Shares of Yum China Holdings, Inc. (NYSE: YUMC) experienced a significant uptick on Wednesday after the company unveiled its fourth-quarter financial results, which demonstrated strong earnings, solid revenue gains, and margin expansion, reaffirming its market strength and operational efficiency.
The robust performance was predominantly driven by key brands KFC and Pizza Hut, which recorded increased delivery sales, consistent same-store sales growth, and further penetration into emerging and lower-tier city markets.
Financial Highlights for the Quarter
Yum China reported adjusted earnings per share (EPS) of 40 cents for the quarter, surpassing analyst expectations of 36 cents. Quarterly revenue reached $2.823 billion, reflecting a 9% increase compared to the same period last year and exceeding the Street estimate of $2.721 billion.
Delivery sales, a critical growth area for the company, expanded by 34% year over year and accounted for approximately 53% of total sales, a notable increase from 42% in the prior year. Total system sales grew 7% year over year, while same-store sales improved by 3%, marking the third quarter of consecutive same-store sales growth. Additionally, the number of same-store transactions rose by 4% year over year.
During this period, Yum China opened a net 587 new stores, with franchisees responsible for opening about 36% of the total. This expansion strategy supports the company's efforts to broaden its footprint and reach customers in diverse locations.
Operational Advances and Brand Strategies
CEO Joey Wat highlighted the strategic initiatives behind the growth of the key brands. At KFC, innovation through the KCOFFEE cafe and KPRO side-by-side modules has unlocked new consumption occasions, driving customer engagement beyond traditional offerings. Meanwhile, Pizza Hut has focused on enhancing its value proposition and introducing the WOW model, targeting previously underserved locations, especially in lower-tier cities.
In terms of metrics, KFC's system sales increased by 8%, with same-store sales growing 3%. Pizza Hut's system sales were up 6% year over year, with same-store sales advancing 1%. These figures suggest effective management and market positioning within their respective segments.
Profitability and Margin Expansion
The company achieved a 23% year-over-year increase in core operating profit, with an operating margin of 6.6%, representing a rise of 80 basis points. Restaurant margin also improved by 70 basis points year over year, reaching 13.0%. The margin growth was primarily attributed to reductions in food and paper costs, as well as decreases in occupancy and other operating expenses, reflecting operational efficiencies.
Yum China concluded the quarter with a strong liquidity position, holding $506 million in cash and cash equivalents.
Dividend and Capital Return Plans
The board of directors approved a 21% increase in the cash dividend, raising it to 29 cents per share, with payment scheduled for March 25. This move underscores the company's commitment to returning value to shareholders.
Looking ahead, Yum China outlined a plan to return approximately $1.5 billion annually to shareholders from 2024 through 2026, representing roughly 8% of its market capitalization as of February 3, 2026. From 2027 onward, the company intends to distribute about 100% of its annual free cash flow after dividend payments to non-controlling interests, translating into an estimated annual return ranging between $900 million and over $1 billion during 2027 and 2028, with expectations to exceed $1 billion thereafter.
Outlook and Strategic Goals
For the year 2026, Yum China projects its total store count to surpass 20,000, adding more than 1,900 net new units, with 40% to 50% of these new stores to be franchised across KFC and Pizza Hut brands. The company anticipates capital expenditures between $600 million and $700 million and plans to continue returning $1.5 billion to shareholders.
CEO Joey Wat articulated a long-term vision aiming for over 30,000 total stores by 2030, leveraging an equity-and-franchise hybrid model that facilitates expansion while managing capital deployment efficiently. The strategy includes broadening the addressable market through enhanced front-end segmentation and back-end consolidation techniques.
Furthermore, management remains focused on advancing its RGM 3.0 strategy, which balances innovation with operational efficiency to sustain growth and profitability.
Market Reaction
Following the announcement, Yum China's stock price rose 4.45% to $53.00 during premarket trading on Wednesday, nearing its 52-week high of $53.99, showcasing investor confidence in the company’s financial health and strategic direction.