Yum China Holdings, Inc. YUMC recently announced its third-quarter 2024 earnings, showing earnings that exceeded expectations while revenue fell slightly short. Both earnings and revenue increased year over year.

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Yum China’s stock rose by 7.2% on November 4 following these results. Investors reacted positively, as the company reiterated its plan to return capital to shareholders while continuing to invest in growth. Confident in its financial strength, Yum China intends to boost capital returns from $3 billion to $4.5 billion over the next few years.

Quarterly Earnings and Revenue Overview

In the third quarter, Yum China reported adjusted earnings per share (EPS) of 77 cents. This figure surpassed the Zacks Consensus Estimate of 68 cents by 13.2%, marking a year-over-year increase of 30.5%.

Total revenue was $3.07 billion, slightly missing the estimated $3.08 billion, but reflecting a 5.4% increase compared to last year. When excluding the effects of foreign currency translation, revenues rose by 4% year over year.

Yum China Price, Consensus, and EPS Surprise

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

Excluding foreign currency effects, total system sales were also up 4% year over year, driven by a net addition of 7% in new units. System sales increased by 6% for KFC and 2% for Pizza Hut, when excluding currency translation.

In the quarter, YUMC’s same-store sales reached 97% of the previous year’s figures, with transactions showing a modest growth of 1% year-over-year.

Operational Highlights

Total costs and expenses for the quarter were $2.7 billion, up from $2.59 billion in the same quarter last year, and just below our projected $2.73 billion.

The restaurant margin remained flat at 17% year over year, compared to our estimate of 18.4%.

Adjusted operating profit climbed to $371 million, higher than last year’s $327 million, and above our estimate of $332 million.

Adjusted net income for the quarter was $297 million, up from $248 million in the prior year and ahead of our estimate of $249.4 million.

Financial Position

As of September 30, 2024, Yum China reported cash and cash equivalents of $1.19 billion, an increase from $1.13 billion on December 31, 2023. Net inventories were reported at $359 million, down from $424 million at the end of last year.

The company is committed to returning $1.5 billion to shareholders in 2024 as part of its expanded capital returns initiative. For the first nine months of the year, Yum China returned a record $1.24 billion to shareholders, including $1.06 billion through share buybacks and $187 million in cash dividends.

The board of directors approved an additional $1 billion for share repurchases, raising total authorizations to $4.4 billion. Since 2017, Yum China has repurchased approximately 71.8 million shares for $3 billion, leaving about $1.4 billion remaining in its authorization.

A quarterly cash dividend of 16 cents per share has been declared, to be paid on December 17 for shareholders recorded as of close of business on November 26, 2024.

Unit Expansion and Strategic Updates

In the third quarter, Yum China opened 438 new stores, bringing the total to 15,861 restaurants, including 11,283 KFC locations and 3,606 Pizza Hut branches.

The company is strategically expanding into underserved markets in China, improving access through customized store formats. Yum China aims to increase franchise openings, particularly in lower-tier cities, with expectations that the franchise mix will grow to 40-50% for KFC and 20-30% for Pizza Hut over the coming years.

Delivery services now account for approximately 40% of KFC and Pizza Hut’s sales. Additionally, digital orders represent about 90% of total company sales, bolstered by strong loyalty programs that have collectively attracted over 510 million members.

Outlook for 2024

Yum China anticipates net new store openings to be between 1,500 and 1,700 for the year. Management also expects capital expenditures to remain between $700 million and $850 million.

Current Zacks Rank

Yum China holds a Zacks Rank #2 (Buy). For more information, see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Recent News from the Retail and Wholesale Sector

Chipotle Mexican Grill, Inc. CMG reported mixed results for third-quarter 2024, continuing its streak of beating earnings estimates for the seventh quarter running, while revenues fell below expectations after a four-quarter stretch of outperformance.

CMG generated adjusted EPS of 27 cents, surpassing the Zacks Consensus Estimate of 25 cents, representing a 17.4% increase from last year’s 23 cents. Revenue amounted to $2,793.6 million, missing the estimated $2,817 million but achieving a 13% rise year over year, driven by strong comparable sales and a 3.3% rise in transactions alongside a 2.7% increase in average checks.

Shake Shack Inc. SHAK also posted favorable third-quarter fiscal 2024 results, with both earnings and revenue exceeding expectations. The company has notably increased investments in marketing to enhance brand engagement, yielding significant sales and profitability growth. Adjusted EPS for the quarter was 25 cents, topping the Zacks Consensus estimate of 20 cents, while quarterly revenues reached $316.9 million, surpassing the expected $315 million and increasing 14.7% from the previous year.

BJ’s Restaurants, Inc. BJRI reported mixed results for the third quarter of fiscal 2024, with earnings not meeting expectations but revenues surpassing them. Adjusted loss per share stood at 13 cents, missing the consensus estimate of 3 cents, yet showing an improvement from a 16-cent loss last year. Total revenues of $325.7 million edged past the consensus by 0.04% and climbed 2.2% year over year, thanks to strong guest traffic and the Pizookie Meal Deal.

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