In This Article:
Shares of Yum China (NYSE: YUMC) -- the exclusive Chinese licensee of KFC, Pizza Hut, and Taco Bell that was spun off from Yum! Brands (NYSE: YUM) a few years ago -- rallied after the company recently reported a better-than-feared report for the fourth quarter of 2018. Investors have been fretting that a slowdown in the world's second-biggest economy would hurt restaurant operators, and it's true that Yum China has slowed down as of late. Growth is growth, though, and the fast-food chain was able to deliver solid bottom-line numbers.
2018 in review
Though total sales increased less in the fourth quarter than in quarters past (up just 3% year over year in the fourth quarter), Yum China kept expenses in check to deliver an operating profit 77% higher than a year ago. While restaurant margin (average profit per location) at Pizza Hut continued to deteriorate to 4.9% from 6.4% a year ago, KFC's restaurant margin improved to 14.3% compared to 13.9% last year. Paired with a bunch of new location openings, it all added up to big bottom-line gains for Yum China in 2018.
| Metric | Full Year 2018 | Full Year 2017 | % Change (YOY) |
|---|---|---|---|
| Revenue | $8.42 billion | $7.77 billion | 8% |
| Operating expenses | $7.47 billion | $6.99 billion | 7% |
| Earnings per share | $1.79 | $1.00 | 79% |
| KFC restaurant margin | 17.9% | 18% | (0.1 p.p.) |
| Pizza Hut restaurant margin | 10.3% | 13.9% | (3.6 p.p.) |
YOY = year over year. P.p. = percentage point. Data source: Yum China.
Capping off the fourth quarter was the repurchase of 4.4 million shares of Yum China common stock for $145.3 million, averaging to a price of $32.85 per share. That's well under the $39-and-change share price as of this writing, so it appears to be money well spent -- at least in the short term. Given the company's ambitious plans for growth, and if sales numbers continue to rebound off of the third-quarter lull reported last fall, Yum China's stock could have plenty of upside left in the tank.
A growing Chinese consumer base
Yum China's management reiterated on the fourth-quarter report that it plans to expand to 20,000 locations in China. At year's end, there were 8,484 restaurants, made up mostly of KFC and Pizza Hut and a small but fast-growing number of the company's own Little Sheep hot pot concept. That's a lot of new locations planned, and the multibrand chain is already established in over 1,200 cities in China. Nevertheless, reaching that lofty goal might not take as long as some may think.
Image source: Getty Images.