Yum China Holdings Drops 4% on Lacklustre Results

Shares of Yum China Holdings, Inc. (NYSE: YUMC) were down 4% during the extended trading session on February 8, after China’s largest restaurant operator reported weaker-than-expected Q4 results.

The miss was attributed to reduced traveling, lesser social activities, and reduced consumption demand driven by multiple waves of Delta variant outbreaks.

Q4 Numbers

Q4 adjusted earnings of $0.03 per share declined 91% year-over-year and lagged analysts’ expectations of $0.22 per share. The company reported earnings of $0.35 per share for the prior-year period.

Further, revenues grew 1% year-over-year to $2.29 billion but fell short of consensus estimates of $2.38 billion. Same-store sales decreased 11% year-over-year, with a 12% decline at KFC and an 8% dip at Pizza Hut.

On top of this, restaurant margin halved to 7.5%, compared to 15.1% in the prior-year period, negatively impacted by sales deleveraging due to COVID-19 related challenges.

FY2022 Outlook

Looking forward to FY2022, the company forecasts 1,000 to 1,200 net new stores.

Further, the company expects capital expenditures in the range of $800 million to $1 billion, including incremental investments in the supply chain, infrastructure as well as digital.

CEO Comments

Yum China CEO, Joey Wat, cautioned, “Looking ahead, we continue to face significant uncertainties from the COVID-19 situation and other headwinds from the external environment. But with our product innovation capabilities, world-class operational excellence and agility, I am confident that we will emerge from the pandemic even stronger than before.”

Optimistically, he further added, “We are staying the course to reach our next milestone of 20,000 stores. Our innovative store models are creating new opportunities, enabling us to penetrate further into lower-tier cities and expand more flexibly in higher-tier cities. We will continue to apply a disciplined and systematic approach in opening new stores to ensure profitable growth of the business.”

Analysts Recommendation

Overall, the stock has a Strong Buy consensus rating based on 3 unanimous Buys. The average Yum China price target of $67.89 implies 45.28% upside potential from current levels.

Investors Weigh In

According to TipRanks’ Stock Investors tool, investors currently have a Very Positive stance on Yum China, with 12.9% of investors increasing their exposure to YUMC stock over the past 30 days.

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