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Yum China (YUMC) Q2 Earnings & Revenues Top Estimates, Fall Y/Y

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·5 min read
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Yum China Holdings, Inc. YUMC reported second-quarter 2022 results, with earnings and revenues beating the Zacks Consensus Estimate. However, the metrics declined on a year-over-year basis.

During the quarter under discussion, the company's operations were affected by multiple COVID outbreaks in China. Tightened COVID curbs (including partial lockdowns and suspension of restaurant dine-in services) were implemented to counter the same. The measures paved a path for restricted mobility, reduced travel and soften consumer spending. Although the company initiated the reopening of stores (at reduced capacity), it expects restaurant traffic recovery to take time.

Earnings & Revenue Discussion

During second-quarter 2022, the company reported adjusted diluted earnings of 20 cents. The figure surpassed the Zacks Consensus Estimate of a loss of 2 cents. However, the bottom line declined 52% from 42 cents reported in the year-ago quarter.

Yum China Price, Consensus and EPS Surprise

 

Yum China Price, Consensus and EPS Surprise
Yum China Price, Consensus and EPS Surprise

Yum China price-consensus-eps-surprise-chart | Yum China Quote

 

Quarterly revenues of $2,128 million surpassed the consensus mark of $2,115 million. However, the top line declined 13% on a year-over-year basis. Excluding foreign currency translation, the top line fell 11% year over year.

Total system sales in the reported quarter declined 16% year over year. System sales at KFC and Pizza Hut declined 15% and 14%, respectively. Same-store sales dropped 16% year over year, primarily due to a decline of 16% at KFC and 15% at Pizza Hut.

Operating Highlights

During second-quarter 2022, total costs and expenses totaled $2,047 million compared with $2,218 million reported in the prior-year quarter.

Restaurant margin in the quarter under review was 12.1%, down 370 basis points from the year-ago quarter's levels. The downside was caused by sales deleveraging, higher inflation in commodity, wage and utility costs and a rise in rider cost related to rising delivery volume.

During the quarter, adjusted operating profit totaled $82 million, down 65.4% from the year-ago quarter's levels. Adjusted net income amounted to $84 million compared with $185 million reported in the prior-year quarter.

Balance Sheet

As of Jun 30, 2022, cash and cash equivalents amounted to $1,147 million compared with $1,047 million as of Mar 31, 2022. Inventories during the first quarter were $353 million compared with $345 million reported in the previous quarter.

During the second quarter, the company repurchased $168 million worth of stock at an average price of $41.37. As of Jun 30, the company had approximately $1.2 billion available for the buyback program.

The company declared a quarterly cash dividend of 12 cents per common share. The dividend will be payable on Sep 15, 2022, to shareholders of record as of Aug 25, 2022.

Unit Development and Other Updates

During second-quarter 2022, Yum China opened 246 gross new restaurants driven by the development of the KFC and Pizza Hut brands. As of Jun 30, the company's total restaurant count was 12,170, up 1,147 stores year over year.

During the quarter under review, the company's delivery accounted for nearly 38% of KFC and Pizza Hut's company sales, up nearly eight percentage points from the prior-year quarter's levels.

Digital orders during the quarter contributed 89% to KFC and Pizza Hut's company sales. During the second quarter, KFC and Pizza Hut loyalty programs increased to more than 385 million members.

The company emphasizes expanding its supply chain network to support store and portfolio growth and enhance intelligent supply chain operations. To this end, the company initiated the construction of its Jiading Supply Chain Management Center in Shanghai. The venue will serve as the company's supply chain operations headquarter. It expects to complete the project in 2024.

2022 Outlook

In 2022, Yum China anticipates opening approximately 1,000 to 1,200 new stores. The company expects solid expansion related to KFC and Pizza Hut stores. Capital expenditures in 2022 are forecast in the range of $800-$1000 million.

Zacks Rank & Key Picks

Yum China currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the Zacks Retail-Wholesale sector are Dollar Tree Inc. DLTR, Designer Brands Inc. DBI and Potbelly Corporation PBPB.

Dollar Tree sports a Zacks Rank #1. DLTR has a trailing four-quarter earnings surprise of 13.1%, on average. The stock has gained 64.8% in the past year.

The Zacks Consensus Estimate for Dollar Tree’s 2022 sales and earnings per share (EPS) suggests growth of 6.7% and 40.5%, respectively, from the corresponding year-ago period’s levels.

Designer Brands flaunts a Zacks Rank of 1 at present. DBI has a trailing four-quarter earnings surprise of 102.5%, on average. Shares of DBI have increased 0.2% in the past year.

The Zacks Consensus Estimate for Designer Brands’ 2023 sales and EPS suggests growth of 6.9% and 16.5%, respectively, from the comparable year-ago period’s levels.

Potbelly carries a Zacks Rank #2 (Buy). PBPB has a trailing four-quarter earnings surprise of 26.2%, on average. Shares of PBPB have declined 26.6% in the past year.

The Zacks Consensus Estimate for Potbelly’s 2022 sales and EPS suggests growth of 14.1% and 90.4%, respectively, from the corresponding year-ago period’s levels.


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