Yum China's Strong Q4 2024 Results: A Recipe for Success

Yum China Holdings, Inc. (YUMC) reported robust financial results for the fourth quarter of 2024, reflecting the company's continued focus on operational efficiency and innovation. The earnings call, held on February 7, 2025, highlighted the strong performance of both KFC and Pizza Hut brands, as well as the company's commitment to capital returns to shareholders.



Key Financial Highlights:

* System sales grew 4% year-over-year, with same-store sales index sequentially improving to 99% of prior year levels.
* KFC system sales increased 5% year-over-year, with same-store sales index improving to 99% of prior year levels.
* Pizza Hut system sales increased 3% year-over-year, with same-store sales index achieving 98% of prior year levels.
* Operating profit (OP) margin was 5.8%, 140 basis points higher year-over-year, driven by improved restaurant margin.
* Net income was USD115 million, growing 17% year-over-year, with diluted EPS of $0.30, up 27% year-over-year.
* For the full year, system sales grew 5%, with restaurant margin steady at 15.7% on a comparable basis.
* Operating profit grew 8% to $1.2 billion, with core operating profit increasing 12%.
* Net income was $911 million, up 13% year-over-year, with diluted EPS of $2.33, growing 22% year-over-year.



Growth Drivers and Strategic Initiatives:

1. KFC:
* Innovative products, such as the regional recipe chicken burger, Gigantic (inaudible), and Crispy whole chicken (inaudible), generated excitement among customers.
* KCOFFEE sales grew 30%, with the KCOFFEE Cafe model expanding to 700 cafes in 2024 and planned to reach 1,300 locations by the end of 2025.
* Delivery market share expanded on aggregator platforms, with double-digit growth over the past decade.
2. Pizza Hut:
* The brand transformed into a more mass market brand, with sales of pizza price under RMB50 increasing 50% year-over-year.
* The breakthrough WOW model exceeded 200 stores in 2024, attracting younger customers and meeting functional needs.
* The brand launched a brand-new menu with delicious new products while streamlining operations, leading to the best same-store transaction growth in 2024.
3. Operational Efficiency and Innovation:
* The company's focus on operational efficiency and innovation has led to structural improvements in business capabilities, setting it up for profitable growth in the long term.
* The gains realized from these initiatives are not merely incremental but represent significant improvements in business capabilities.
* The company has introduced around 600 new or upgraded menu items in 2024, driving traffic to its stores and enhancing customer experience.

Capital Returns to Shareholders:

* Yum China is on track to return $4.5 billion to shareholders from 2024 through 2026, with a total of $3 billion allocated for 2025 and 2026.
* The average annual amount represents around 9% of the company's market cap.
* In 2024, the company returned $1.5 billion, including USD248 million in quarterly cash dividends and $1.24 billion in share repurchases.
* Total repurchases exceeded 31 million shares, representing 8% of the company's total shares outstanding.
* The company generated $740 million in free cash flow in 2024 and ended the year with $2.8 billion in net cash.



In conclusion, Yum China Holdings, Inc. reported strong financial results for the fourth quarter of 2024, driven by the success of its KFC and Pizza Hut brands, as well as its focus on operational efficiency and innovation. The company's commitment to capital returns to shareholders, along with its strategic initiatives, positions it well for continued growth and success in the future. Investors should consider YUMC as a strong investment opportunity in the consumer cyclical sector.