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Yum China Reports Fourth Quarter and Fiscal Year 2018 Results

Fourth quarter total revenues grew 2% or 7% in constant currency;
Fourth quarter total system sales grew 6% and same-store sales grew 2% in constant currency;
Opened 819 gross new stores in 2018

SHANGHAI, Jan. 31, 2019 /PRNewswire/ -- Yum China Holdings, Inc. (the "Company" or "Yum China") (YUMC) today reported unaudited results for the fourth quarter and year ended December 31, 2018. Reported GAAP results include Special Items, which are excluded from 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 Adjusted Measures" within this release.

Fourth Quarter Highlights

  • Total revenues increased 2% year over year to $1.91 billion from $1.87 billion (7% year over year increase excluding foreign currency translation ("F/X")).
  • Total system sales grew 6% year over year, with 9% growth at KFC partially offset by a 2% decline at Pizza Hut, excluding F/X.
  • Same-store sales grew 2% year over year, with a 3% increase at KFC and a 4% decrease at Pizza Hut, excluding F/X.
  • Restaurant margin was 11.5%, as compared with 11.6% in the prior year period.
  • Operating Profit increased 77% year over year to $84 million from $47 million (84% year over year increase excluding F/X).
  • Reported an impairment charge of $12 million on intangible assets acquired from DAOJIA.com.cn ("Daojia"). Excluding this special item, Adjusted Operating Profit increased to $96 million from $47 million in the prior year period.
  • Net Income increased to $74 million from a net loss of $107 million in the prior year period.
  • Recognized a tax benefit of $36 million in the fourth quarter 2018 as a result of adjusting the provisional amount of transition tax related to US tax reform previously recorded in fourth quarter 2017. Excluding the one-time tax benefit and the Daojia impairment, Adjusted Net Income decreased 19% to $46 million, primarily driven by the mark to market loss of $27 million on our equity investment in Meituan Dianping.
  • Diluted EPS increased to $0.19 from negative $0.28 in the prior year period. Adjusted Diluted EPS decreased 14% to $0.12 from $0.14 in the prior year period (36% year over year increase excluding the mark to market loss impact of our equity investment in Meituan Dianping).

Full Year Highlights

  • Total revenues increased 8% year over year to $8.42 billion from $7.77 billion (6% year over year increase excluding F/X).
  • Total system sales grew 5% year over year, with 7% growth at KFC partially offset by a 1% decline at Pizza Hut, excluding F/X.
  • Same-store sales increased 1% year over year, with a 2% increase at KFC and a 5% decrease at Pizza Hut, excluding F/X.
  • Restaurant margin was 15.7%, as compared with 16.7% in the prior year.
  • Operating Profit increased 21% year over year to $941 million from $778 million (16% year over year increase excluding F/X). Adjusted Operating Profit increased 10% year over year to $855 million from $775 million (6% year over year increase excluding F/X).
  • Net Income increased 78% to $708 million from $398 million in the prior year (70% year over year increase excluding F/X). Adjusted Net Income increased 9% to $606 million from $559 million in the prior year (4% year over year increase excluding F/X).
  • Effective tax rate was 22.6%. Excluding the adjustment made in the fourth quarter 2018 to the provisional amount of transition tax related to US tax reform previously recorded in 2017, the effective tax rate was 26.5%.
  • Diluted EPS increased 79% to $1.79 from $1.00 in the prior year. Adjusted Diluted EPS increased 9% to $1.53 from $1.40 in the prior year (14% year over year increase excluding the mark to market loss impact of our equity investment in Meituan Dianping).
  • Opened 819 new restaurants during the year, bringing total store count to 8,484 across more than 1,200 cities.

Key Financial Results




Fourth Quarter 2018


Full Year 2018




% Change


% Change




System
Sales


Same-
Store
Sales


Net New
Units


Operating
Profit


System
Sales


Same-
Store
Sales


Net New
Units


Operating
Profit

Yum China



+6


+2


+6


+77


+5


+1


+6


+21

   KFC



+9


+3


+8


+13


+7


+2


+8


+11

   Pizza Hut



(2)


(4)


+2


+40


(1)


(5)


+2


(38)






Fourth Quarter


Full Year

(in US$ million, except








% Change








% Change

for per share data and percentages)



2018



2017


Reported


Ex F/X



2018



2017


Reported


Ex F/X

Operating Profit


$

84


$

47


+77


+84


$

941


$

778


+21


+16

Adjusted Operating Profit1


$

96


$

47


NM


NM


$

855


$

775


+10


+6

Net Income


$

74


$

(107)


NM


NM


$

708


$

398


+78


+70

Adjusted Net Income1


$

46


$

57


(19)


(14)


$

606


$

559


+9


+4

Basic Earnings Per Common Share


$

0.19


$

(0.28)


NM


NM


$

1.84


$

1.03


+79


+71

Adjusted Basic Earnings Per





















   Common Share1


$

0.12


$

0.15


(20)


(13)


$

1.58


$

1.44


+10


+5

Diluted Earnings Per Common Share


$

0.19


$

(0.28)


NM


NM


$

1.79


$

1.00


+79


+71

Adjusted Diluted Earnings Per





















   Common Share1


$

0.12


$

0.14


(14)


(7)


$

1.53


$

1.40


+9


+5


[1] See "Reconciliation of Reported GAAP Results to Adjusted Measures" included in the accompanying tables of this release for further details.

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

NM refers to changes over 100%, from negative to positive amounts or from zero to an amount.

Yum China's fiscal fourth quarter 2018 includes October, November and December results.

Percentages may not recompute due to rounding.

System sales and same-store sales percentages exclude the impact of F/X.

Prior period results have been recast for the change of fiscal quarter, same-store sales growth definition and adoption of the new revenue accounting standard.


CEO and CFO Comments

"We achieved a 6% increase in system sales in constant currency during the fourth quarter, marking our ninth consecutive quarter of system sales growth since the spin-off," said Joey Wat, CEO of Yum China. "This strong growth was led by accelerated new store openings and a robust performance at KFC, which delivered 3% same-store sales growth and 9% system sales growth during the quarter. Although Pizza Hut's sales remained soft, we are pleased to see same-store traffic growth of 1% and positive trends in customer feedback."

"In 2018, we aggressively expanded our footprint with 819 new stores across all city tiers, further strengthening our market position and laying a solid foundation for growth. While the macro backdrop is relatively soft, with our resilient business model and leadership in digital and delivery, we are confident that we have the right strategy and capabilities to maintain our growth trajectory and capitalize on the long-term potential of the China market," added Ms. Wat.

"Our strong sales growth and diligent cost controls across all aspects of our business led to a significant increase in operating profit during the fourth quarter. We also delivered on our commitment to return capital to shareholders with $473 million of share repurchases and cash dividends in 2018, including $191 million in the fourth quarter." said Jacky Lo, CFO of Yum China. "Looking into 2019, we are well positioned to face potential market softness while recognizing the first quarter of 2019 will be a tough lap given the excellent performance during the past three Chinese New Year holidays."

Dividend and Share Repurchase

  • The Board of Directors declared a cash dividend of $0.12 per share on Yum China's common stock, payable as of the close of business on March 21, 2019 to stockholders of record as of the close of business on February 28, 2019.
  • During the fourth quarter, we repurchased approximately 4.4 million shares of Yum China common stock for $145.3 million at an average price of $32.85 per share.

Digital and Delivery 

  • As of December 31, 2018, the KFC loyalty program had over 160 million members and the Pizza Hut loyalty program had over 50 million members, an increase of 50 million and 15 million, respectively, year over year.
  • Mobile payments accounted for 65% of Company sales in the fourth quarter of 2018, an increase of 11 percentage points year over year. Digital payments accounted for 86% of Company sales in the quarter, an increase of 14 percentage points year over year.
  • Delivery contributed to 19% of Company sales in the fourth quarter of 2018, an increase of 3 percentage points year over year. Delivery services are now available in 1,118 cities, up from 900 cities in the prior year period.

New-Unit Development and Asset Upgrade

  • The Company opened 257 new restaurants in the fourth quarter and 819 new restaurants for the full year 2018, driven by development of the KFC brand.
  • The Company remodeled 232 restaurants in the fourth quarter and 931 restaurants for the full year 2018. Over 80% of Yum China's current store portfolio has been remodeled or built in the past five years.


New Units


Restaurant Count



Fourth Quarter


Full Year


As of Year-End



2018


2018


2018


2017

Yum China


257


819


8,484


7,983

   KFC


155


566


5,910


5,488

   Pizza Hut


51


157


2,240


2,195

   Others[2]


51


96


334


300




[2] Others include Little Sheep, East Dawning, Taco Bell and COFFii & JOY.

Restaurant Margin

  • In the fourth quarter of 2018, Yum China restaurant margin was 11.5%, as compared with 11.6% in the prior year period, primarily attributable to wage and commodity inflation and investment in product upgrades and promotions, partially offset by sales leverage, productivity improvement, and other cost savings.
  • In the full year 2018, Yum China restaurant margin was 15.7%, as compared with 16.7% in the prior year, primarily attributable to wage and commodity inflation and investment in product upgrades and promotions, partially offset by sales leverage and productivity improvement.


Fourth Quarter


Full Year



2018


2017


% pts change


2018


2017


% pts change

Yum China


11.5%


11.6%


(0.1)


15.7%


16.7%


(1.0)

   KFC


14.3%


13.9%


+0.4


17.9%


18.0%


(0.1)

   Pizza Hut


4.9%


6.4%


(1.5)


10.3%


13.9%


(3.6)

2019 Outlook

The Company provides the following fiscal year 2019 targets:

  • 600 to 650 gross new units
  • Capital expenditures between $450 million and $500 million
  • Effective tax rate below 28%

Conference Call

Yum China's management will hold an earnings conference call at 7:00p.m. U.S. Eastern Time on Thursday, January 31, 2019 (8:00a.m. Beijing/Hong Kong Time on Friday, February 1, 2019). A copy of the presentation will be available on the Yum China Holdings, Inc. website, http://ir.yumchina.com

US:


+1 845 675 0437

Hong Kong:


+852 3018 6771

Mainland China:


400 620 8038 or 800 819 0121

UK:


+44 20 36214779

International:


+65 6713 5090

Passcode:


Yum China

A replay of the conference call will be available two hours after the call ends until 8:00a.m. U.S. Eastern Time on Friday, February 8, 2019 (9:00p.m. Beijing/Hong Kong Time on Friday, February 8, 2019) and may be accessed by phone at the following numbers:

US:


+1 855 452 5696

International:


+61 2 8199 0299

Passcode:


1896449

Additionally, a live webcast and an archived webcast of this conference call will be available at http://ir.yumchina.com.

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 "2019 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 business plans, earnings and performance of Yum China, statements regarding the revitalization of Pizza Hut, anticipated effects of population and macroeconomic trends, statements regarding the capital structure and effective tax rate of Yum China, 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, 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 "Forward-Looking Statements" in our Annual Report on Form 10-K) 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, East Dawning and COFFii & JOY concepts outright. The Company had more than 8,400 restaurants in over 1,200 cities at the end of December 2018. For more information, please visit http://ir.yumchina.com  

Investor Relations Contact:



Tel: +86 21 2407 7556

IR@YumChina.com    




Media Contact:



Tel: +86 21 2407 7510

Media@YumChina.com

 

Yum China Holdings, Inc.

Consolidated Statements of Income

(amounts in US$ million, except for per share amounts)

(unaudited)




Quarter Ended


% Change


Year Ended


% Change



12/31/2018


12/31/2017


B/(W)


12/31/2018


12/31/2017


B/(W)

Revenues

























Company sales


$

1,721



$

1,667




3



$

7,633



$

6,993




9


Franchise fees and income



31




34




(5)




141




141




1


Revenues from transactions with

   franchisees and unconsolidated affiliates



142




151




(6)




603




599




1


Other revenues



20




20




(3)




38




36




4


Total revenues



1,914




1,872




2




8,415




7,769




8


Costs and Expenses, Net

























Company restaurants

























Food and paper



551




505




(9)




2,326




2,034




(14)


Payroll and employee benefits



418




406




(3)




1,714




1,543




(11)


Occupancy and other operating expenses



553




562




2




2,394




2,245




(7)


Company restaurant expenses



1,522




1,473




(3)




6,434




5,822




(11)


General and administrative expenses



122




156




21




456




495




8


Franchise expenses



16




17




9




71




71




1


Expenses for transactions with

   franchisees and unconsolidated affiliates



141




149




5




595




592




(1)


Other operating costs and expenses



12




14




11




29




28




(5)


Closures and impairment expenses, net



26




27




7




41




47




14


Other income, net



(9)




(11)




(23)




(152)




(64)




NM


Total costs and expenses, net



1,830




1,825







7,474




6,991




(7)


Operating Profit



84




47




77




941




778




21


Interest income, net



8




9




(5)




36




25




47


Investment loss



(27)







NM




(27)







NM


Income Before Income Taxes



65




56




16




950




803




18


Income tax benefit (provision)



13




(159)




NM




(214)




(379)




43


Net income – including noncontrolling interests



78




(103)




NM




736




424




74


Net income – noncontrolling interests



4




4




(1)




28




26




(7)


Net Income – Yum China Holdings, Inc.


$

74



$

(107)




NM



$

708



$

398




78


Effective tax rate



(20.1)

%



285.2

%



NM

ppts.



22.6

%



47.2

%



24.6

ppts.


























Basic Earnings (Loss) Per Common Share


$

0.19



$

(0.28)







$

1.84



$

1.03






Weighted average shares outstanding

    (in millions)



380




386








384




387































Diluted Earnings (Loss) Per Common Share


$

0.19



$

(0.28)







$

1.79



$

1.00






Weighted average shares outstanding

    (in millions)



389




386








395




398































Cash Dividends Declared Per Common Share


$

0.12



$

0.10







$

0.42



$

0.10































Company sales



100.0

%



100.0

%







100.0

%



100.0

%





Food and paper



32.0




30.3




(1.7)

ppts.



30.5




29.1




(1.4)

ppts.

Payroll and employee benefits



24.3




24.4




0.1

ppts.



22.5




22.1




(0.4)

ppts.

Occupancy and other operating expenses



32.2




33.7




1.5

ppts.



31.3




32.1




0.8

ppts.

Restaurant margin



11.5

%



11.6

%



(0.1)

ppts.



15.7

%



16.7

%



(1.0)

ppts.

Operating margin



4.8

%



2.8

%



2.0

ppts.



12.3

%



11.1

%



1.2

ppts.


Percentages may not recompute due to rounding.

 

Yum China Holdings, Inc.

KFC Operating Results

(amounts in US$ million)

(unaudited)




Quarter Ended


% Change


Year Ended


% Change



12/31/2018


12/31/2017


B/(W)


12/31/2018


12/31/2017


B/(W)

Revenues

























Company sales


$

1,247



$

1,158




8



$

5,495



$

4,863




13


Franchise fees and income



28




32




(6)




132




134




(1)


Revenues from transactions with

   franchisees and unconsolidated affiliates



15




18




(17)




63




69




(10)


Total revenues



1,290




1,208




7




5,690




5,066




12


Costs and Expenses, Net

























Company restaurants

























Food and paper



398




354




(12)




1,679




1,455




(15)


Payroll and employee benefits



288




265




(9)




1,167




1,013




(15)


Occupancy and other operating expenses



384




379




(1)




1,665




1,518




(10)


Company restaurant expenses



1,070




998




(7)




4,511




3,986




(13)


General and administrative expenses



58




55




(7)




193




176




(10)


Franchise expenses



16




16




8




69




69




2


Expenses for transactions with

   franchisees and unconsolidated affiliates



14




19




16




62




70




8


Closures and impairment expenses, net



4




10




54




10




20




48


Other income, net



(8)




(9)




(9)




(50)




(57)




(11)


Total costs and expenses, net



1,154




1,089




(6)




4,795




4,264




(12)


Operating Profit


$

136



$

119




13



$

895



$

802




11


Company sales



100.0

%



100.0

%







100.0

%



100.0

%





Food and paper



31.8




30.6




(1.2)

ppts.



30.5




29.9




(0.6)

ppts.

Payroll and employee benefits



23.1




22.9




(0.2)

ppts.



21.2




20.8




(0.4)

ppts.

Occupancy and other operating expenses



30.8




32.6




1.8

ppts.



30.4




31.3




0.9

ppts.

Restaurant margin



14.3

%



13.9

%



0.4

ppts.



17.9

%



18.0

%



(0.1)

ppts.

Operating margin



11.0

%



10.5

%



0.5

ppts.



16.3

%



16.5

%



(0.2)

ppts.


Percentages may not recompute due to rounding.

 

Yum China Holdings, Inc.

Pizza Hut Operating Results

(amounts in US$ million)

(unaudited)




Quarter Ended


% Change


Year Ended


% Change



12/31/2018


12/31/2017


B/(W)


12/31/2018


12/31/2017


B/(W)

Revenues

























Company sales


$

466



$

498




(6)



$

2,106



$

2,090




1


Franchise fees and income



1







21




3




2




18


Revenues from transactions with

   franchisees and unconsolidated affiliates



1







62




2




1




12


Total revenues



468




498




(6)




2,111




2,093




1


Costs and Expenses, Net

























Company restaurants

























Food and paper



151




148




(2)




637




566




(12)


Payroll and employee benefits



128




138




8




538




519




(4)


Occupancy and other operating expenses



165




179




8




715




713





Company restaurant expenses



444




465




5




1,890




1,798




(5)


General and administrative expenses



22




30




23




102




108




5


Franchise expenses






1




(21)




2




2




(22)


Expenses for transactions with

   franchisees and unconsolidated affiliates



1







(53)




2




1




(10)


Closures and impairment expenses, net



10




18




46




19




27




31


Other income, net









NM




(2)







NM


Total costs and expenses, net



477




514




7




2,013




1,936




(4)


Operating (Loss) Profit


$

(9)



$

(16)




40



$

98



$

157




(38)


Company sales



100.0

%



100.0

%







100.0

%



100.0

%





Food and paper



32.4




29.8




(2.6)

ppts.



30.2




27.1




(3.1)

ppts.

Payroll and employee benefits



27.3




27.9




0.6

ppts.



25.5




24.9




(0.6)

ppts.

Occupancy and other operating expenses



35.4




35.9




0.5

ppts.



34.0




34.1




0.1

ppts.

null