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Yum China Holdings, Inc. (YUMC)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered resilient top-line and margin recovery amid a value-focused consumer backdrop: revenues rose 4% to $2.60B, diluted EPS increased 30% to $0.30, OP margin expanded 140 bps to 5.8%, and restaurant margin expanded 160 bps to 12.3% versus Q4 2023 .
  • Segment performance improved sequentially: KFC OP margin +100 bps YoY to 9.9% with delivery mix ~42%, while Pizza Hut OP margin +160 bps YoY to 2.6% and same‑store transactions +9%, the highest quarter of 2024 .
  • Strategic initiatives (Project Fresh Eye/Red Eye, KCOFFEE Cafes, Pizza Hut WOW) drove operational efficiencies and broadened addressable markets; management guided 1,600–1,800 net new stores and $700–$800M capex in FY2025, and raised the quarterly dividend 50% to $0.24 .
  • Beat/miss vs consensus could not be assessed—S&P Global estimates were unavailable during this session; however, management targets core OP margin to be stable or slightly up in FY2025 and G&A as a percent of revenue to slightly decrease .

What Went Well and What Went Wrong

  • What Went Well

    • Margin expansion and EPS growth: OP margin +140 bps YoY; restaurant margin +160 bps YoY; diluted EPS +30% YoY to $0.30 in Q4 2024 .
    • Strategic innovation gaining traction: “Our dual focus on operational efficiency and innovation yielded excellent results… Project Fresh Eye and Project Red Eye… made us more efficient, agile and competitive” — CEO Joey Wat .
    • Pizza Hut inflection point: core OP more than tripled YoY; same‑store transactions +9% YoY in Q4 with improving margins on value strategy and WOW format expansion .

  • What Went Wrong

    • Same-store sales still below prior year: Q4 same‑store sales growth −1% (ex-FX), despite transaction growth; same‑store sales index reached 99% .
    • KFC full‑year OP down 1% YoY despite revenue growth, reflecting value-for-money mix and wage inflation impacts (restaurant margin −80 bps YoY for FY) .
    • 2025 labor cost headwinds: delivery mix increases and wage inflation expected to pressure COL; management plans efficiency offsets but warns of slight COL percent increase tied to delivery mix .

Financial Results

MetricQ4 2023Q3 2024Q4 2024Vs Estimates
Total Revenues ($USD Millions)$2,493 $3,071 $2,595 N/A (S&P Global consensus unavailable)
Diluted EPS ($USD)$0.23 $0.77 $0.30 N/A (S&P Global consensus unavailable)
OP Margin %4.4% 12.1% 5.8% N/A
Restaurant Margin %10.7% 17.0% 12.3% N/A
System Sales Growth YoY (% ex‑FX)21% 4% 4% N/A
Same‑Store Sales Growth YoY (% ex‑FX)4% −3% −1% N/A
Net Income ($USD Millions)$97 $297 $115 N/A

Segment breakdown (revenues, profitability, margins):

Segment MetricQ4 2023Q3 2024Q4 2024
KFC Total Revenues ($mn)$1,872 $2,311 $1,954
KFC Operating Profit ($mn)$167 $364 $192
KFC OP Margin (%)8.9% 15.7% 9.9%
KFC Restaurant Margin (%)12.0% 18.3% 13.3%
Pizza Hut Total Revenues ($mn)$496 $615 $510
Pizza Hut Operating Profit ($mn)$5 $52 $14
Pizza Hut OP Margin (%)1.0% 8.6% 2.6%
Pizza Hut Restaurant Margin (%)7.3% 12.8% 9.3%

KPIs and operating drivers:

KPIQ4 2023Q3 2024Q4 2024
Total Stores (All Brands)N/A15,861 16,395
Net New Stores in Quarter (#)N/A438 534
Company Delivery Mix (% of Company Sales)N/A~40% ~39%
KFC Delivery Mix (% of Company Sales)N/A~40% ~42%
Pizza Hut Delivery Mix (% of Company Sales)N/A~39% ~42%
Same‑Store Transactions Growth YoY (Company)N/A+1% +4%
Same‑Store Sales Index vs Prior YearN/A97% 99%
Digital Ordering (% of Company Sales)N/A~90% ~90%
Aggregate Membership (KFC+PH, millions)N/A510 525

Notes: Consensus estimates for Q4 2024 were unavailable from S&P Global during this session; beat/miss assessment not provided.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net New StoresFY2025N/A1,600–1,800 net new stores New
Capital Expenditures ($)FY2025N/A~$700–$800M New
Dividend per Share (Quarterly)2025$0.16 (Dec 2024 declaration) $0.24; +50% increase, payable Mar 27, 2025 Raised
Capital Returns Total ($)2024–2026$4.5B stepped up from $3B (Nov 2024) $3B for 2025–2026 (after $1.5B in 2024) Maintained/clarified phasing
Core OP MarginFY2025N/ARelatively stable or slightly improved YoY New
G&A as % of RevenueFY2025~5% target (FY2024) Slight decrease for 2025 Improved
Franchise Mix of Net New StoresNext few yearsGradual increase to 40–50% (KFC), 20–30% (PH) (prior commentary) 40–50% (KFC), 20–30% (PH) reaffirmed Maintained
Share Repurchases (H1 2025)H1 2025N/AUS$360M (US$290M 10b5‑1 in US; ~HK$550M in HK) New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q1)Current Period (Q4 2024)Trend
Operational efficiency (Fresh Eye/Red Eye)Q2: Project Fresh Eye & Red Eye launched to simplify operations, spend/buy better ; Q1: Fresh Eye scope across restaurants, supply chain, back office Efficiency drove cost savings across COS/COL/O&O; structural improvements cited Strengthening
AI/TechnologyQ2: AI for forecasting, labor scheduling; i‑Kitchen rollout ; Q1: Generative AI for marketing, recruiting; digital capabilities Gen AI used for resume screening/forecasting; ongoing digitization emphasis Expanding
Delivery strategy & rider costsQ1: reduced delivery fees; platform riders introduced selectively ; Q2: delivery growth double‑digit Delivery mix rising; rider cost per ticket down via platform riders; COL % may rise on mix Rising mix; efficiency offsets
Pricing, Average Ticket (TA) & Transactions (TC)Q2: TA lower to drive TC, value; KFC TA RMB 37 vs 2019 ; Q1: balanced TA strategy; 460M transactions KFC TA RMB 38, stable QoQ; Pizza Hut to further lower TA while protecting margins Continued TC focus; TA managed
Regional & format expansionQ2: lower‑tier cities outperform; strategic locations ; Q1: transportation hubs strong; franchising for remote areas Franchise mix rising; focus on lower‑tier cities/strategic sites; mid‑single‑digit 2025 system sales targeted Accelerating
Pizza Hut WOW modelQ2: pilots >100 conversions by end Jul ; Q3: WOW >150 stores (press) WOW >200 stores; dine‑in outperformance; margin gap narrowing; plan to test new openings Maturing & expanding
KCOFFEE CafesQ1: ~100 side‑by‑side cafés ; Q2: ~300 by July 700 cafés by year‑end 2024; target ~1,300 by end 2025 Rapid scale‑up
VAT deductions & one‑time reliefQ1/Q2: VAT deductions/ landlord relief benefited prior periods ; Q3: reminder of non‑recurrence VAT/relief non‑recurring in 2024; core OP recon reflects removal of items affecting comparability Normalizing comps

Management Commentary

  • “We closed the year with a strong fourth quarter… OP margin expanded by 140 basis points, and restaurant margin increased by 160 basis points… These results demonstrate the resilience of our business and the effectiveness of our strategy” — CEO Joey Wat .
  • “Our Project Fresh Eye and Project Red Eye initiatives… have made us more efficient, agile and competitive… KCOFFEE Cafes and Pizza Hut WOW have expanded our addressable market” — CEO Joey Wat .
  • “For 2025, we expect to hold core OP margin relatively stable or even slightly improved… and G&A expenses as a percentage of revenue to slightly decrease” — Acting CFO Adrian Ding .

Q&A Highlights

  • Competitive landscape rationalizing promotions/prices; Yum China modestly raised prices and remains focused on widening price range and value to drive traffic and protect margins .
  • Store expansion algorithm: smaller formats and franchises in lower-tier/strategic locations imply ~5–6% revenue contribution from net new stores near term; 2025 system sales targeted mid‑single‑digit growth, with SSG and unit growth both contributing .
  • TA vs TC strategy: KFC TA RMB 38 stable QoQ and above pre‑pandemic; Pizza Hut aims to further reduce TA while improving sales/profit; margins protected through operational efficiency .
  • Margin drivers 2025: COS guided in upper-half of 31%±1% but slightly improved YoY; COL faces wage inflation and delivery mix headwind; O&O broadly stable; G&A ratio to slightly decrease .
  • Delivery costs: platform rider penetration to lower per-ticket costs, but increasing delivery mix may lift COL %; net effect mitigated by efficiency initiatives .
  • WOW economics: dine‑in outperformance; delivery sales improving; COS/COL broadly on par with regular stores for many WOW units; overall margin still slightly below main model but narrowing .

Estimates Context

  • S&P Global consensus for Q4 2024 EPS and revenue was unavailable during this session due to data access limits; we cannot assess beats/misses vs Street. Management’s commentary highlights sequential KPI improvement and aims for FY2025 core OP margin stability/slight improvement, with G&A percent reduction .

Key Takeaways for Investors

  • Momentum: Sequential improvement from Q2 through Q4 in same‑store sales index, margins, and operating profit signals operational initiatives are taking hold .
  • Mix & margins: Value-driven pricing lowers TA but transaction growth and efficiency projects support margin resilience; watch COS (upper half of 31%±1%) and delivery mix’s effect on COL in 2025 .
  • Segment lens: KFC remains the profit engine with healthy restaurant margins; Pizza Hut shows an inflection with WOW rollout and transaction-led growth, though margin recovery is ongoing .
  • Capital deployment: Dividend up 50% to $0.24 and ongoing buybacks (US$360M H1 2025) reinforce shareholder return commitment under the $4.5B 2024–2026 plan .
  • Growth path: Guidance for 1,600–1,800 net new stores and accelerating KCOFFEE/WOW formats support multi-year unit growth, particularly in lower-tier cities and strategic sites .
  • 2025 setup: Management targets core OP margin stability/slight improvement and lower G&A ratio; monitor post‑holiday demand normalization and macro consumer trends .
  • Trading implications: Near-term catalysts include dividend increase, buyback execution, and continued margin progression; medium-term thesis hinges on efficiency-driven profitability, format innovation, and disciplined franchising .