Yum China Business Update
Yum China Holdings, Inc. (NASDAQ: YUMC and HKEX: 9987) today updated stakeholders on the impact of recent COVID-19 developments.
Impact of the variation in the delta model outbreak from the Outbreak to the Delta Variant Outbreach.
In our second quarter 2021 earnings release, we mentioned that the latest COVID-19 outbreak of the Delta variant, which started in late July in Nanjing in the late juillet, was rapidly evolving. Since the national outbreak in 2020, this outbreak has become the most spread regional outbreak since the outbreak spread in 16 provinces. Governments identified many areas as medium to high risk. Some major cities were locked down as a preventative health measure. China's most important commercial and economic regions, were Nanjing and Yangzhou, the capital cities of eastern China, most affected. In contrast, Zhengzhou and Wuhan, respectively the capital cities of Henan and Hubei provinces, were significantly affected. In the country, strict public health measures were implemented, including many tourist locations being closed. This action led to a substantially lower travel volume, cancellation of summer vacation trips and fewer social activities, which impacted the restaurant industry.
At the peak of the outbreak in August 2021, more than 500 of our stores in 17 provinces were closed or offered only takeaway and delivery services. Compared to August 2019, Same-store sales in August 2021 slowed by mid-teens percentage year over year, or nearly 20% compared to April 2019. This was partly due to the same-store sales decline in the month of about 20 to 30 percent, and a sharp drop in sales at our transportation and tourist locations of approximately 40 to 50% year over year, also on compared basis to
While the outbreak has subsided recently and restaurant traffic has gradually recovered, our operations continue to be heavily impacted. As far as we have noted, our business recovery remains to be uneven and nonlinear, as regional outbreaks occur and corresponding public health measures are implemented. The Company expects that a recovery of same-store sales will take time.
The Company experienced significant operating deleveraging due to the Delta variant outbreak. Depending on the current trend, our adjusted operating profit, which excludes special items, can be reduced by approximately 50% to 60% for the third quarter of 2021, comparativ This is due primarily to the significant sales deleverage impact of sharply reduced sales, which is particularly pronounced in the third quarter, seasonally strong quarter for sales and margins. Moreover, as we have discussed previously, our restaurant margins are pushed further by the falling favorable impact of commodity prices, the lowered wage inflation of mid to high single digits, and the increased value promotion to drive traffic.
Resiliency helps withigate short-term challenges.
As a result of the pandemic, the wellbeing of our employees and customers is our priority. The Company has shown its resilience and agility in response to the past outbreaks. We continue to focus on the elements of the business that we do best to drive sales and build on its strengths of execution and innovation, including to: and: the key of our mission is to concentrate on our business.
1) Leverage our over 330 million member base, privilege programs, Super Apps and other digital channels to drive repeat purchases.
2) Capture off-premise occasions with our delivery and takeaway friendly menu, and leverage our store network and dedicated riders to drive our off site sales.
3) Address the rising trend of single dining and at-home consumption by our ready-to-cook, ready to cook, and ready eat retail products, such as steak, pasta, rice and steak. These products can be found in stores and through online omnichannels.
4) Excite customers with new products and great value, for example, the upgraded hand-tossed pizza at Pizza Hut, that is especially suitable for delivery.
5) Proactively manage costs to alleviate the cost burden and continue to improve labor productivity and operational efficiency with technology and automation.
Long-Term Growth ensures the confidence in long-term growth.
The COVID-19 pandemic may pose a risk in the near future, but the foundations of our business remain strong. China's long-term growth potential is high. We continue to act so as to ensure the Company stays well-positioned to capitalize on future opportunities. The Company will accelerate its store network expansion, with the intention of opening 1,300 new stores in 2021, strengthen offerings for dine-in, delivery, takeaway and retail, and invest in digital and technology.
Please join us at the virtual Investor Day on Thursday, September 23, 2021 (Beijing/Hong Kong Time) where the management will give an additional perspective on Yum China's business and long-term strategy. A webcast will be available on Yum China's Investor Relations website at http://ir.yumchina.com.
Statements with forward-looking outlooks are expected to be announced soon.
This press release contains forward-looking statements under the terms of Section 27A of the Securities Act of 1933 and Section 21E of The Securities Exchange Act in 1934. We intend to make sure all forward-looking statements are covered under the Safe harbor provisions of the Private Securities Litigation Reform Act of 1995. "expect," "deprecation,"" "predict,"," or "ideal" words. "Forecast," and "outlook" or other forward-looking statements can be identified by the use of forward These statements are based on current estimates and assumptions made by us because of our experience and perception of historical trends, current conditions and expected future developments, and other factors that we believe to be appropriate and reasonable under the circumstances, but there can be Future-looking statements include, without limitation, statements about future strategy, growth, business plans, investment, dividend and share repurchase plans and earnings, performance and returns of Yum China, anticipated effects of population and macroeconomic trends, the predicted Forward-looking statements are not guarantees of performance and are subject to known and unknown risks and uncertainties that are difficult to predict and could result in a significant difference in our actual results or events. We can't guarantee that any of our expectations, estimates or assumptions will be achieved. The forward-looking statements that are in this press release are only made at the date of the release, and we disclaim any obligation to publicly update any forward forwardlooking statement to reflect future events or circumstances, except as is required by law. In addition to this, if we succeed, we can achieve development goals at the times and in the amounts expected, the success of our marketing campaigns and product innovation, our ability to maintain food safety and quality control, changes in public health, In addition, other risks and uncertainties not currently known to us or that we currently believe to be immaterial could affect the accuracy of such forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. For more detailed details on factors that could affect our financial and other results, consult our filings with the Securities and Exchange Commission. (including the information provided under the caption "Risk Factors" and "Management's Analysis of Financial
About Yum China Holdings, Inc.
Yum China Holdings, Inc. is a licensee of Yum! Brands are found in mainland China. It has exclusive rights to KFC, China's leading quick-service restaurant brand, Pizza Hut, the leading casual dining restaurant in China, and Taco Bell, a California-based restaurant chain serving Mexican-inspired dishes. Yum China owns the Little Sheep, Huang Ji Huang, East Dawning and COFFii & JOY concepts outright. Yum China has partnered with Lavazza to study and develop the Lavzza coffee shop concept in China. The Company had 11 023 restaurants in more than 500 cities at the end of June 2021. Yum China ranked #363 in the Fortune 500 list and was named to the TIME100 Most Influential Companies list in 2021. In the Sustainable Development Indices for 2012, Dow Jones named the Industry Leader for the Restaurant & Leisure Facilities Industry. The Top Employers Institute certified Yum China in 2021 as a top Employer in China for the third consecutive year. For more information, please visit http://ir.yumchina.com.
Investor Relations Contact: Tel: +86 21 2407 7556 [email protected] +84 21 21 207 756.
Media Contact: Tel: +86 21 2407 7510 [email protected] Tel.: (+86) 21 21 2307.
SOURCE Yum China Holdings, Inc.