Yum China beats Q2 estimates as Pizza Hut deal nears close

Yum China Holdings Inc. reported second-quarter revenue of $3.14 billion, topping the $3.05 billion consensus estimate, as the operator of KFC and Pizza Hut in China prepares to close its acquisition of the Pizza Hut brand in the region next month.

"The operating environment remains dynamic, but our topline growth continued to outperform the industry in Q2," Chief Executive Officer Joey Wat said. "Same-store sales growth improved sequentially to 1 percent, led by the 14th consecutive quarter of same-store transaction growth."

Adjusted diluted earnings per share came in at $0.70, beating the $0.67 FactSet estimate and rising 21 percent from a year earlier. Operating profit grew 14 percent to $348 million, marking the ninth straight quarter of operating margin expansion. Total system sales rose 6 percent year over year excluding currency effects, while same-store sales improved 1 percent sequentially from the first quarter.

The results underscore Yum China's ability to sustain growth in a competitive Chinese consumer market. The company opened 560 net new stores in the quarter, a second-quarter record and 67 percent more than a year earlier, bringing its total to 19,297 locations. Delivery sales surged 26 percent and now account for about 54 percent of total company sales, up from 45 percent a year ago.

KFC, Yum China's largest brand, posted system sales growth of 7 percent with revenue of $2.34 billion, up 12 percent. Operating profit at KFC rose 14 percent to $332 million, and restaurant margin expanded 20 basis points to 17.1 percent. Pizza Hut's system sales grew 6 percent, with same-store sales returning to positive territory at 1 percent. The chain added 174 net new stores, nearly double the openings in the same quarter last year.

The company is on track to close its acquisition of the Pizza Hut brand in Mainland China in August, a deal that will give Yum China full ownership of the brand it has operated for 36 years under license. Wat said brand ownership will provide "greater strategic flexibility to capture new opportunities and innovate more nimbly" and should help Pizza Hut's restaurant margin approach KFC's over time.

Yum China returned $402 million to shareholders in the quarter through $301 million in share repurchases and $101 million in dividends. The company remains on track to return $1.5 billion to shareholders in 2026, representing about 10 percent of its current market capitalization. Starting in 2027, it plans to return approximately 100 percent of annual free cash flow.

The strong quarter and the strategic brand acquisition signal that management sees room to deepen penetration in China's lower-tier cities through formats such as KFC Small Town and Pizza Hut WOW. Investors will watch the Pizza Hut brand acquisition close in August for updated margin targets and store expansion plans.

This article is for informational purposes only and does not constitute investment advice.