On August 6th, Hong Kong stock company Yum China (09987. HK) opened in red, and as of press time, it rose more than 10% at one point during the trading session.
Prior to the trading session, Yum! China released its financial performance announcement for the second quarter of 2024. In the second quarter of 2024, the company's total revenue increased by 1% year-on-year to 2.679 billion US dollars. Excluding the impact of foreign currency conversion, the total revenue may increase by 4% year-on-year. During the same period, operating profit increased by 4% year-on-year to 266 million US dollars; Excluding the impact of foreign currency conversion, operating profit is expected to increase by 7% year-on-year; The core operating profit increased by 12% year-on-year to 275 million US dollars; The operating profit margin was 9.9%, a year-on-year increase of 20 basis points. In addition, in the second quarter, the company's net profit increased by 8% year-on-year to $212 million, and excluding the impact of foreign currency conversion, the net profit may increase by 11% year-on-year.
So far, in the first half of this year, Yum! Brands China's total revenue was about 5.637 billion US dollars, a year-on-year increase of 1%; Operating profit of approximately 640 million US dollars, a year-on-year decrease of 5%; The core operating profit increased to 671 million US dollars, and excluding the impact of foreign currency conversion, this data may increase by 5% year-on-year; Net profit increased by 3% year-on-year to 499 million US dollars, excluding the impact of foreign currency conversion, net profit may increase by 7% year-on-year.
Financial Performance Announcement for the Second Quarter of 2024
The company achieved its highest profit in the second quarter since its split and listing, "said Qu Cuirong, CEO of Yum! China. The company focuses on providing cost-effective and innovative products, which has driven the growth of same store transactions; And measures were taken to improve operational efficiency, stabilize the restaurant's profit margin, and achieve an increase in operating profit margin.
Qu Cuirong further stated that the company continues to improve operational efficiency by simplifying menus and operating processes, and combining automation and artificial intelligence technology. KFC has increased its market share on food delivery platforms by expanding its price range and reducing delivery costs. Pizzahut attracts customers who pay attention to cost performance through its entry-level pizza. "New stores maintain good returns, KFC's return cycle is maintained at 2 years, while Pizzahut's return cycle is shortened to 2 to 3 years."
Yum China is making efforts to develop cost-effective products. The company revealed to the interface news that KFC's new original chicken burger was launched in May, and Pizzahut launched Pizza Hut, which won a large number of "one person food" customers. Its sales volume exceeded that of Hawaiian Pizza Hut, one of Pizzahut's signboards. It plans to promote Pizza Hut to more than 3000 stores in August.
It is reported that starting from the fourth quarter of 2023, Yum! Brands China will launch a new KFC product called "Bing Burger", with a retail price of 19 yuan, the lowest level among KFC burger products. This will be achieved through expanding the product matrix to achieve a disguised price reduction. In the first quarter of this year, the company further adjusted the delivery fee for KFC's takeout from 9 yuan to 6 yuan, in order to attract more consumers with small orders for "one person food". In addition, KFC has been introducing third-party platform delivery riders since the fourth quarter of last year.
At the same time, Yum! Brands China has adjusted the price of Pizzahut's products, increasing the supply of its "entry price" pizza products. Yum! China's management said that the sales of pizza under 50 yuan of Pizzahut in the first quarter increased by double digits, and its 39 yuan pizza quickly became one of the top five best-selling pizza; We learn from other pizza competitors and focus on low-priced pizza. It is revealed that the average unit price of Pizzahut has dropped from 132 yuan in 2017 to 90 yuan at the end of the first quarter. Yum! China will continue to drive down Pizzahut's unit price in the future.
Specifically, in the second quarter of 2024, Yum! China's system sales achieved a year-on-year growth of 4%. The company believes that, excluding the impact of foreign currency conversion, this growth is mainly due to the contribution of 8% net new stores. By June 30, 2024, Yum! Had 15423 stores in China, including 10931 KFC stores and 3504 Pizzahut stores; In the second quarter, there were more than 400 new stores (328 KFC stores and 79 Pizzahut stores), of which 99 were franchise stores, accounting for 25%.
Financial Performance Announcement for the Second Quarter of 2024
In addition, in the second quarter, the same store transaction volume of the company increased by 4% year-on-year, and the restaurant profit margin was 15.5%. Meanwhile, in this quarter, the company's takeaway sales increased by 11% year on year, accounting for 38% of the revenue of KFC and Pizzahut restaurants; Digital orders generated $2.2 billion in revenue, accounting for approximately 90% of the company's restaurant revenue. As of June 30, 2024, the total number of members of KFC and Pizzahut will exceed 495 million, accounting for 65% of the sales of KFC and Pizzahut systems.
According to its main brand KFC, Yum! Brands China, its total revenue in the second quarter was approximately 2.014 billion US dollars, a year-on-year increase of 2%; The operating profit decreased by 3% year-on-year to 264 million US dollars, while the core operating profit was 273 million US dollars, an increase of 4% year-on-year. During the same period, KFC's system sales increased by 5% year-on-year; Delivery sales increased by 12% year-on-year, accounting for approximately 38% of KFC's restaurant revenue. Non dine in business accounts for approximately 67% of KFC's restaurant revenue.
It should be noted that in the second quarter, KFC's restaurant profit margin was 16.2%. Yum China stated that excluding items that affect comparability at the restaurant level, the restaurant's profit margin has decreased by 60 basis points compared to the same period last year under high base conditions. This is mainly due to the addition of cost-effective products to drive foot traffic growth and wage cost increases, partially offset by favorable raw material prices and operational efficiency improvements.
As for Pizzahut, another major brand, Yum!! China announced that in the second quarter, Pizzahut's total revenue was about $540 million, down 2% year on year. Regardless of the impact of foreign currency translation, this figure increased by 1% year on year; Operating profit increased by 13% year-on-year to $40 million, reaching a new high in the second quarter; The core operating profit was 41 million US dollars, a year-on-year increase of 23%. Over the same period, the sales of Pizzahut system increased by 1% year on year; Take away sales increased by 6%, accounting for about 38% of the revenue of Pizzahut restaurants, and non meal businesses accounted for about 48% of the revenue of Pizzahut restaurants.
Pizzahut's restaurant profit margin in the second quarter was 13.2%. Yum China pointed out that excluding items that affect comparability at the restaurant level, the data increased by 110 basis points year-on-year. "The improvement in operational efficiency offset the impact of the increase in cost-effective products and rising wage costs, thereby increasing profit margins.
In addition, Qu Cuirong revealed that KCOFFEE and Pizzahut WOW store models of Kenyue Coffee achieved sales growth. Yum China revealed to Interface News that in the first half of 2024, Kenyue Coffee sold nearly 120 million cups, a year-on-year increase of 36%, with sales exceeding 1 billion yuan, a year-on-year increase of 26%. This year, Kenyue Coffee has increased from 100 stores in March to nearly 300 stores in July, about tripling in number. It is expected that by the end of this year, Kenyue Coffee's store count will expand to 500-600, in order to capture more coffee market share
At the same time, Yum! China said that the Pizzahut WOW store model has attracted a large number of "one person eating" diners, young people and customers who pay more attention to cost performance. Since the opening of pilot stores in May this year, Pizzahut has transformed more than 100 existing stores into WOW stores by the end of July. "Pizzahut is accelerating the promotion of WOW stores. It is expected that the number of WOW stores will more than double by the end of this year."
Overall, Yum China's fiscal year 2024 targets remain unchanged from previous disclosures. This year, Yum! China's goal is still to add approximately 1500 to 1700 new stores on a net basis; Capital expenditures range from approximately 700 million to 850 million US dollars; Return $1.5 billion to shareholders in the form of quarterly cash dividends and stock buybacks.
On August 6th, Yum! China also released a cash dividend announcement for its stock issuer, stating that the company intends to declare a dividend of $0.16 per ordinary share, which will be paid to shareholders registered before the market closes on August 27th, 2024, on September 17th, 2024. In addition, in the second quarter, the company repurchased approximately 5.1 million common shares for a total of $187 million; As of June 30, 2024, the company still has approximately $666 million in repurchase authorizations available for future stock repurchases.
Overall, Yum China stated that the company returned approximately $249 million to shareholders in the second quarter through stock buybacks and cash dividends. Since the beginning of the year, the company has returned $994 million to shareholders, including the repurchase of approximately 21.7 million ordinary shares, which is equivalent to more than 5% of the outstanding shares as of December 31, 2023.