Shares of Yum China (NYSE: YUMC) were down 18.8% as of 3:00 p.m. ET Wednesday after the Chinese fast-food company announced weaker-than-expected third-quarter 2023 results.
Yum China's quarterly revenue climbed 9% year over year (15% at constant currency) to $2.91 billion, translating to adjusted (non-GAAP) net income of $248 million, or $0.59 per share (up 20% from $0.49 per share in the same year-ago period). Analysts, on average, were modeling adjusted earnings of $0.62 per share on revenue of $3.09 billion.
Yum China's record quarter just wasn't enough
Digging deeper into Yum China's results, sales grew 15% at KFC and 13% at Pizza Hut at constant currency in the country, including same-store sales increases of 4% and 2%, respectively. Yum China's remaining growth was driven by 500 net new store openings during the quarter, bringing its total store count to 14,102 as of Sept. 30, 2023. Management said the company remains on track to meet its recently revised full-year target of 1,400 to 1,600 net new store openings for the year.
Yum China CEO Joey Wat noted that, despite macroeconomic headwinds, the quarter set fresh company records in terms of total revenue, adjusted operating profit, and net new store openings.
On "softening demand" for Yum China
At the same time, Yum China CFO Andy Yeung stated that the company "observed softening consumer demand" from late September through October, adding that the company's "post-pandemic economic recovery is shaping up to be a 'wave-like' and 'non-linear' process."
Yum China management didn't provide specific revenue or earnings guidance for the current quarter or full-year 2023. But management did reiterate their longer-term goals for driving a double-digit-percent compound annual growth rate (CAGR) in earnings per share and a high-single to double-digit CAGR in system sales and operating profits from 2024 through 2026. The company also continues to target 20,000 stores by the end of 2026.
In the end, it's obvious that Yum China is a thriving business with a long runway for growth. But the market was expecting even more from the fast-food giant in the third quarter. Coupled with management's warnings over softening consumer demand, it's no surprise to see the stock pulling back in response today.
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