Yum China (NYSE: YUMC) reported Q4 EPS of $0.35, $0.09 better than the analyst estimate of $0.26. Revenue for the quarter came in at $2.26 billion versus the consensus estimate of $2.17 billion.

Fourth Quarter Highlights

• Total revenues increased 11% year over year to $2.26 billion from $2.03 billion (a 5% increase excluding foreign currency translation ("F/X")).
• Total system sales increased 5% year over year, with an increase of 3% at KFC and a decline of 3% at Pizza Hut, excluding F/X.
• Same-store sales declined 4% year over year, with declines of 4% at KFC and 5% at Pizza Hut, excluding F/X.
• Opened 505 new stores during the quarter.
• Restaurant margin was 15.1%, compared with 12.4% in the prior year period.
• Operating Profit increased 90% year over year to $180 million from $94 million (a 78% increase excluding F/X).
• Adjusted Operating Profit increased 72% year over year to $182 million from $105 million (a 61% increase excluding F/X).
• Effective tax rate was 28.0%.
• Net Income increased 68% to $151 million from $90 million in the prior year period, primarily due to the increase in Operating Profit.
• Adjusted Net Income increased 56% to $153 million from $98 million in the prior year period (a 76% increase excluding the $23 million and $24 million net gains in the fourth quarter of 2020 and 2019, respectively, from our equity investment in Meituan Dianping ("Meituan"); a 65% increase if further excluding F/X).
• Diluted EPS increased 52% to $0.35 from $0.23 in the prior year period.
• Adjusted Diluted EPS increased 40% to $0.35 from $0.25 in the prior year period (a 58% increase excluding the net gains from our equity investment in Meituan in 2020 and 2019; a 47% increase if further excluding F/X).

CEO and CFO Comments

Joey Wat, CEO of Yum China, commented, "2020 was an unprecedented year that tested our people, systems and capabilities. I would like to express my heartfelt appreciation to our employees and business partners. Through their dedication, creativity, and tireless efforts, we overcame numerous challenges and demonstrated our ability to succeed in the face of adversity. Fourth quarter results marked a strong finish to 2020, with same-store sales recovering sequentially and double-digit operating profit growth. Our foremost priority remains the safety of our employees and customers. The COVID-19 pandemic reinforced our determination to look after our employees and strive to be a responsible corporate citizen, an effort that is recognized by our industry."

Wat continued, "Looking into 2021, we will continue to manage the impact of the pandemic. We will swiftly adjust our operations according to market conditions and drive traffic with compelling offers for both dine-in and off-premise occasions. Our industry-leading digital capabilities enable us to stay agile in this ever-evolving situation. We remain committed to growth and intend to open approximately 1,000 new stores in the year ahead. Our confidence in the long-term potential of China is unshaken. We are focused on growing our store footprint and developing our emerging brands. We will also step up investment in digitization and infrastructure to create an even stronger foundation to accelerate expansion. I am confident that with the strength of our team together with our resilient business model, culture of innovation and execution capabilities, we will overcome these short-term challenges and achieve attractive long-term growth."

Andy Yeung, CFO of Yum China, added, "Fourth quarter operations improved sequentially, although the recovery was uneven and non-linear, impacted by regional outbreaks. We improved our margins in the quarter with solid productivity gains, temporary relief and one-off savings. Recent surges in COVID-19 outbreaks resulted in the government tightening measures nationwide, including city-wide quarantine in several cities, advice against travel during the Chinese New Year holiday period and large gatherings. These measures resulted in a very challenging condition. Traffic is significantly lower in transportation and tourist locations. Accordingly, we will continue to adjust our operations and leverage our digital and delivery resources to capture dine-in and off-premise demand. We also plan to step up our value campaigns and tailor offers according to city tiers and trade zones. Despite these challenges, we will continue to invest for the long term, focusing on building our capabilities, making our business model more resilient, and driving long-term growth. Our healthy balance sheet and strong cash position enable us to handle potential contingencies, while laying the foundation for us to capture market opportunities and achieve sustainable growth in the long run."

2021 Outlook

The Company provides the following fiscal year 2021 targets:

• To open approximately 1,000 new stores (gross)
• To make capital expenditures of approximately $600 million

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