KFC is finger lickin' in a less appetising China

By Alec Macfarlane

(The author is a Breakingviews columnist.)

HONG KONG, Feb 1 ( Breakingviews) - KFC is looking finger lickin' good in China. Consumption numbers for the People's Republic have been less than appetising of late, but the country's taste for fried chicken has helped Yum China turn a fourth-quarter profit and pushed its same-store sales up 2 percent, beating analyst forecasts. The restaurant operator is still expanding fast too, at a rate of more than two outlets a day in 2018. That all suggests a resilient bet on mainland consumers.

Market-beating results just months after turning down the pricey takeout, then, will encourage investors. Looking at just KFC, same-store sales ticked up 3 percent; Wall Street had anticipated flat growth. The brand's restaurant margins - defined as store profits divided by company sales - ticked higher to just over 14 percent. Overall, the company also managed to turn a profit of $74 million during the fourth quarter, compared to a loss of over $100 million the previous year. Not bad, given it also reported wage inflation at 6 percent and a 3 percent increase in the price of basic ingredients like poultry, rates it expects to keep battling in 2019.

An aggressive store roll-out helped. Yum China opened 257 outlets during the quarter, most of them KFCs, a trend that is expected to continue as the company pursues its goal of operating 20,000 eateries in the long run, more than double its current network. Discount campaigns played a part too, as did coffee sales, which came close to $150 million last year. Deliveries accounted for 16 percent of revenue, suggesting Yum China is riding the same wave that prompted its equity investment in taxis-to-takeaways app Meituan Dianping.

China is not short of hole-in-the-wall fast food purveyors. But bargain buckets of chicken-and-chips are proving adaptable: even as household budgets tighten, cheap eats stay on the menu.

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- Yum China, which operates KFC and Pizza Hut restaurants in the People's Republic, reported on Jan. 31 that its fourth-quarter revenue increased 2 percent year-on-year to $1.9 billion.

- Same-store sales grew 2 percent from the same period the previous year, with a 3 percent increase at KFC. However, this was offset by a 4 percent decline in same-store sales at Pizza Hut.

- The Shanghai-based company's net income for the three months increased to $74 million, up from a net loss of $107 million during the same period the previous year.

- Yum China'sNew York-listed shares were up 4.5 percent at $38.1 in after-hours trading on Jan. 31.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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