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Yum China, China’s largest restaurant group, wobbled in the third quarter, failing to meet analysts’ expectations for revenue and earnings per share. The company experienced “softening consumer demand” in September and October, CFO Andy Yeung said in an earnings call. It’s a sign that Chinese customers are watching their budgets in the midst of the country’s economic downturn.
Yum China, which operates more than 14,000 KFC, Pizza Hut, and other chain restaurants in China, provides an interesting window on that country’s economy. China’s burgeoning middle class eats the most fast food, according to Morningstar analyst Ivan Su.
While the company had a disappointing quarter, executives tried to strike an optimistic note during the earnings call. CEO Joey Wat called it a “record third quarter in total revenues, adjusted operating profit and net new store openings,” noting that the company opened 500 new locations in Q3. The company’s total revenue grew 9% YoY, from $2.68b to $2.91b. “We achieved robust results despite macroeconomic headwinds,” Yeung said.
But Yum China’s same-store sales haven’t rebounded to pre-pandemic levels. They’re still at 90% of what they were in 2019. Its restaurant margin was down to 17% from 18.8% in Q3 2022, partly due to the fact that wages and staffing levels have risen while pandemic relief has ended.
“The post-pandemic economic recovery is shaping up to be a ‘wave-like’ and ‘non-linear’ process,” Yeung observed. He warned that the fourth quarter, historically a slow time for Yum China’s restaurants, could be sluggish.
Investors likewise seem wary: Yum China’s stock reached a one-year low on the Hong Kong stock market the morning after the earnings call, the Wall Street Journal reported.