Fast-food company Yum China (NYSE:YUMC) missed analysts' expectations in Q1 CY2024, with revenue up 1.4% year on year to $2.96 billion. It made a non-GAAP profit of $0.71 per share, improving from its profit of $0.69 per share in the same quarter last year.

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Total system sales grew 6% year over year ("YoY") excluding foreign currency translation ("F/X"), primarily attributable to 8% net new unit contribution.2 Total store count reached 15,022 as of March 31, 2024, including 10,603 KFC stores and 3,425 Pizza Hut stores.

One of China’s largest restaurant companies, Yum China (NYSE:YUMC) is an independent entity spun off from Yum! Brands in 2016.

Traditional Fast Food

Traditional fast-food restaurants are renowned for their speed and convenience, boasting menus filled with familiar and budget-friendly items. Their reputations for on-the-go consumption make them favored destinations for individuals and families needing a quick meal. This class of restaurants, however, is fighting the perception that their meals are unhealthy and made with inferior ingredients, a battle that's especially relevant today given the consumers increasing focus on health and wellness.

Sales Growth

Yum China is one of the most widely recognized restaurant chains in the world and benefits from brand equity, giving it customer loyalty and more influence over purchasing decisions.

As you can see below, the company's annualized revenue growth rate of 5.3% over the last five years was weak , but to its credit, it opened new restaurants and grew sales at existing, established dining locations.

This quarter, Yum China's revenue grew 1.4% year on year to $2.96 billion, falling short of Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 14.4% over the next 12 months, an acceleration from this quarter.

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Same-Store Sales

Yum China's demand within its existing restaurants has been relatively stable over the last eight quarters but fallen behind the broader sector. On average, the company's same-store sales have grown by 1% year on year. With positive same-store sales growth amid an increasing number of restaurants, Yum China is reaching more diners and growing sales.

In the latest quarter, Yum China's same-store sales fell 3% year on year. This decline was a reversal from the 8% year-on-year increase it posted 12 months ago. We'll be keeping a close eye on the company to see if this turns into a longer-term trend.

Key Takeaways from Yum China's Q1 Results

We were impressed by how significantly Yum China blew past analysts' gross margin expectations this quarter. We were also happy its EPS narrowly outperformed Wall Street's estimates. On the other hand, its same store sales missed and led to revenue below expectations. Zooming out, we are disappointed with the topline performance. The stock is flat after reporting and currently trades at $40 per share.

So should you invest in Yum China right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.