Yum China Beats Expectations in First Earnings Report

Chinese fast-food company Yum China Holdings, which was spun off by its parent in the U.S. last October, topped expectations for earnings in its first quarterly results thanks to help from its expanding chain of KFC restaurants.

The company’s profit was 17 cents per share, which excluded certain items in comparison to analyst expectations of 10 cents per share. Growth in sales at same stores for KFC gave results a boost, while its division of Pizza Hut did not perform as well as expected.

The results indicate that Yum China has had a solid start as a standalone company, even though its faces strong headwinds. The pizza chain is declining due to more local competition gaining market share.

The company increased its number of locations in 2016 by 575, with over half during the fourth quarter due to believing that aggressive expansion will keep it in front of other U.S. chains located in China.

CEO Mickey Pant said that the majority of the company’s restaurants are not even built yet in China. The CEO stressed that the top priority for the company was to consistently deliver positive growth in sales at same-stores.

Yum China has more than 7,500 locations across China as of yearend 2016, and has plans of adding another 600 locations in China each year.

McDonald’s, which entered into an agreement to sell its majority share in its Hong Kong and China operations early last month.

Over the upcoming five years, McDonald’s plans to added another 1,500 locations, while Starbucks is planning to increase its outlets by 500 annually.

Yum China was down 2.4% in Tuesday trading, which is the most over the past month. The stock thus far in 2017 has increased by 7.6% in comparison to a gain of 5% in Yum! Brands Inc.

Sales at same stores for KFC were up 1% during the fourth quarter. Wall Street was expecting comparable sales to grow by 0.4%. Pizza Hut was down 3%, missing growth projections of 2.3%. Combined sales for the company ended flat for the quarter.

The performance of Pizza Hut in China remains sluggish as local competition takes more market share and consumers in the middle class are increasingly seeking more dining experiences that are upmarket.

Yum China approved a buyback program of $300 million and appointed a pair of important executives.

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