Yum China impresses with strong quarterly figures

Yum China's shares saw a significant rise today after the company reported unexpectedly positive results for the second quarter, despite weak consumer demand in China. By 11:07 AM Eastern Time, the stock price had climbed by 13.2%. The operator of KFC and Pizza Hut in China reported that same-store sales for the quarter declined by 4%, yet total revenue increased by 1% to $2.68 billion, attributed to the opening of new stores. In constant currency, revenue increased by 4%. The company continued its rapid expansion, adding 401 new locations during the quarter, bringing the total to 15,423. The operating margin at the restaurant level remained stable at 15.5% compared to the previous year, while core earnings rose by 12% to $275 million, lifting earnings per share to $0.55 and exceeding estimates of $0.42. Management attributed this success to the simplification of menu offerings and operational processes, emphasizing that KFC, the company’s largest brand, was able to gain market share in the delivery segment. Simultaneously, the company announced that CFO Andy Yeung will be stepping down for personal reasons and will be replaced by Chief Investment Officer Adrian Ding. CEO Joey Wat expressed optimism: “We recorded our most profitable second quarter since our spinoff, with a 12% increase in core earnings, despite challenging market conditions. Our focus on value for money and innovative new products has proven effective, leading to strong growth in same-store transactions.” Management reaffirmed its forecast for 2024 and plans to open 1,500 to 1,700 new stores and return $1.5 billion to shareholders through dividends and share repurchases. Despite challenges in China, investors should approach Yum China with caution. The stock is fairly valued, and the margin improvements for the quarter are impressive. Before investing in Yum China, remember: The Motley Fool Stock Advisor team has just identified their top 10 stocks they believe are the best buy opportunities... and Yum China wasn't one of them. These 10 stocks that made the cut could deliver significant returns in the coming years. Remember when Nvidia was on this list on April 15, 2005... if you had invested $1,000 then, you would now have $615,516!* Stock Advisor provides investors with an easy-to-understand guide to success, including advice on building a portfolio, regular analyst updates, and two new stock recommendations per month. The Stock Advisor service has more than quadrupled the S&P 500's return since 2002.* Jeremy Bowman owns no shares of any stocks mentioned. The Motley Fool owns no shares of any stocks mentioned. The Motley Fool has a disclosure policy.