Yum China Drops 6% on Reduced Profit Outlook After Delta Variant

The fast food chain operator in China expects profit decline of up to 60% after mass store closures in August.
Sep. 15, 2021 17:40
Yum China Drops 6% on Reduced Profit Outlook After Delta Variant

(CapitalWatch, Sept. 15, New York) Shares in Yum China Holdings Ltd. (NYSE: YUMC; HKEX: 9987) plunged 6% in early trading Wednesday after the company said the latest Covid-19 outbreak of the Delta variant could reduce its operating profit by up to 60% in the third quarter.

In a statement after markets closed Tuesday, the fast-food chain operator said it had to close over 500 of its locations in 17 provinces in China, or operate on limited terms, providing take-out and delivery only, at the peak of the outbreak of the Delta variant last month. Some key cities in eastern China were especially affected. The outbreak began in July and became the most widely spread variant after since the epidemic's first outburst in 2020. That led to strict containment measures, including lockdown of tourist locations.

Yum China said the restaurant industry was hit by "substantially lower travel volume, cancelled summer holiday trips and fewer social activities."

The company said, specifically, "Same-store sales in August 2021 declined by mid-teens percentage year over year, or close to an approximately 20% decline compared to August 2019. This was mainly due to a same-store dine-in sales decline in that month of approximately 20% to 30%, and a sharp drop in sales at our transportation and tourist locations of approximately 40% to 50% year over year, also on a same-store basis."

Yum China noted that the outbreak has now subsided and the traffic is recovering, but that recovery is "uneven and nonlinear." Same-store sales recovery "will take time," it said. Further, its adjusted operating profit, may decline by between 50% to 60% in the third quarter, Yum China reported.

The company highlighted some new developments it has taken to increase consumer traffic, addressing at-home consumption, ready-to-cook products, mobile app improvement, and other features. The operator of KFC, Taco Bell, and Pizza Hut in China also expressed confidence in long-term growth, planning to reach 1,300 new store openings this year.

By midday Wednesday, YUMC stock was traded at $57.49 per American depositary share in New York. In Hong Kong, shares in the company ended 5% down, at HK$456 apiece. Still, year-to-date, YUMC stock is still in the green, in contrast to most major Chinese U.S.-listed companies.

Yum China, YUMC, China