omniture

Yum China Reports First Quarter Results

System Sales Up 6%, Diluted EPS Up 4%, or 10% Excluding F/X
Operating Profit Reaches $374 million with Core Operating Profit1 Growing to $396 million
Total Stores Have Surpassed Milestone of 15,000 with Record First Quarter Openings of 378 Net New Stores 
Record Quarterly Cash Return to Shareholders of $745 million

SHANGHAI, April 30, 2024 /PRNewswire/ -- Yum China Holdings, Inc. (the "Company" or "Yum China") (NYSE: YUMC and HKEX: 9987) today reported unaudited results for the first quarter ended March 31, 2024.

 First Quarter Highlights

  • Total system sales grew 6% year over year ("YoY") excluding foreign currency translation ("F/X"), primarily attributable to 8% net new unit contribution.2
  • Total store count reached 15,022 as of March 31, 2024, including 10,603 KFC stores and 3,425 Pizza Hut stores. The Company opened 378 net new stores in the quarter, a record for the first quarter.
  • Total revenues increased 1% YoY to $2.96 billion. Excluding F/X, total revenues would have been $154 million higher, or 7% increase YoY.
  • Same-store sales reached 97% of the prior year's level, against strong performance in the same period last year.
  • Operating profit was $374 million. Excluding F/X, operating profit would have been $22 million higher. Core operating profit grew 1% YoY to $396 million.
  • Operating profit as a percentage of total revenues ("OP Margin") was 12.6%. Savings in G&A partially offset the lower Restaurant margin, which was 17.6% in the quarter.
  • Diluted EPS increased 4% YoY to $0.71, up 10% YoY excluding F/X.
  • Delivery sales grew 12% YoY and contributed approximately 38% of KFC and Pizza Hut's Company sales. Digital sales3 reached $2.5 billion, with digital ordering accounted for approximately 89% of total Company sales.
  • Total membership of KFC and Pizza Hut reached 485 million. Member sales accounted for approximately 65% of KFC and Pizza Hut's system sales in aggregate.
  • Yum China returned approximately $745 million to shareholders in the first quarter through share repurchases and cash dividends, the highest quarterly return in the Company's history.

CEO Comments 

Joey Wat, CEO of Yum China, commented, "We achieved solid sales growth in the first quarter with total revenues hitting an all-time high. Our core operating profit grew modestly from last year's high base and EPS was up double digits excluding foreign currency. Meanwhile, we are marching forward with our expansion initiatives in a disciplined manner, bringing our total store count to a milestone of 15,000 stores. Besides investing in our organic growth, we boosted capital returns to shareholders to a new record level. Remaining agile, we are continuously learning and innovating to embrace new consumer trends in changing market conditions. Our amazing high-ticket products, such as our KFC beef burger and whole chicken, grew by double digits in the quarter. Our six-year old iconic Crazy Thursday campaign and limited-time-offer of all-you-can-eat at Pizza Hut continue to excite customers and drive incremental traffic. By optimizing delivery strategies, KFC expanded its market share on the aggregator platforms and drove double-digit growth in delivery sales. At the same time, our relentless pursuit of greater operational efficiency from store to supply chain further fortifies our resilience. This has empowered us to pass on savings to our customers and other stakeholders." 

Wat continued, "Operating under a near-term challenging environment, we will remain laser-focused on understanding and capturing the evolving needs of consumers to continually connect with them. Looking toward the future, we are absolutely confident in seizing China's vast opportunities. We are expanding addressable market through a multifaceted approach with flexible store formats, strategic franchising and a range of exciting products across price points. With these actions underway, we believe we are well-poised to sustain strong growth and create long-term value for our shareholders."

1Core operating profit is defined as Operating profit adjusted for Special Items, further excluding Items Affecting Comparability and the impact of F/X. The Company uses Core operating profit for the purposes of evaluating the performance of its core operations. Please refer to "Reconciliation of Reported GAAP Results to Non-GAAP Measures" included in the accompanying tables of this release for further details.

2 Net new unit contribution refers to sales contribution from net new stores.

3 Digital sales refer to sales at Company-owned stores where orderings were placed digitally.

 

Key Financial Results




First Quarter







% Change



2024


2023


Reported


Ex F/X


System Sales Growth (4) (%)

6


17


NM


NM


Same-Store Sales Growth (4) (%)

(3)


8


NM


NM


Operating Profit ($mn)

374


416


(10)


(5)


Adjusted Operating Profit (5) ($mn)

374


419


(11)


(6)


Core Operating Profit (5) (6) ($mn)

396


392


NM


+1


OP Margin (%)

12.6


14.3


(1.7)


(1.7)


Core OP Margin (5) (7) (%)

12.7


13.5


NM


(0.8)


Net Income ($mn)

287


289


(1)


+5


Adjusted Net Income (5) ($mn)

287


292


(2)


+4


Diluted Earnings Per Common Share ($)

0.71


0.68


+4


+10


 Adjusted Diluted Earnings Per Common Share (5) ($)

0.71


0.69


+3


+9











4 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.

5 See "Reconciliation of Reported GAAP Results to non-GAAP Measures" included in the accompanying tables
of this release for further details.

6 Current period amounts are derived by translating results at average exchange rates of the prior year period.

7 Core OP margin refers to core operating profit as a percentage of total revenues excluding F/X.

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

Percentages may not recompute due to rounding. 

NM refers to not meaningful.

 

KFC

















First Quarter






%/ppts Change


2024


2023


Reported


Ex F/X

Restaurants

10,603


9,239


+15


NM

System Sales Growth (%)

7


17


NM


NM

Same-Store Sales Growth (%)

(2)


8


NM


NM

Total Revenues ($mn)

2,230


2,198


+1


+7

Operating Profit ($mn)

372


420


(11)


(7)

Core Operating Profit ($mn)

392


396


NM


(1)

Restaurant Margin (%)

19.3


22.2


(2.9)


(2.9)

 

  • System sales for KFC grew 7% YoY for the quarter, primarily driven by net new unit contribution of 8%.
  • KFC opened 307 net new stores during the quarter, more than double the net new stores opened in the prior year period. This includes 58 net new stores opened by franchisees.
  • Operating profit was $372 million and Core operating profit was $392 million for the quarter.
  • Restaurant margin was 19.3% for the quarter. Excluding Items Affecting Comparability at the restaurant level, restaurant margin decreased 190 basis points versus strong comparison a year ago, primarily due to increased value-for-money offerings to drive traffic and wage inflation, partially offset by favorable commodity prices.
  • Delivery sales grew 14% and contributed approximately 39% of KFC's Company sales for the quarter. Off-premise dining accounted for approximately 68% of KFC's Company sales.

 

Pizza Hut

















First Quarter






%/ppts Change


2024


2023


Reported


Ex F/X

Restaurants

3,425


2,983


+15


NM

System Sales Growth (%)

4


17


NM


NM

Same-Store Sales Growth (%)

(5)


7


NM


NM

Total Revenues ($mn)

595


597


-


+5

Operating Profit ($mn)

47


55


(15)


(10)

Core Operating Profit ($mn)

50


52


NM


(4)

Restaurant Margin (%)

12.5


14.2


(1.7)


(1.7)

 

  • System sales for Pizza Hut grew 4% YoY for the quarter, primarily driven by net new unit contribution of 8%.
  • Pizza Hut opened 113 net new stores during the quarter, a 40% increase from the 80 net new stores opened in the first quarter of the prior year.
  • Operating profit was $47 million and Core operating profit was $50 million for the quarter. 
  • Restaurant margin for the quarter was 12.5%. Excluding Items Affecting Comparability at the restaurant level, restaurant margin decreased 100 basis points versus strong comparison a year ago, primarily due to increased value-for-money offerings to drive traffic and wage inflation, partially offset by operational efficiency improvement and savings in advertising expenses.
  • Delivery sales grew 5% and contributed approximately 37% of Pizza Hut's Company sales for the quarter. Off-premise dining accounted for approximately 47% of Pizza Hut's Company sales.

Accelerated Shareholder Returns

  • Yum China stepped up share repurchases in the quarter totaling 16.6 million shares of common stock for approximately $681 million. As of March 31, 2024, approximately $853 million remained available for future share repurchases under the current authorization program.
  • Yum China's board of directors declared a cash dividend of $0.16 per share on Yum China's common stock, payable on June 18, 2024 to shareholders of record as of the close of business on May 28, 2024.

Outlook

The Company's targets for 2024 fiscal year remain unchanged from the prior period's disclosures.

  • Open approximately 1,500 to 1,700 net new stores.
  • Make capital expenditures in the range of approximately $700 million to $850 million.
  • Return a Company record-setting $1.5 billion to shareholders through quarterly cash dividends and share repurchases.

Note on Non-GAAP Measures

Reported GAAP results include items that are excluded from non-GAAP measures. See "Reconciliation of Reported GAAP Results to Non-GAAP Measures" and "Segment Results" within this release for non-GAAP reconciliation details. 

Conference Call

Yum China's management will hold an earnings conference call at 8:00 p.m. U.S. Eastern Time on Monday, April 29, 2024 (8:00 a.m. Beijing/Hong Kong Time on Tuesday, April 30, 2024).

A live webcast of the call may be accessed https://edge.media-server.com/mmc/p/29a7ndj.

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/10037794-hf876t.html

A replay of the conference call will be available one hour after the call ends until Tuesday, May 7, 2024 and may be accessed by phone using 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 PIN:

10037794

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 "2024 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, investments, store openings, capital expenditures, dividend and share repurchase plans, CAGR for system sales, operating profit and EPS, earnings, performance and returns of Yum China, anticipated effects of population and macroeconomic trends, 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, our ability to control costs and expenses, including tax costs, as well as changes in political, economic and regulatory conditions in China, and those set forth under the caption "Risk Factors" in our Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q). 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 caption "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 15,000 restaurants under six brands across more than 2,000 cities in China. KFC and Pizza Hut are the leading brands in the quick-service and casual dining restaurant spaces in China, respectively. In addition, 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. Taco Bell offers innovative Mexican-inspired food. 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.

Contacts

Investor Relations Contact:



Tel: +86 21 2407 7556

IR@YumChina.com   

 




Media Contact:



Tel: +86 21 2407 7875

Media@YumChina.com 

 

 

Yum China Holdings, Inc.

Condensed Consolidated Statements of Income

(in US$ million, except per share data)

(unaudited)












Quarter Ended


% Change




3/31/2024


3/31/2023


B/(W)


Revenues









Company sales


$      2,794


$      2,772


1



Franchise fees and income


25


25


2



Revenues from transactions with franchisees


107


93


15



Other revenues


32


27


18



Total revenues


2,958


2,917


1



Costs and Expenses, Net









Company restaurants









Food and paper


896


835


(7)



Payroll and employee benefits


708


683


(4)



Occupancy and other operating expenses


697


691


(1)



Company restaurant expenses


2,301


2,209


(4)



General and administrative expenses


140


163


14



Franchise expenses


10


10




Expenses for transactions with franchisees


104


91


(14)



Other operating costs and expenses


29


24


(21)



Closures and impairment expenses, net


1


3


42



Other (income) expenses, net


(1)


1


 NM 



Total costs and expenses, net


2,584


2,501


(3)



Operating Profit


374


416


(10)



Interest income, net


38


38


(1)



Investment gain (loss)


8


(17)


 NM 



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


420


437


(4)



Income tax provision


(113)


(125)


10



Equity in net earnings (losses) from equity method investments



1


60



Net income – including noncontrolling interests


307


313


(2)



Net income – noncontrolling interests


20


24


17



Net Income – Yum China Holdings, Inc.


$         287


$         289


(1)



Effective tax rate


26.9 %


28.5 %


1.6

 ppts. 











Basic Earnings Per Common Share


$        0.72


$        0.69





Weighted-average shares outstanding
    (in millions)


401


418














Diluted Earnings Per Common Share


$        0.71


$        0.68





Weighted-average shares outstanding
    (in millions)


403


423














Company sales


100.0 %


100.0 %





Food and paper


32.1


30.1


(2.0)

 ppts. 


Payroll and employee benefits


25.4


24.6


(0.8)

 ppts. 


Occupancy and other operating expenses


24.9


25.0


0.1

 ppts. 


Restaurant margin


17.6 %


20.3 %


(2.7)

 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




3/31/2024


3/31/2023


B/(W)


Revenues









Company sales


$      2,193


$      2,166


1



Franchise fees and income


18


17


6



Revenues from transactions with franchisees


14


10


30



Other revenues


5


5


(8)



Total revenues


2,230


2,198


1



Costs and Expenses, Net









Company restaurants









Food and paper


694


646


(8)



Payroll and employee benefits


542


512


(6)



Occupancy and other operating expenses


535


527


(2)



Company restaurant expenses


1,771


1,685


(5)



General and administrative expenses


61


68


11



Franchise expenses


9


9


(2)



Expenses for transactions with franchisees


12


9


(26)



Other operating costs and expenses


4


4


7



Closures and impairment expenses, net


1


1


17



Other expenses, net



2


94



Total costs and expenses, net


1,858


1,778


(5)



Operating Profit


$         372


$         420


(11)



Company sales


100.0 %


100.0 %





Food and paper


31.7


29.8


(1.9)

ppts.


Payroll and employee benefits


24.7


23.6


(1.1)

ppts.


Occupancy and other operating expenses


24.3


24.4


0.1

ppts.


Restaurant margin


19.3 %


22.2 %


(2.9)

ppts.




















Percentages may not recompute due to rounding. 


 

 

Yum China Holdings, Inc.

Pizza Hut Operating Results

(in US$ million)

(unaudited)












Quarter Ended


% Change




3/31/2024


3/31/2023


B/(W)


Revenues









Company sales


$         587


$         591


(1)



Franchise fees and income


2


2


(1)



Revenues from transactions with franchisees


1


1


(7)



Other revenues


5


3


82



Total revenues


595


597




Costs and Expenses, Net









Company restaurants









Food and paper


198


184


(7)



Payroll and employee benefits


162


167


3



Occupancy and other operating expenses


154


156


1



Company restaurant expenses


514


507


(1)



General and administrative expenses


27


29


7



Franchise expenses


1


1


2



Expenses for transactions with franchisees


1


1


10



Other operating costs and expenses


5


3


(103)



Closures and impairment expenses, net



1


39



Total costs and expenses, net


548


542


(1)



Operating Profit


$           47


$           55


(15)



Company sales


100.0 %


100.0 %





Food and paper


33.7


31.2


(2.5)

ppts.


Payroll and employee benefits


27.6


28.2


0.6

ppts.


Occupancy and other operating expenses


26.2


26.4


0.2

ppts.


Restaurant margin


12.5 %


14.2 %


(1.7)

ppts.




















Percentages may not recompute due to rounding. 


 

 

Yum China Holdings, Inc.

Condensed Consolidated Balance Sheets

(in US$ million)








3/31/2024


12/31/2023



(Unaudited)



ASSETS





Current Assets





Cash and cash equivalents


$           883


$         1,128

Short-term investments


1,512


1,472

Accounts receivable, net


74


68

Inventories, net


345


424

Prepaid expenses and other current assets


341


339

Total Current Assets


3,155


3,431

Property, plant and equipment, net


2,292


2,310

Operating lease right-of-use assets


2,167


2,217

Goodwill


1,900


1,932

Intangible assets, net


147


150

Long-term bank deposits and notes


907


1,265

Equity investments


335


332

Deferred income tax assets


129


129

Other assets


263


265

Total Assets


11,295


12,031






LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY





Current Liabilities





Accounts payable and other current liabilities


1,936


2,164

Short-term borrowings


165


168

Income taxes payable


162


90

Total Current Liabilities


2,263


2,422

Non-current operating lease liabilities


1,847


1,899

Non-current finance lease liabilities


44


44

Deferred income tax liabilities


387


390

Other liabilities


166


157

Total Liabilities


4,707


4,912






Redeemable Noncontrolling Interest


13


13






Equity





Common stock,  $0.01 par value; 1,000 million shares authorized; 394 million shares
    and 407 million shares issued at March 31, 2024 and December 31, 2023, respectively;
    392 million shares and 407 million shares outstanding at March 31, 2024 and
    December 31, 2023, respectively.


4


4

Treasury stock


(76)


Additional paid-in capital


4,159


4,320

Retained earnings


2,078


2,310

Accumulated other comprehensive loss


(300)


(229)

Total Yum China Holdings, Inc. Stockholders' Equity


5,865


6,405

Noncontrolling interests


710


701

Total Equity


6,575


7,106

Total Liabilities, Redeemable Noncontrolling Interest and Equity


$      11,295


$       12,031

 

 

Yum China Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(in US$ million)

(unaudited)











Quarter Ended




3/31/2024



3/31/2023

Cash Flows – Operating Activities







Net income – including noncontrolling interests



$                   307



$                   313

Depreciation and amortization



117



116

Non-cash operating lease cost



101



102

Closures and impairment expenses



1



3

Investment (gain) loss



(8)



17

Equity in net (earnings) losses from equity method investments





(1)

Distributions of income received from equity method investments



2



4

Deferred income taxes





7

Share-based compensation expense



10



13

Changes in accounts receivable



(3)



5

Changes in inventories



74



40

Changes in prepaid expenses, other current assets and value-added tax assets



(8)



12

Changes in accounts payable and other current liabilities



(136)



(93)

Changes in income taxes payable



73



75

Changes in non-current operating lease liabilities



(100)



(94)

Other, net



12



(12)

Net Cash Provided by Operating Activities



442



507

Cash Flows – Investing Activities







Capital spending



(189)



(179)

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



(268)



(1,378)

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



555



1,126

Other, net



1



2

Net Cash Provided by (Used in) Investing Activities



99



(429)

Cash Flows – Financing Activities







Repurchase of shares of common stock



(679)



(60)

Cash dividends paid on common stock



(64)



(54)

Dividends paid to noncontrolling interests



(16)



(15)

Contributions from noncontrolling interests





35

Other, net



(17)



(5)

Net Cash Used in Financing Activities



(776)



(99)

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



(10)



2

Net Decrease in Cash, Cash Equivalents and Restricted Cash



(245)



(19)

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



1,128



1,130

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



$                   883



$                1,111

 

In this press release:

  • Certain performance metrics and non-GAAP measures are presented 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 and franchise 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 restaurants typically generate ongoing franchise fees for the Company at an average rate of approximately 6% of system sales. Franchise 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.

 

 

Unit Count by Brand

















KFC



12/31/2023


New Builds


Closures


Acquired


3/31/2024




Company-owned


9,237


303


(55)


1


9,486




Franchisees


1,059


63


(4)


(1)


1,117




Total


10,296


366


(59)



10,603
































Pizza Hut



12/31/2023


New Builds


Closures


3/31/2024




Company-owned


3,155


138


(25)


3,268




Franchisees


157


2


(2)


157




Total


3,312


140


(27)


3,425


















Others



12/31/2023


New Builds


Closures


3/31/2024




Company-owned


256


5


(39)


222




Franchisees


780


10


(18)


772




Total


1,036


15


(57)


994


















 

Reconciliation of Reported GAAP Results to Non-GAAP 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 the following non-GAAP measures:

  • 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;
  • Company Restaurant Profit ("Restaurant profit") and Restaurant margin;
  • Core Operating Profit and Core OP margin, which exclude Special Items, and further adjusted for Items Affecting Comparability and the impact of F/X;

These non-GAAP 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 non-GAAP 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 core operations.

With respect to non-GAAP measures adjusted for Special Items, the Company excludes impact from Special Items for the purpose of evaluating performance internally and uses them as factors in determining compensation for certain employees. Special Items are not included in any of our segment results.

Adjusted EBITDA is defined 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, 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 analysts may find it useful in measuring operating performance without regard to such non-cash items.

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. We also use Restaurant profit and Restaurant margin for the purposes of internally evaluating the performance of our Company-owned restaurants and we believe they provide useful information to investors as to the profitability of our Company-owned restaurants.

Core Operating Profit is defined as Operating Profit adjusted for Special Items, and further excluding Items Affecting Comparability and the impact of F/X. We consider quantitative and qualitative factors in assessing whether to adjust for the impact of items that may be significant or that could affect an understanding of our ongoing financial and business performance or trends. Items such as charges, gains and accounting changes which are viewed by management as significantly impacting the current period or the comparable period, due to changes in policy or other external factors, or non-cash items pertaining to underlying activities that are different from or unrelated to our core operations, are generally considered "Items Affecting Comparability." Examples of Items Affecting Comparability include, but are not limited to: temporary relief from landlords and government agencies; VAT deductions due to tax policy changes; and amortization of reacquired franchise rights recognized upon acquisitions. We believe presenting Core Operating Profit provides additional information to further enhance comparability of our operating results and we use this measure for purposes of evaluating the performance of our core operations. Core OP margin is defined as Core Operating Profit divided by Total revenues, excluding the impact of F/X.

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

 























Quarter Ended



3/31/2024


3/31/2023

Non-GAAP Reconciliations










Reconciliation of Operating Profit to Adjusted Operating Profit





Operating Profit


$              374


$            416

Special Items, Operating Profit 



(3)

Adjusted Operating Profit


$              374


$            419

Reconciliation of Net Income to Adjusted Net Income





Net Income – Yum China Holdings, Inc.


$              287


$            289

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



(3)

Adjusted Net Income – Yum China Holdings, Inc.


$              287


$            292

Reconciliation of EPS to Adjusted EPS





Basic Earnings Per Common Share


$             0.72


$           0.69

Special Items, Basic Earnings Per Common Share



(0.01)

Adjusted Basic Earnings Per Common Share


$             0.72


$           0.70

Diluted Earnings Per Common Share


$             0.71


$           0.68

Special Items, Diluted Earnings Per Common Share



(0.01)

Adjusted Diluted Earnings Per Common Share


$             0.71


$           0.69

Reconciliation of Effective Tax Rate to Adjusted Effective Tax Rate





Effective tax rate


26.9 %


28.5 %

Impact on effective tax rate as a result of Special Items


— %


0.1 %

Adjusted effective tax rate


26.9 %


28.4 %

 

 

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




















Quarter Ended



3/31/2024


3/31/2023






Reconciliation of Net Income to Adjusted EBITDA





Net Income – Yum China Holdings, Inc.


$         287


$         289

Net income – noncontrolling interests


20


24

Equity in net (earnings) losses from equity method investments



(1)

Income tax provision


113


125

Interest income, net


(38)


(38)

Investment (gain) loss


(8)


17

Operating Profit


374


416

Special Items, Operating Profit



3

Adjusted Operating Profit


374


419

Depreciation and amortization


117


116

Store impairment charges


4


4

Adjusted EBITDA


$         495


$         539

 

 

Details of Special Items are presented below:












Quarter Ended



3/31/2024


3/31/2023






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


$           —


$           (3)

Special Items, Operating Profit



(3)

Tax effect on Special Items(2)



Special Items, net income – including noncontrolling interests



(3)

Special Items, net income – noncontrolling interests



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


$           —


$           (3)

Weighted-average Diluted Shares Outstanding (in millions)


403


423

Special Items, Diluted Earnings Per Common Share


$           —


$      (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. These
awards vested as of December 31, 2023 with a payout in the first quarter of 2024. 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.

 

 

 

Operating Profit, along with the reconciliation to Core Operating Profit, is presented below:














Quarter ended


% Change




3/31/2024


3/31/2023


B/(W)


Reconciliation of Operating Profit to Core Operating Profit








Operating profit


$         374


$         416


(10)


Special Items, Operating Profit 



3




Adjusted Operating Profit


$         374


$         419


(11)


Items Affecting Comparability








Temporary relief from landlords(1)



(8)




Temporary relief from government agencies(2)



(2)




VAT deductions(3)



(19)




Amortization of reacquired franchise rights(4)



2




F/X impact


22





Core Operating Profit


$         396


$         392


1


Total revenues


2,958


2,917


1


F/X impact


154





Total revenues, excluding the impact of F/X


$      3,112


$      2,917


7


Core OP margin


12.7 %


13.5 %


(0.8)

ppts









(1) In relation to the effects of the COVID-19 pandemic, the Company was granted lease concessions from landlords. The lease
concessions were primarily in the form of rent reduction over the period of time when the Company's restaurant business was
adversely impacted. Such concessions were primarily recognized as a reduction of Occupancy and other operating expenses within
Company restaurant expenses included in the Condensed Consolidated Statement of Income in the period the concession was
granted. 


(2) In relation to the effects of the COVID-19 pandemic, the Company received government subsidies for employee benefits and
providing training to employees. The temporary relief was primarily recognized as a reduction to Payroll and employee benefits
within Company restaurant expenses included in the Condensed Consolidated Statement of Income.


(3) Pursuant to policy issued by relevant government authorities, general VAT taxpayers in certain industries that meet certain
criteria are allowed to claim an additional 10% or 15% input VAT, which will be used to offset their VAT payables. This VAT policy
was further extended to December 31, 2023 but the additional deduction was reduced to 5% or 10% respectively. VAT deductions
were primarily recorded as a reduction to Food and paper and Occupancy and other operating expenses within Company restaurant
expenses included in the Condensed Consolidated Statements of Income. Based on the information currently available to the
Company, such preferential policy is not expected to be extended.


(4) As a result of the acquisition of our previously unconsolidated joint ventures of Hangzhou KFC, Suzhou KFC and Wuxi KFC, $66
million, $61 million and $61 million of the purchase price were allocated to intangible assets related to reacquired franchise rights,
respectively, which were amortized over the remaining franchise contract period of 1 year, 2.4 years and 5 years, respectively. The
reacquired franchise rights were fully amortized as of the first quarter of 2023. The amortization was recorded in Other (Income) Expenses,
net included in the Condensed Consolidated Statements of Income.

 

 

Yum China Holdings, Inc.

Segment Results

(in US$ million)

(unaudited)
















Quarter Ended 3/31/2024



KFC


Pizza Hut


All Other Segments


Corporate
and
Unallocated(1)


Elimination


Total

Company sales


$      2,193


$         587


$                 14


$                 —


$              —


$      2,794

Franchise fees and income


18


2


5




25

Revenues from transactions with franchisees(2)


14


1


20


72



107

Other revenues


5


5


164


15


(157)


32

Total revenues


$      2,230


$         595


$               203


$                 87


$          (157)


$      2,958

Company restaurant expenses


1,771


514


17



(1)


2,301

General and administrative expenses


61


27


10


42



140

Franchise expenses


9


1





10

Expenses for transactions with franchisees(2)


12


1


19


72



104

Other operating costs and expenses


4


5


162


14


(156)


29

Closures and impairment expenses, net


1






1

Other expenses (income), net





(1)



(1)

Total costs and expenses, net


1,858


548


208


127


(157)


2,584

Operating Profit (Loss)


$         372


$           47


$                  (5)


$                (40)


$              —


$         374














Reconciliation of GAAP Operating Profit to Restaurant Profit


























Quarter Ended 3/31/2024



KFC


Pizza Hut


All Other Segments


Corporate
and
Unallocated(1)


Elimination


Total

GAAP Operating Profit (Loss)


$         372


$           47


$                  (5)


$                (40)


$              —


$         374

Less:













Franchise fees and income


18


2


5




25

Revenues from transactions with franchisees(2)


14


1


20


72



107

Other revenues


5


5


164


15


(157)


32

Add:













General and administrative expenses


61


27


10


42



140

Franchise expenses


9


1





10

Expenses for transactions with franchisees(2)


12


1


19


72



104

Other operating costs and expenses


4


5


162


14


(156)


29

Closures and impairment expenses, net


1






1

Other expenses (income), net





(1)



(1)

Restaurant profit (loss)


$         422


$           73


$                  (3)


$                 —


$                1


$         493

Company sales


2,193


587


14




2,794

Restaurant margin %


19.3 %


12.5 %


(31.4) %


N/A


N/A


17.6 %














Reconciliation of GAAP Operating Profit to Core Operating Profit

























Quarter Ended 3/31/2024



KFC


Pizza Hut


All Other Segments


Corporate
and
Unallocated(1)


Elimination


Total

GAAP Operating Profit (Loss)


$         372


$           47


$                  (5)


$                (40)


$              —


$         374

Special Items, Operating Profit 







Adjusted Operating Profit


$         372


$           47


$                  (5)


$                (40)


$              —


$         374

F/X impact


20


3



(1)



22

Core Operating Profit (Loss)


$         392


$           50


$                  (5)


$                (41)


$              —


$         396
















Quarter Ended 3/31/2023



KFC


Pizza Hut


All Other Segments


Corporate
and
Unallocated(1)


Elimination


Total

Company sales


$      2,166


$         591


$                 15


$                 —


$              —


$      2,772

Franchise fees and income


17


2


6




25

Revenues from transactions with franchisees(2)


10


1


19


63



93

Other revenues


5


3


162


10


(153)


27

Total revenues


$      2,198


$         597


$               202


$                 73


$          (153)


$      2,917

Company restaurant expenses


1,685


507


18



(1)


2,209

General and administrative expenses


68


29


10


56



163

Franchise expenses


9


1





10

Expenses for transactions with franchisees(2)


9


1


18


63



91

Other operating costs and expenses


4


3


161


8


(152)


24

Closures and impairment expenses, net


1


1


1




3

Other expenses (income), net


2




(1)



1

Total costs and expenses, net


1,778


542


208


126


(153)


2,501

Operating Profit (Loss)


$         420


$           55


$                  (6)


$                (53)


$              —


$         416














Reconciliation of GAAP Operating Profit to Restaurant Profit


























Quarter Ended 3/31/2023



KFC


Pizza Hut


All Other Segments


Corporate
and
Unallocated(1)


Elimination


Total

GAAP Operating Profit (Loss)


$         420


$           55


$                  (6)


$                (53)


$              —


$         416

Less:













Franchise fees and income


17


2


6




25

Revenues from transactions with franchisees(2)


10


1


19


63



93

Other revenues


5


3


162


10


(153)


27

Add:













General and administrative expenses


68


29


10


56



163

Franchise expenses


9


1





10

Expenses for transactions with franchisees(2)


9


1


18


63



91

Other operating costs and expenses


4


3


161


8


(152)


24

Closures and impairment expenses, net


1


1


1




3

Other expenses (income), net


2




(1)



1

Restaurant profit (loss)


$         481


$           84


$                  (3)


$                 —


$                1


$         563

Company sales


2,166


591


15




2,772

Restaurant margin %


22.2 %


14.2 %


(21.2) %


N/A


N/A


20.3 %














Reconciliation of GAAP Operating Profit to Core Operating Profit

























Quarter Ended 3/31/2023



KFC


Pizza Hut


All Other Segments


Corporate
and
Unallocated(1)


Elimination


Total

GAAP Operating Profit (Loss)


$         420


$           55


$                  (6)


$                (53)


$              —


$         416

Special Items, Operating Profit 





3



3

Adjusted Operating Profit


$         420


$           55


$                  (6)


$                (50)


$              —


$         419

Items Affecting Comparability













Temporary relief from landlords


(7)


(1)





(8)

Temporary relief from government agencies


(2)






(2)

VAT deductions


(17)


(2)





(19)

Amortization of reacquired franchise rights


2






2

F/X impact







Core Operating Profit (Loss)


$         396


$           52


$                  (6)


$                (50)


$              —


$         392














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














(1) Amounts have not been allocated to any segment for purpose of making operating decision or assessing financial performance as the
transactions are deemed corporate revenues and expenses in nature.


(2) Primarily includes revenues and associated expenses of transactions with franchisees derived from the Company's central
procurement model whereby the Company centrally purchases substantially all food and paper products from suppliers and then sells
and delivers to KFC and Pizza Hut restaurants, including franchisees.

 

 

Source: Yum China Holdings, Inc.
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