Yum posted strong margin expansion in its second-quarter report.
Shares of Yum China (YUMC 11.51%) were moving higher today after the company reported better-than-expected results in its second-quarter earnings report, overcoming consumer weakness in China.
As of 11:07 a.m. ET, the stock was up 13.2%.
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Yum China overcomes a low bar
The Chinese operator of KFC and Pizza Hut said that same-store sales were down 4% in the quarter, but overall revenue increased 1% to $2.68 billion, driven by new store openings and reaching a record high for the second quarter. On currency-neutral terms, revenue was up 4%.
The company continued its rapid expansion, adding 401 new locations in the quarter, bringing the total to 15,423.
Restaurant-level margin was 15.5%, even with results a year ago after adjustments, and core operating profit rose 12% to $275 million, driving earnings per share up 17% to $0.55 ahead of estimates at $0.42. Management noted a benefit from reducing the complexity of its menus and operations and said KFC, its largest brand, gained market share in delivery.
The company also announced that CFO Andy Yeung would step down due to personal reasons, and will be replaced by Chief Investment Officer Adrian Ding.
CEO Joey Wat said: “We achieved our most profitable second quarter since the spin-off, with core operating profit growing by 12% despite challenging industry dynamics. Our sharp focus on value-for-money and innovative new products worked well, driving robust same-store transaction growth.”
What’s next for Yum China
Management maintained its guidance for 2024, calling for 1,500 to 1,700 net new stores and returning $1.5 billion to shareholders in dividends and share repurchases.
Given the challenges in China, investors may want to take a cautious approach with Yum, but the stock is affordably priced, and the margin improvements in the quarter are impressive.
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.