Covid Hurts Business At Yum China; Shares Plunge 4.3% In Hong Kong

Multiple waves of Delta variant outbreaks persisted throughout the fourth quarter of 2021 in mainland China, hurting business at Yum China, the company said in its latest earnings report today.

Spun off from Yum! and run as an independent company since 2016, Yum China is the largest restaurant chain in China with more than 11,000 restaurants across the country as of December.

Yum China’s Hong Kong-traded shares dropped by 4.3% at noon to HK$342.60, and were on track to their lowest close since a secondary listing there in Sept. 2020 at HK$412 a share. The stock also trades at the New York Stock Exchange.

Revenue at the operator of KFC and Pizza Hut eateries rose by 1% in the three months to December 31 from a year earlier to $2.29 billion; net profit rose though primarily due to the non-cash gain of $618 million from the re-measurement of a previously held equity interest. (See announcement here.)

“Widespread outbreaks resulted in more stringent public health measures nationwide in pursuit of a zero-Covid-19 case goal,” Yum China said.  “These preventive measures, which include mass testing, regional lockdowns and travel restrictions, negatively affected the restaurant industry and our business,” and led to “reduced traveling, fewer social activities and softened consumption demand.”

As Covid-19 outbreaks resurged, same-store sales percentage declined by mid-teens year over year in November, Yum China said. Although sales trends recovered moderately, same-store sales still declined by more than 10% year over year in December, it noted.

Looking ahead, Yum China warned, “the situation remains volatile.” In January, cases of the Omicron variant emerged in China, spreading to major cities including Beijing, Shanghai, Tianjin and Shenzhen. A lockdown in Xi’an, which started in December, lasted nearly the whole month of January, the company said. At the peak in January, more than 500 stores were temporarily closed or offered only takeaway and delivery services, compared to nearly 300 stores in the fourth quarter.

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@rflannerychina