |
||||||||
Total costs and expenses, net |
2,376 |
1,792 |
(33) |
6,809 |
5,223 |
(30) |
||||||||
Operating Profit |
178 |
556 |
(68) |
753 |
781 |
(4) |
||||||||
Interest income, net |
16 |
11 |
58 |
47 |
28 |
69 |
||||||||
Investment (loss) gain |
(39) |
38 |
NM |
(43) |
75 |
NM |
||||||||
Income Before Income Taxes |
155 |
605 |
(74) |
757 |
884 |
(14) |
||||||||
Income tax provision |
(44) |
(155) |
72 |
(210) |
(232) |
10 |
||||||||
Net income – including noncontrolling interests |
111 |
450 |
(75) |
547 |
652 |
(16) |
||||||||
Net income – noncontrolling interests |
7 |
11 |
31 |
32 |
19 |
(73) |
||||||||
Net Income – Yum China Holdings, Inc. |
$ 104 |
$ 439 |
(76) |
$ 515 |
$ 633 |
(19) |
||||||||
Effective tax rate |
28.3% |
25.6% |
(2.7) |
ppts. |
27.7% |
26.3% |
(1.4) |
ppts. |
||||||
Basic Earnings Per Common Share |
$ 0.25 |
$ 1.13 |
$ 1.23 |
$ 1.67 |
||||||||||
Weighted-average shares outstanding |
422 |
387 |
421 |
380 |
||||||||||
Diluted Earnings Per Common Share |
$ 0.24 |
$ 1.10 |
$ 1.19 |
$ 1.62 |
||||||||||
Weighted-average shares outstanding |
435 |
400 |
435 |
391 |
||||||||||
Cash Dividends Declared Per Common Share |
$ 0.12 |
$ - |
$ 0.36 |
$ 0.12 |
||||||||||
Company sales |
100.0% |
100.0% |
100.0% |
100.0% |
||||||||||
Food and paper |
32.2 |
31.2 |
(1.0) |
ppts. |
31.0 |
31.9 |
0.9 |
ppts. |
||||||
Payroll and employee benefits |
25.6 |
21.6 |
(4.0) |
ppts. |
24.4 |
23.1 |
(1.3) |
ppts. |
||||||
Occupancy and other operating expenses |
30.0 |
28.6 |
(1.4) |
ppts. |
29.0 |
30.3 |
1.3 |
ppts. |
||||||
Restaurant margin |
12.2% |
18.6% |
(6.4) |
ppts. |
15.6% |
14.7% |
0.9 |
ppts. |
||||||
Operating margin |
7.7% |
26.2% |
(18.5) |
ppts. |
11.0% |
14.6% |
(3.6) |
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 |
|||||||||||
9/30/2021 |
9/30/2020 |
B/(W) |
9/30/2021 |
9/30/2020 |
B/(W) |
|||||||||
Revenues |
||||||||||||||
Company sales |
$ 1,750 |
$ 1,597 |
10 |
$ 5,220 |
$ 4,077 |
28 |
||||||||
Franchise fees and income |
32 |
32 |
— |
95 |
97 |
(2) |
||||||||
Revenues from transactions with |
17 |
16 |
1 |
46 |
47 |
(3) |
||||||||
Other revenues |
2 |
1 |
NM |
6 |
1 |
NM |
||||||||
Total revenues |
1,801 |
1,646 |
9 |
5,367 |
4,222 |
27 |
||||||||
Costs and Expenses, Net |
||||||||||||||
Company restaurants |
||||||||||||||
Food and paper |
567 |
504 |
(12) |
1,629 |
1,315 |
(24) |
||||||||
Payroll and employee benefits |
425 |
330 |
(29) |
1,214 |
888 |
(37) |
||||||||
Occupancy and other operating expenses |
520 |
453 |
(15) |
1,500 |
1,215 |
(23) |
||||||||
Company restaurant expenses |
1,512 |
1,287 |
(17) |
4,343 |
3,418 |
(27) |
||||||||
General and administrative expenses |
62 |
50 |
(25) |
175 |
138 |
(27) |
||||||||
Franchise expenses |
16 |
16 |
2 |
47 |
48 |
2 |
||||||||
Expenses for transactions with |
16 |
16 |
1 |
45 |
47 |
5 |
||||||||
Other operating costs and expenses |
2 |
— |
NM |
3 |
— |
NM |
||||||||
Closures and impairment expenses, net |
1 |
1 |
NM |
7 |
12 |
33 |
||||||||
Other income, net |
(4) |
(10) |
(65) |
(16) |
(39) |
(60) |
||||||||
Total costs and expenses, net |
1,605 |
1,360 |
(18) |
4,604 |
3,624 |
(27) |
||||||||
Operating Profit |
$ 196 |
$ 286 |
(31) |
$ 763 |
$ 598 |
27 |
||||||||
Company sales |
100.0% |
100.0% |
100.0% |
100.0% |
||||||||||
Food and paper |
32.4 |
31.6 |
(0.8) |
ppts. |
31.2 |
32.3 |
1.1 |
ppts. |
||||||
Payroll and employee benefits |
24.3 |
20.7 |
(3.6) |
ppts. |
23.3 |
21.8 |
(1.5) |
ppts. |
||||||
Occupancy and other operating expenses |
29.7 |
28.3 |
(1.4) |
ppts. |
28.7 |
29.7 |
1.0 |
ppts. |
||||||
Restaurant margin |
13.6% |
19.4% |
(5.8) |
ppts. |
16.8% |
16.2% |
0.6 |
ppts. |
||||||
Operating margin |
11.2% |
17.9% |
(6.7) |
ppts. |
14.6% |
14.7% |
(0.1) |
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 |
|||||||||||
9/30/2021 |
9/30/2020 |
B/(W) |
9/30/2021 |
9/30/2020 |
B/(W) |
|||||||||
Revenues |
||||||||||||||
Company sales |
$ 546 |
$ 508 |
7 |
$ 1,617 |
$ 1,252 |
29 |
||||||||
Franchise fees and income |
2 |
2 |
20 |
6 |
4 |
41 |
||||||||
Revenues from transactions with |
2 |
1 |
55 |
5 |
3 |
72 |
||||||||
Other revenues |
1 |
— |
NM |
2 |
— |
NM |
||||||||
Total revenues |
551 |
511 |
8 |
1,630 |
1,259 |
29 |
||||||||
Costs and Expenses, Net |
||||||||||||||
Company restaurants |
||||||||||||||
Food and paper |
173 |
152 |
(13) |
493 |
388 |
(27) |
||||||||
Payroll and employee benefits |
161 |
124 |
(29) |
450 |
339 |
(32) |
||||||||
Occupancy and other operating expenses |
168 |
148 |
(14) |
478 |
393 |
(22) |
||||||||
Company restaurant expenses |
502 |
424 |
(18) |
1,421 |
1,120 |
(27) |
||||||||
General and administrative expenses |
27 |
24 |
(14) |
80 |
71 |
(13) |
||||||||
Franchise expenses |
1 |
1 |
(29) |
3 |
2 |
(33) |
||||||||
Expenses for transactions with |
2 |
1 |
(46) |
5 |
3 |
(63) |
||||||||
Other operating costs and expenses |
1 |
— |
NM |
1 |
— |
(12) |
||||||||
Closures and impairment expenses, net |
— |
— |
NM |
3 |
15 |
81 |
||||||||
Total costs and expenses, net |
533 |
450 |
(18) |
1,513 |
1,211 |
(25) |
||||||||
Operating Profit |
$ 18 |
$ 61 |
(69) |
$ 117 |
$ 48 |
141 |
||||||||
Company sales |
100.0% |
100.0% |
100.0% |
100.0% |
||||||||||
Food and paper |
31.5 |
29.8 |
(1.7) |
ppts. |
30.5 |
31.0 |
0.5 |
ppts. |
||||||
Payroll and employee benefits |
29.5 |
24.6 |
(4.9) |
ppts. |
27.8 |
27.1 |
(0.7) |
ppts. |
||||||
Occupancy and other operating expenses |
30.8 |
28.9 |
(1.9) |
ppts. |
29.5 |
31.3 |
1.8 |
ppts. |
||||||
Restaurant margin |
8.2% |
16.7% |
(8.5) |
ppts. |
12.2% |
10.6% |
1.6 |
ppts. |
||||||
Operating margin |
3.5% |
12.0% |
(8.5) |
ppts. |
7.2% |
3.9% |
3.3 |
ppts. |
||||||
Percentages may not recompute due to rounding. NM refers to not meaningful. |
Yum China Holdings, Inc. |
||||
Condensed Consolidated Balance Sheets |
||||
(in US$ million) |
||||
9/30/2021 |
12/31/2020 |
|||
(Unaudited) |
||||
ASSETS |
||||
Current Assets |
||||
Cash and cash equivalents |
$ 1,278 |
$ 1,158 |
||
Short-term investments |
3,099 |
3,105 |
||
Accounts receivable, net |
97 |
99 |
||
Inventories, net |
390 |
398 |
||
Prepaid expenses and other current assets |
218 |
176 |
||
Total Current Assets |
5,082 |
4,936 |
||
Property, plant and equipment, net |
1,910 |
1,765 |
||
Operating lease right-of-use assets |
2,287 |
2,164 |
||
Goodwill |
858 |
832 |
||
Intangible assets, net |
218 |
246 |
||
Deferred income tax assets |
68 |
98 |
||
Investments in unconsolidated affiliates |
309 |
85 |
||
Other assets |
774 |
749 |
||
Total Assets |
11,506 |
10,875 |
||
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY |
||||
Current Liabilities |
||||
Accounts payable and other current liabilities |
2,126 |
1,995 |
||
Income taxes payable |
68 |
72 |
||
Total Current Liabilities |
2,194 |
2,067 |
||
Non-current operating lease liabilities |
2,014 |
1,915 |
||
Non-current finance lease obligations |
34 |
28 |
||
Deferred income tax liabilities |
217 |
227 |
||
Other liabilities |
170 |
167 |
||
Total Liabilities |
4,629 |
4,404 |
||
Redeemable Noncontrolling Interest |
12 |
12 |
||
Equity |
||||
Common stock, $0.01 par value; 1,000 million shares authorized; 444 million shares and |
4 |
4 |
||
Treasury stock |
(762) |
(728) |
||
Additional paid-in capital |
4,685 |
4,658 |
||
Retained earnings |
2,468 |
2,105 |
||
Accumulated other comprehensive income |
213 |
167 |
||
Total Yum China Holdings, Inc. Stockholders' Equity |
6,608 |
6,206 |
||
Noncontrolling interests |
257 |
253 |
||
Total Equity |
6,865 |
6,459 |
||
Total Liabilities, Redeemable Noncontrolling Interest and Equity |
$ 11,506 |
$ 10,875 |
Yum China Holdings, Inc. |
||||||
Condensed Consolidated Statements of Cash Flows |
||||||
(in US$ million) |
||||||
(unaudited) |
||||||
Year to Date Ended |
||||||
9/30/2021 |
9/30/2020 |
|||||
Cash Flows – Operating Activities |
||||||
Net income – including noncontrolling interests |
$ 547 |
$ 652 |
||||
Depreciation and amortization |
380 |
327 |
||||
Non-cash operating lease cost |
310 |
270 |
||||
Closures and impairment expenses |
13 |
30 |
||||
Gain from re-measurement of previously held equity interest |
(10) |
(239) |
||||
Investment loss (gain) |
43 |
(75) |
||||
Equity income from investments in unconsolidated affiliates |
(38) |
(51) |
||||
Distributions of income received from unconsolidated affiliates |
21 |
25 |
||||
Deferred income taxes |
17 |
73 |
||||
Share-based compensation expense |
32 |
27 |
||||
Changes in accounts receivable |
2 |
(19) |
||||
Changes in inventories |
13 |
52 |
||||
Changes in prepaid expenses and other current assets |
— |
31 |
||||
Changes in accounts payable and other current liabilities |
82 |
56 |
||||
Changes in income taxes payable |
(5) |
62 |
||||
Changes in non-current operating lease liabilities |
(309) |
(292) |
||||
Other, net |
(24) |
(30) |
||||
Net Cash Provided by Operating Activities |
1,074 |
899 |
||||
Cash Flows – Investing Activities |
||||||
Capital spending |
(482) |
(284) |
||||
Purchases of short-term investments |
(4,524) |
(2,859) |
||||
Purchases of long-term time deposits |
(25) |
(57) |
||||
Maturities of short-term investments |
4,544 |
1,066 |
||||
Contribution to unconsolidated affiliates |
— |
(17) |
||||
Acquisition of business, net of cash acquired |
— |
(288) |
||||
Investment in equity securities |
(261) |
— |
||||
Disposal of equity securities |
— |
54 |
||||
Other, net |
5 |
52 |
||||
Net Cash Used in Investing Activities |
(743) |
(2,333) |
||||
Cash Flows – Financing Activities |
||||||
Common stock issuance proceeds, net of issuance costs |
— |
2,203 |
||||
Repurchase of shares of common stock |
(32) |
(8) |
||||
Cash dividends paid on common stock |
(152) |
(45) |
||||
Dividends paid to noncontrolling interests |
(22) |
(7) |
||||
Payment of acquisition related holdback |
(8) |
— |
||||
Other, net |
(6) |
1 |
||||
Net Cash (Used in) Provided by Financing Activities |
(220) |
2,144 |
||||
Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash |
9 |
17 |
||||
Net Increase in Cash, Cash Equivalents and Restricted Cash |
120 |
727 |
||||
Cash, Cash Equivalents, and Restricted Cash - Beginning of Period |
1,158 |
1,055 |
||||
Cash, Cash Equivalents, and Restricted Cash - End of Period |
$ 1,278 |
$ 1,782 |
In this press release:
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.
Quarter Ended |
Year to Date Ended |
|||||||
9/30/2021 |
9/30/2020 |
9/30/2021 |
9/30/2020 |
|||||
Non-GAAP Reconciliations |
||||||||
Reconciliation of Operating Profit to Adjusted Operating Profit |
||||||||
Operating Profit |
$ 178 |
$ 556 |
$ 753 |
$ 781 |
||||
Special Items, Operating Profit |
10 |
236 |
3 |
231 |
||||
Adjusted Operating Profit |
$ 168 |
$ 320 |
$ 750 |
$ 550 |
||||
Reconciliation of Net Income to Adjusted Net Income |
||||||||
Net Income – Yum China Holdings, Inc. |
$ 104 |
$ 439 |
$ 515 |
$ 633 |
||||
Special Items, Net Income –Yum China Holdings, Inc. |
8 |
176 |
1 |
171 |
||||
Adjusted Net Income – Yum China Holdings, Inc. |
$ 96 |
$ 263 |
$ 514 |
$ 462 |
||||
Reconciliation of EPS to Adjusted EPS |
||||||||
Basic Earnings Per Common Share |
$ 0.25 |
$ 1.13 |
$ 1.23 |
$ 1.67 |
||||
Special Items, Basic Earnings Per Common Share |
0.02 |
0.45 |
0.01 |
0.46 |
||||
Adjusted Basic Earnings Per Common Share |
$ 0.23 |
$ 0.68 |
$ 1.22 |
$ 1.21 |
||||
Diluted Earnings Per Common Share |
$ 0.24 |
$ 1.10 |
$ 1.19 |
$ 1.62 |
||||
Special Items, Diluted Earnings Per Common Share |
0.02 |
0.44 |
0.01 |
0.44 |
||||
Adjusted Diluted Earnings Per Common Share |
$ 0.22 |
$ 0.66 |
$ 1.18 |
$ 1.18 |
||||
Reconciliation of Effective Tax Rate to Adjusted Effective Tax Rate |
||||||||
Effective tax rate |
28.3% |
25.6% |
27.7% |
26.3% |
||||
Impact on effective tax rate as a result of Special Items |
(0.5)% |
(0.1)% |
0.1% |
(0.1)% |
||||
Adjusted effective tax rate |
28.8% |
25.7% |
27.6% |
26.4% |
Net income, along with the reconciliation to Adjusted EBITDA, is presented below:
Quarter Ended |
Year to Date Ended |
|||||||
9/30/2021 |
9/30/2020 |
9/30/2021 |
9/30/2020 |
|||||
Reconciliation of Net Income to Adjusted EBITDA |
||||||||
Net Income – Yum China Holdings, Inc. |
$ 104 |
$ 439 |
$ 515 |
$ 633 |
||||
Net income – noncontrolling interests |
7 |
11 |
32 |
19 |
||||
Income tax provision |
44 |
155 |
210 |
232 |
||||
Interest income, net |
(16) |
(11) |
(47) |
(28) |
||||
Investment loss (gain) |
39 |
(38) |
43 |
(75) |
||||
Operating Profit |
178 |
556 |
753 |
781 |
||||
Special Items, Operating Profit |
(10) |
(236) |
(3) |
(231) |
||||
Adjusted Operating Profit |
168 |
320 |
750 |
550 |
||||
Depreciation and amortization |
128 |
113 |
380 |
327 |
||||
Store impairment charges |
4 |
3 |
23 |
39 |
||||
Adjusted EBITDA |
$ 300 |
$ 436 |
$ 1,153 |
$ 916 |
Details of Special Items are presented below:
Quarter Ended |
Year to Date Ended |
|||||||
9/30/2021 |
9/30/2020 |
9/30/2021 |
9/30/2020 |
|||||
Gains from re-measurement of previously held equity interest(1) |
$ 10 |
$ 239 |
$ 10 |
$ 239 |
||||
Share-based compensation expense for Partner PSU awards(2) |
— |
(3) |
(7) |
(5) |
||||
Derecognition of indemnification assets related to Daojia(3) |
— |
— |
— |
(3) |
||||
Special Items, Operating Profit |
10 |
236 |
3 |
231 |
||||
Tax effect on Special Items(4) |
(2) |
(60) |
(2) |
(60) |
||||
Special Items, net income – including noncontrolling interests |
8 |
176 |
1 |
171 |
||||
Special Items, net income – noncontrolling interests |
— |
— |
— |
— |
||||
Special Items, Net Income –Yum China Holdings, Inc. |
$ 8 |
$ 176 |
$ 1 |
$ 171 |
||||
Weighted-average Diluted Shares Outstanding (in millions) |
435 |
400 |
435 |
391 |
||||
Special Items, Diluted Earnings Per Common Share |
$ 0.02 |
$ 0.44 |
$ 0.01 |
$ 0.44 |
(1) In the quarters ended September 30, 2021 and 2020, as a result of the consolidation of the Lavazza joint venture and Suzhou KFC, the |
(2) In February 2020, the Company granted Partner PSU Awards to select employees who were deemed critical to the Company's |
(3) In the quarter ended June 30, 2020, the Company derecognized a $3 million indemnification asset previously recorded for the |
(4) 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 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 |
||||||||||||||||
12/31/2020 |
New Builds |
Closures |
Refranchised |
Acquired |
9/30/2021 |
|||||||||||
Company-owned |
5,872 |
706 |
(130) |
(2) |
4 |
6,450 |
||||||||||
Unconsolidated affiliates |
677 |
93 |
(8) |
— |
— |
762 |
||||||||||
Franchisees |
617 |
96 |
(15) |
2 |
(4) |
696 |
||||||||||
Total |
7,166 |
895 |
(153) |
— |
— |
7,908 |
||||||||||
Pizza Hut |
||||||||||||||||
12/31/2020 |
New Builds |
Closures |
9/30/2021 |
|||||||||||||
Company-owned |
2,230 |
199 |
(60) |
2,369 |
||||||||||||
Franchisees |
125 |
12 |
(3) |
134 |
||||||||||||
Total |
2,355 |
211 |
(63) |
2,503 |
||||||||||||
Others |
||||||||||||||||
12/31/2020 |
New Builds |
Closures |
Other(1) |
9/30/2021 |
||||||||||||
Company-owned |
88 |
20 |
(11) |
22 |
119 |
|||||||||||
Unconsolidated affiliates |
4 |
18 |
— |
(22) |
— |
|||||||||||
Franchisees |
893 |
99 |
(107) |
— |
885 |
|||||||||||
Total |
985 |
137 |
(118) |
— |
1,004 |
(1) As a result of the consolidation of the Lavazza joint venture in September 2021, the restaurant units of Lavazza were transferred from unconsolidated affiliates to Company-owned.
Yum China Holdings, Inc. |
||||||||||||
Segment Results |
||||||||||||
(in US$ million) |
||||||||||||
(unaudited) |
||||||||||||
Quarter Ended 9/30/2021 |
KFC |
Pizza Hut |
All Other |
Corporate |
Elimination |
Total |
||||||
Company sales |
$ 1,750 |
$ 546 |
$ 14 |
$ — |
$ — |
$ 2,310 |
||||||
Franchise fees and income |
32 |
2 |
6 |
— |
— |
40 |
||||||
Revenues from transactions with |
17 |
2 |
26 |
139 |
— |
184 |
||||||
Other revenues |
2 |
1 |
88 |
7 |
(78) |
20 |
||||||
Total revenues |
$ 1,801 |
$ 551 |
$ 134 |
$ 146 |
$ (78) |
$ 2,554 |
||||||
Company restaurant expenses |
1,512 |
502 |
14 |
— |
— |
2,028 |
||||||
General and administrative expenses |
62 |
27 |
11 |
42 |
— |
142 |
||||||
Franchise expenses |
16 |
1 |
— |
— |
— |
17 |
||||||
Expenses for transactions with |
16 |
2 |
24 |
138 |
— |
180 |
||||||
Other operating costs and expenses |
2 |
1 |
87 |
5 |
(78) |
17 |
||||||
Closures and impairment expenses, net |
1 |
— |
1 |
— |
— |
2 |
||||||
Other (income) expenses, net |
(4) |
— |
3 |
(9) |
— |
(10) |
||||||
Total costs and expenses, net |
1,605 |
533 |
140 |
176 |
(78) |
2,376 |
||||||
Operating Profit (Loss) |
$ 196 |
$ 18 |
$ (6) |
$ (30) |
$ — |
$ 178 |
||||||
Quarter Ended 9/30/2020 |
KFC |
Pizza Hut |
All Other |
Corporate |
Elimination |
Total |
||||||
Company sales |
$ 1,597 |
$ 508 |
$ 13 |
$ — |
$ — |
$ 2,118 |
||||||
Franchise fees and income |
32 |
2 |
6 |
— |
— |
40 |
||||||
Revenues from transactions with |
16 |
1 |
18 |
135 |
— |
170 |
||||||
Other revenues |
1 |
— |
36 |
2 |
(19) |
20 |
||||||
Total revenues |
$ 1,646 |
$ 511 |
$ 73 |
$ 137 |
$ (19) |
$ 2,348 |
||||||
Company restaurant expenses |
1,287 |
424 |
13 |
— |
— |
1,724 |
||||||
General and administrative expenses |
50 |
24 |
11 |
42 |
— |
127 |
||||||
Franchise expenses |
16 |
1 |
— |
— |
— |
17 |
||||||
Expenses for transactions with |
16 |
1 |
13 |
134 |
— |
164 |
||||||
Other operating costs and expenses |
— |
— |
33 |
1 |
(19) |
15 |
||||||
Closures and impairment expenses, net |
1 |
— |
— |
— |
— |
1 |
||||||
Other (income) expenses, net |
(10) |
— |
1 |
(247) |
— |
(256) |
||||||
Total costs and expenses, net |
1,360 |
450 |
71 |
(70) |
(19) |
1,792 |
||||||
Operating Profit |
$ 286 |
$ 61 |
$ 2 |
$ 207 |
$ — |
$ 556 |
||||||
Year to Date Ended 9/30/2021 |
KFC |
Pizza Hut |
All Other |
Corporate |
Elimination |
Total |
||||||
Company sales |
$ 5,220 |
$ 1,617 |
$ 37 |
$ — |
$ — |
$ 6,874 |
||||||
Franchise fees and income |
95 |
6 |
19 |
— |
— |
120 |
||||||
Revenues from transactions with |
46 |
5 |
75 |
393 |
— |
519 |
||||||
Other revenues |
6 |
2 |
187 |
11 |
(157) |
49 |
||||||
Total revenues |
$ 5,367 |
$ 1,630 |
$ 318 |
$ 404 |
$ (157) |
$ 7,562 |
||||||
Company restaurant expenses |
4,343 |
1,421 |
40 |
— |
(1) |
5,803 |
||||||
General and administrative expenses |
175 |
80 |
30 |
123 |
— |
408 |
||||||
Franchise expenses |
47 |
3 |
— |
— |
— |
50 |
||||||
Expenses for transactions with |
45 |
5 |
69 |
390 |
— |
509 |
||||||
Other operating costs and expenses |
3 |
1 |
183 |
10 |
(156) |
41 |
||||||
Closures and impairment expenses, net |
7 |
3 |
3 |
— |
— |
13 |
||||||
Other (income) expenses, net |
(16) |
— |
8 |
(7) |
— |
(15) |
||||||
Total costs and expenses, net |
4,604 |
1,513 |
333 |
516 |
(157) |
6,809 |
||||||
Operating Profit (Loss) |
$ 763 |
$ 117 |
$ (15) |
$ (112) |
$ — |
$ 753 |
||||||
Year to Date Ended 9/30/2020 |
KFC |
Pizza Hut |
All Other |
Corporate |
Elimination |
Total |
||||||
Company sales |
$ 4,077 |
$ 1,252 |
$ 29 |
$ — |
$ — |
$ 5,358 |
||||||
Franchise fees and income |
97 |
4 |
11 |
— |
— |
112 |
||||||
Revenues from transactions with |
47 |
3 |
34 |
404 |
— |
488 |
||||||
Other revenues |
1 |
— |
77 |
4 |
(36) |
46 |
||||||
Total revenues |
$ 4,222 |
$ 1,259 |
$ 151 |
$ 408 |
$ (36) |
$ 6,004 |
||||||
Company restaurant expenses |
3,418 |
1,120 |
32 |
— |
(2) |
4,568 |
||||||
General and administrative expenses |
138 |
71 |
30 |
100 |
— |
339 |
||||||
Franchise expenses |
48 |
2 |
— |
— |
— |
50 |
||||||
Expenses for transactions with |
47 |
3 |
26 |
404 |
— |
480 |
||||||
Other operating costs and expenses |
— |
— |
69 |
3 |
(34) |
38 |
||||||
Closures and impairment expenses, net |
12 |
15 |
3 |
— |
— |
30 |
||||||
Other (income) expenses, net |
(39) |
— |
1 |
(244) |
— |
(282) |
||||||
Total costs and expenses, net |
3,624 |
1,211 |
161 |
263 |
(36) |
5,223 |
||||||
Operating Profit (Loss) |
$ 598 |
$ 48 |
$ (10) |
$ 145 |
$ — |
$ 781 |
||||||
The above tables reconcile segment information, which is based on management responsibility, with our Condensed Consolidated |
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(1) Amounts have not been allocated to any segment for purpose of making operating decision or assessing financial performance as |
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(2) Primarily included revenues and associated expenses of transactions with franchisees and unconsolidated affiliates derived from |
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