Yum China (NYSE: YUMC) reported Q1 EPS of $0.56, $0.08 better than the analyst estimate of $0.48. Revenue for the quarter came in at $2.56 billion versus the consensus estimate of $2.39 billion.

First Quarter Highlights

• Total revenues increased 46% year over year to $2.56 billion from $1.75 billion (a 36% increase excluding foreign currency translation ("F/X")).
• Total system sales increased 34% year over year, with increases of 24% at KFC and 57% at Pizza Hut, excluding F/X.
• Same-store sales increased 10% year over year, with increases of 5% at KFC and 38% at Pizza Hut, excluding F/X.
• Opened 315 new stores during the quarter; total store count reached 10,725 as of March 31, 2021.
• Restaurant margin was 18.7%, compared with 10.7% in the prior year period.
• Operating Profit increased 250% year over year to $342 million from $97 million (a 227% increase excluding F/X).
• Adjusted Operating Profit increased 249% year over year to $345 million from $98 million (a 227% increase excluding F/X).
• Effective tax rate was 29.6%.
• Net Income increased 272% to $230 million from $62 million in the prior year period, primarily due to the increase in Operating Profit.
• Adjusted Net Income increased 271% to $233 million from $63 million in the prior year period (a 249% increase excluding the mark-to-market losses of $16 million and $8 million in the first quarter of 2021 and 2020, respectively, from our equity investments; a 225% increase if further excluding F/X).
• Diluted EPS increased 231% to $0.53 from $0.16 in the prior year period.
• Adjusted Diluted EPS increased 238% to $0.54 from $0.16 in the prior year period (a 217% increase excluding the mark-to-market losses from our equity investments in the first quarter of 2021 and 2020; a 194% increase if further excluding F/X).
• Results include the consolidation of Huang Ji Huang since April 2020, and Suzhou KFC since August 2020.

CEO and CFO Comments

Joey Wat, CEO of Yum China, commented, "Our first quarter results once again demonstrated the resilience of Yum China and were accomplished by our dedicated and tireless team of over 400,000 people. We delivered solid sales growth and operating profit amid challenging market conditions. Our operations and supply chain teams overcame a wide array of challenges and uncertainties, managed potential disruptions and delivered robust operations for our stores. Our brands adapted quickly to an unusual Chinese New Year, driving on- and off-premise dining demand with compelling offers and flexible resource planning. KFC continued its journey of accelerated growth, while Pizza Hut made significant strides in making its business more resilient."

Wat continued, "We remain optimistic about our long-term growth opportunity in China, which is reflected in our vigorous pace of investment. We accelerated store network expansion, opening 315 new stores during the quarter. As part of our end-to-end digitization initiatives, we are digitizing and automating our restaurants to improve operational efficiency. Leveraging emerging technologies, we have been enhancing our ability to manage inventory, product quality and kitchen processes. Furthermore, we continue to fortify our supply chain to give us more operational flexibility, allow us to be more responsive and to grow even faster. During the quarter, we took a 5% equity interest in our largest poultry supplier Sunner to deepen collaboration, and broke ground to build an intelligent supply chain support center in Chengdu. All these initiatives are essential to help accelerate our growth in the years ahead."

Andy Yeung, CFO of Yum China, added, "While we are pleased with the first quarter performance, sales were impacted by regional outbreaks and significantly reduced travel volumes. The impacts of COVID-19 are subsiding, but we continue to expect the recovery of same-store sales to 2019 levels to take time and the recovery path to remain uneven and non-linear. In the short term, the top priority of our business is to drive consumer traffic back to our stores. We plan to invest more in our marketing, value proposition, digital engagement and customer service. On the other hand, we are also seeing early signs of inflationary pressure in commodity prices and wages as the economy continues to recover. Despite the lingering effects of COVID-19, we will continue to invest to drive sustainable long-term growth."

2021 Outlook

The Company's fiscal year 2021 targets remain unchanged:

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

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