Yum China Tops Expectations in First Earnings

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Singer Lu Han in a Chinese New Year campaign for KFC.
Singer Lu Han in a Chinese New Year campaign for KFC. Credit: KFC Weibo

Yum China Holdings, the Chinese fast food company that was spun off from its U.S. parent in October, topped earnings estimates in its inaugural quarterly results with the help of its growing KFC chain.

The company posted profit of 17 cents a share, excluding some items, compared with an average estimate of 10 cents. Same-store sales growth at KFC helped bolster results, while its Pizza Hut division performed worse than expected.

The results show Yum China had a respectable start as an independent company, even as it faces headwinds. Its pizza chain continues to decline as local competitors gain market share. The company added 575 outlets last year, with more than half that in the fourth quarter as it banks on aggressive expansion to keep it ahead of other U.S. chains in China.

"We believe the majority of our restaurants in China are yet to be built," Chief Executive Officer Micky Pant said in a statement. "Right now, our top priority is consistently delivering positive same-store sales growth."

China stores

Yum China, which had over 7,500 outlets in China as of late 2016, has plans to add about 600 stores in the country annually. McDonald's Corp, which agreed to sell a controlling stake in its China and Hong Kong operations last month, is adding more than 1,500 stores in the country over the next five years, while Starbucks Corp is growing at 500 outlets annually.

Yum China fell 2.4% to $28.10 in New York on Tuesday, the most in a month, before the results. The stock has gained 7.6% this year, compared with the 5% gain in Yum! Brands.

KFC's same-store sales grew 1% in the fourth quarter. Analysts had estimated a 0.4% gain, according to Consensus Metrix. Pizza Hut declined 3%, missing the 2.3% growth projection. Combined, the company's sales were flat in the period.

Pizza Hut's performance in China has been sluggish in recent years as local competitors take market share and middle-class consumers increasingly seek out more upmarket dining experiences.

Yum China also approved a $300 million buyback program and appointed two key executives. Joey Wat will serve as chief operating officer, while Johnson Huang will become general manager of the KFC business.

--Bloomberg News

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