Yum China Warned Q3 Adjusted Operating Profit Could Fall 50%-60% Amid Weaker Consumption

This is an English adaptation of a FoodBud historical article originally published on September 17, 2021.

Yum China said its third-quarter adjusted operating profit, excluding special items, could decline by about 50% to 60% year on year, as COVID-19 flare-ups and extreme weather weighed on restaurant traffic.

Consumer Spending Slowed in August

On September 15, 2021, China’s State Council Information Office held a press conference on August economic performance. The data showed that total retail sales of consumer goods rose 2.5% year on year in August, down 6 percentage points from July.

Restaurant revenue was weaker: catering revenue fell 4.5% year on year in August, compared with 14.3% growth in July.

The softer-than-expected retail data was mainly attributed to renewed COVID-19 outbreaks and extreme weather, including heavy rain and flooding, which reduced out-of-home activity and limited consumption occasions.

Yum China Flagged Delta Impact

On September 15, Yum China issued an announcement highlighting the impact of the Delta variant on its business. The company said the restaurant sector had been hit by a sharp drop in tourist numbers, canceled summer travel, and reduced social activity.

Yum China said conditions had begun to ease and traffic was recovering, but described the recovery as uneven and non-linear. It added that same-store sales recovery would take time.

At the August 2021 peak of the outbreaks, more than 500 Yum China stores across 17 provinces were either closed or limited to delivery and takeaway. Same-store sales in August 2021 fell by a mid-teens percentage year on year and were about 20% below August 2019 levels.

After the announcement, Yum China’s U.S.-listed shares fell sharply, dropping nearly 7% intraday.

Long-Term Expansion Plan Remained in Place

Looking ahead, Yum China pointed to initiatives aimed at increasing consumer traffic, addressing at-home consumption, and developing ready-to-eat products. The operator of KFC, Taco Bell, and Pizza Hut in China also reiterated confidence in long-term growth and said it planned to open 1,300 new stores that year.

Note: forward-looking profit expectations, store-opening plans, and share-price references are historical figures from September 2021.