Financial Performance - Total revenue for the six months ended June 30, 2023, was $5.57 billion, an increase of 16% from $4.80 billion in the same period last year[1]. - Operating profit reached $673 million, a 147% increase from $272 million in the same period last year, driven by higher sales and improved profit margins[1]. - Net profit was $486 million, up 166% from $183 million year-over-year, primarily due to the increase in operating profit[2]. - Diluted earnings per share were $1.15, a 167% increase from $0.43 in the same period last year[2]. - Comprehensive income for the six months ended June 30, 2023, was $273 million, compared to a loss of $45 million in the same period last year[7]. - Cash generated from operating activities reached $924 million, up from $609 million year-over-year, indicating a 52% increase[8]. - Net profit for the six months ended June 30, 2023, was $527 million, a significant increase from $193 million in the same period of 2022, representing a growth of 173%[8]. - The company reported a net cash outflow from investing activities of $598 million, compared to $52 million in the previous year, highlighting increased investment activity[8]. - The company reported a decrease in net other expenses to $1 million for the six months ended June 30, 2023, compared to $49 million in the same period of 2022[37]. - The company reported a significant increase in user data, with active users growing by 10% year-over-year[70]. Revenue Breakdown - System sales increased by 24% year-over-year, with KFC and Pizza Hut growing by 24% and 23% respectively, excluding foreign currency effects[1]. - Same-store sales rose by 11% compared to the previous year, with KFC and Pizza Hut increasing by 11% and 10% respectively, excluding foreign currency effects[1]. - The company restaurant revenue was $5.29 billion, compared to $4.57 billion in the previous year[6]. - Revenue from company restaurants totaled $4,574 million, with KFC contributing $3,562 million and Pizza Hut $985 million for the six months ended June 30, 2023[27]. - Franchise fee revenue amounted to $46 million, with KFC generating $32 million and Pizza Hut $4 million during the same period[27]. - Revenue from transactions with franchise stores reached $182 million, with KFC at $21 million and Pizza Hut at $2 million[27]. - Other income was reported at $343 million, including $306 million from logistics and warehousing services[27]. Assets and Liabilities - Total assets as of June 30, 2023, amounted to $11,675 million, a slight decrease from $11,826 million at the end of 2022[9]. - Total liabilities decreased to $4,458 million from $4,666 million, showing a reduction of 4.5%[9]. - Shareholders' equity increased to $7,205 million from $7,148 million, indicating a growth of 0.8%[9]. - The company’s investment in equity accounted investees was $257 million as of June 30, 2023, down from $266 million as of December 31, 2022[40]. - The total fixed assets as of June 30, 2023, amounted to $4,493 million, a slight decrease from $4,586 million as of December 31, 2022[40]. - The goodwill balance as of June 30, 2023, is $2,282 million, down from $2,379 million as of December 31, 2022, reflecting a decrease of 4.1%[43]. Investments and Acquisitions - The company completed the acquisition of a 28% stake in Hangzhou Beverage for $255 million, gaining control of approximately 60% of Hangzhou KFC[16]. - The company has consolidated the financial performance of Hangzhou KFC since the acquisition date, reflecting its operational results in the financial statements[16]. - The company completed the acquisition of an additional 25% stake in Suzhou KFC for $149 million, increasing its ownership to 72% in Q3 2020[17]. - In December 2022, the company acquired an additional 20% stake in Suzhou KFC for $115 million, raising total ownership to 92%[17]. - The company has expanded its business by acquiring a controlling stake in a food delivery service provider, enhancing its delivery operations[12]. Shareholder Returns - The company repurchased $122 million in common stock during the period, down from $400 million in the previous year[8]. - The company paid cash dividends of $108 million on common stock, slightly up from $101 million in the same period last year[8]. - On July 31, 2023, the company announced a cash dividend of $0.13 per share, totaling approximately $54 million to be paid on September 18, 2023[65]. Operational Highlights - As of June 30, 2023, Yum China operates over 9,500 KFC stores in China, holding controlling interests of 58% to 92% in various regions[11]. - The company has over 3,000 Pizza Hut restaurants in China as of June 30, 2023[12]. - The number of self-operated restaurants increased by 12% to 11,747 as of June 30, 2023, compared to 10,461 in 2022[84]. - The company aims to open approximately 1,100 to 1,300 new stores in fiscal year 2023[84]. - The company has a membership program allowing registered members to earn points redeemable for products, with points typically expiring after 18 months[26]. Tax and Regulatory Matters - The actual tax rate for the six months ended June 30, 2023, was 27.0%, a decrease from 30.4% in the prior year, attributed to improved performance of several subsidiaries[57]. - The company continues to monitor regulatory developments related to the Corporate Alternative Minimum Tax (CAMT) and its potential impact on financial statements[57]. - The company is currently undergoing a transfer pricing audit by the Chinese tax authorities, which may lead to significant developments in the next 12 months[58]. - The company believes that any potential tax liabilities arising from the indirect transfer of assets in China may be significant due to a small tax base[63]. Future Outlook - The company plans to gradually phase out the COFFii & JOY brand and has already closed all related stores by March 2022[12]. - The company expects capital expenditures for the fiscal year 2023 to be between approximately $700 million and $900 million[116]. - The company anticipates continued uncertainty in the macroeconomic environment, with potential wage increases and gradual removal of VAT rebate policies impacting future performance[110]. - The company plans to use future cash primarily for operations and capital expenditures related to accelerating store network expansion and renovations, as well as increasing investments in digitalization, automation, and logistics infrastructure[115].

Yum China Holdings, Inc. (NYSE:YUMC) Q2 2023 Earnings Conference Call July 31, 2023 8:00 PM ET Company Participants Michelle Shen - Director of Investor Relations Joey Wat - Chief Executive Officer Andy Yeung - Chief Financial Officer Conference Call Participants Michelle Cheng - Goldman Sachs Group, Inc. Brian Bittner - Oppenheimer & Co. Chen Luo - Bank of America Merrill Lynch Anne Ling - Jefferies Sijie Lin - CICC Lillian Lou - Morgan Stanley Christine Peng - UBS Operator Thank you for standing by, and w ...

Financial Performance - Total revenue for Q2 2023 reached $2.65 billion, a 25% increase from $2.13 billion in the same period last year[3]. - Net profit for Q2 2023 was $197 million, a 138% increase from $83 million in the same period last year[3]. - Adjusted net profit for Q2 2023 was $199 million, a 137% increase from $84 million in the same period last year[6]. - Total revenue for the six months ended June 30, 2023, was $5,289 million, a 16% increase from $4,574 million in the same period of 2022[21]. - Net profit for the six months ended June 30, 2023, was $486 million, compared to $197 million in the same period of 2022, representing a significant increase[21]. - Net profit for Yum China Holdings, Inc. was $197 million for the quarter ended June 30, 2023, compared to $83 million for the same quarter in 2022, representing a significant increase[29]. - The company reported a net income of $673 million, indicating strong financial performance[38]. Sales and Revenue Growth - System sales increased by 32% year-over-year, with KFC and Pizza Hut growing by 32% and 30% respectively, excluding foreign exchange impacts[3]. - Same-store sales rose by 15%, with KFC and Pizza Hut increasing by 15% and 13% respectively, excluding foreign exchange impacts[3]. - Company restaurant revenue reached $2,517 million for the quarter, up 24% from $2,026 million year-over-year[21]. - KFC's revenue for the six months ended June 30, 2023, was $1,954 million, a 24% increase from $1,571 million in the same period of 2022[22]. - Pizza Hut's revenue for the six months ended June 30, 2023, was $1,137 million, a 15% increase from $985 million in the same period of 2022[23]. - KFC's total income for the six months ended June 30, 2023, was $1,984 million, a 24% increase from $1,594 million in the same period of 2022[22]. - Pizza Hut's total income for the six months ended June 30, 2023, was $1,151 million, a 16% increase from $995 million in the same period of 2022[23]. Profitability Metrics - Operating profit was $257 million, up 216% from $81 million in Q2 2022, primarily driven by higher same-store sales and improved profit margins[3]. - Adjusted operating profit for Q2 2023 was $259 million, a 215% increase from $82 million in Q2 2022[6]. - The restaurant profit margin improved to 16.1%, compared to 12.1% in the same period last year[3]. - Operating profit margin improved to 10.2% for the quarter, compared to 4.0% in the same quarter last year, reflecting a 6.2 percentage point increase[21]. - KFC's restaurant profit margin improved to 17.3% for the six months ended June 30, 2023, compared to 13.4% in the same period of 2022[22]. - Pizza Hut's restaurant profit margin was 12.4% for the six months ended June 30, 2023, compared to 8.6% in the same period of 2022, showing improved efficiency[23]. Store Expansion - The company added a net of 422 new stores in Q2 2023, bringing the total number of stores to 13,602 as of June 30, 2023[3]. - The company opened a net total of 655 new stores in the first half of 2023, with KFC exceeding 1,900 towns and Pizza Hut surpassing 3,000 stores in China[7][11]. - The company has a target of opening approximately 1,100 to 1,300 new stores for the fiscal year 2023[15]. - Total restaurant count increased to 9,562 as of June 30, 2023, with KFC operating 8,612 restaurants and Pizza Hut operating 3,072 restaurants[31][32]. Digital and Membership Growth - As of June 30, 2023, the total membership for KFC and Pizza Hut reached over 445 million, with membership sales accounting for approximately 66% of system sales[9][10]. - Digital orders, including takeout, mobile orders, and self-service kiosk orders, accounted for about 90% of restaurant revenue in Q2 2023[9][10]. Cost Management and Financial Health - Total costs and expenses for the six months ended June 30, 2023, were $4,898 million, an 8% increase from $4,524 million in the same period of 2022[21]. - The company reported a decrease in inventory net amount to $396 million from $417 million, a decline of 5.0%[24]. - The company repurchased approximately 1 million shares for a total of $62 million at an average price of $60.23 per share in Q2 2023[8]. - The company repurchased common stock amounting to $122 million, compared to $400 million in the same period of 2022, indicating a reduction in buyback activity[25]. Strategic Initiatives and Future Plans - The company plans to continue expanding its store network while maintaining strict cost control measures to drive long-term sustainable growth[7][13]. - The company aims to become the world's most innovative restaurant pioneer, leveraging its strong digital capabilities and supply chain management[20]. - Future growth strategies include exploring and developing the Lavazza coffee concept in China[20]. - The company plans to focus on expanding its market presence and enhancing its product offerings in the upcoming quarters[42]. - The company is exploring potential acquisitions to enhance its market position and diversify its offerings[38].

Financial Performance - Total revenue for Q1 2023 reached $2.92 billion, a 9% increase from $2.67 billion in Q1 2022[2] - Operating profit was $416 million, up 118% from $191 million in the same quarter last year[5] - Net profit reached $289 million, a 189% increase compared to $100 million in Q1 2022[5] - Company restaurant revenue was $2,772 million, up 9% from $2,548 million year-over-year[19] - Operating profit surged to $416 million, representing a 118% increase compared to $191 million in the same quarter last year[19] - Net profit attributable to Yum China Holdings, Inc. was $289 million, a 189% increase from $100 million in Q1 2022[19] - Adjusted operating profit for the same period was $419 million, up from $193 million year-over-year, indicating a 117% increase[26] - Adjusted net profit for the quarter was $292 million, compared to $102 million in the same quarter of 2022, marking a 186% increase[26] - Basic earnings per share for the quarter were $0.69, up from $0.23 in the same quarter of the previous year, representing a 200% increase[26] Sales and Growth - System sales increased by 17% year-over-year, with KFC and Pizza Hut both contributing 17% growth[3] - Same-store sales rose by 8%, with KFC and Pizza Hut increasing by 8% and 7% respectively[3] - The company added a net of 233 new stores, bringing the total store count to 13,180 as of March 31, 2023[3] - The company targets to open approximately 1,100 to 1,300 new stores and plans capital expenditures between $700 million and $900 million for the fiscal year 2023[14] - KFC's total restaurant count increased from 9,094 to 9,239, reflecting a net addition of 145 restaurants[29] - Pizza Hut's total restaurant count rose from 2,903 to 2,983, with a net addition of 80 restaurants[30] Profit Margins - Restaurant profit margin improved to 20.3%, up from 13.8% in the same period last year[3] - KFC's restaurant profit margin increased to 22.2% in Q1 2023, compared to 15.2% in Q1 2022, reflecting a 7.0 percentage point increase[13] - Pizza Hut's restaurant profit margin rose to 14.2% in Q1 2023, up from 10.7% in the same period last year, marking a 3.5 percentage point increase[13] - The restaurant profit margin improved to 20.3%, up from 13.8% in Q1 2022, indicating a 6.5 percentage point increase[19] Tax and Expenses - The actual tax rate for the quarter was 28.5%[3] - The actual tax rate improved to 28.5%, down from 33.1% in the previous year, reflecting a 4.6 percentage point decrease[19] - The company incurred total costs and expenses of $2,501 million, with KFC's costs at $1,685 million and Pizza Hut's at $507 million[32] Strategic Initiatives - The company plans to focus on sales growth, expanding its store network, and strengthening its competitive advantages in 2023[6] - The CEO highlighted the importance of high-value promotions and menu innovations to drive sales during the Spring Festival[6] - The company remodeled 83 restaurants in Q1 2023 as part of its asset upgrade strategy[10] - The company continues to evaluate its restaurant profitability through restaurant profit and profit margin metrics, which are deemed effective indicators for investors[25] - The company plans to continue its centralized procurement model to enhance efficiency and profitability[36] - Future strategies include expanding market presence and developing new products and technologies[36] Membership and Digital Sales - The membership program for KFC and Pizza Hut reached over 430 million members, with member sales accounting for approximately 64% of system sales in Q1 2023[8] - Takeout sales represented about 36% of restaurant revenue, remaining stable compared to the same period last year, while digital orders accounted for approximately 89% of restaurant revenue[8] Sustainability and Corporate Responsibility - The company released its 2022 sustainability report, outlining commitments to environmental and social responsibility[14]

Financial Performance - Yum China recorded revenue of $9.6 billion in 2022, with nearly 13,000 restaurants as of December 31, 2022[6] - Total revenue for 2022 was $9.569 billion, a decrease from $9.853 billion in 2021[190] - Net profit attributable to Yum China Holdings, Inc. was $442 million in 2022, down from $990 million in 2021[190] - Operating profit in 2022 was $629 million, compared to $1.386 billion in 2021[190] - Total assets as of December 31, 2022, were $11.826 billion, down from $13.223 billion in 2021[190] - Yum China's total liabilities were $4.666 billion as of December 31, 2022, down from $5.301 billion in 2021[190] - Yum China's total equity was $7.148 billion as of December 31, 2022, compared to $7.908 billion in 2021[190] - Total revenue decreased by 3% to $9.569 billion in 2022 compared to $9.853 billion in 2021[198] - Net profit attributable to Yum China Holdings decreased by 55% to $442 million in 2022 from $990 million in 2021[198] - Restaurant profit increased by 4% to $1.281 billion in 2022, with a restaurant profit margin of 14.1%, up 0.4 percentage points[198] - System sales declined by 8% in 2022, with a 5% decline excluding foreign currency translation[200] - Same-store sales decreased by 7% in 2022[200] - Adjusted EBITDA was $1.286 billion in 2022, compared to $1.330 billion in 2021[198] - Adjusted net profit was $446 million in 2022, down from $525 million in 2021[198] - Adjusted diluted earnings per share were $1.05 in 2022, compared to $1.21 in 2021[198] Restaurant Network and Expansion - Yum China operates nearly 13,000 restaurants across over 1,800 cities in China as of December 31, 2022[192] - KFC operates over 9,000 restaurants in China, approximately double the number of its closest competitor[192] - Pizza Hut operates over 2,900 restaurants in more than 650 cities in China, making it the largest casual dining brand by system sales and restaurant count, with approximately five times the number of restaurants compared to its closest competitor[193] - The number of self-operated restaurants increased by 11% to 11,161 in 2022[200] - The number of franchise restaurants increased by 3% to 1,786 in 2022[200] - Yum China plans to focus on expanding its footprint in existing and new cities within China[5] - Accelerating store network expansion towards the milestone of 20,000 stores, with a focus on driving growth for core brands and emerging brands like Taco Bell and Lavazza[10] - Tracking over 900 cities in China without KFC or Pizza Hut coverage, aiming to expand in both existing and new cities, particularly in lower-tier cities[11] - The company aims to expand its restaurant network in China to 20,000 stores, but new stores may not achieve profitability and could cannibalize sales from existing locations[109] Digital and Delivery Services - Digital orders accounted for approximately 89% of KFC and Pizza Hut company restaurant revenue in 2022[33] - Digital payments increased from 33% of total sales in 2016 to 99% in 2022[34] - KFC and Pizza Hut loyalty programs collectively had over 410 million members as of December 31, 2022, contributing to 62% of system sales[35] - Delivery revenue as a percentage of company restaurant revenue increased from 21% in 2019 to 39% in 2022[37] - The company introduced a smart ordering system in 2022 to reduce customer wait times and display real-time order status[33] - Approximately 90% of KFC restaurants and over 95% of Pizza Hut restaurants offered delivery services by the end of 2022, contributing to about 39% of the company-owned restaurant revenue for both brands[124] - The company relies on third-party delivery platforms, and any increase in commission rates charged by these platforms could negatively impact its operating performance[123] - The company's delivery services depend on the performance of third-party platforms, and any disruptions or failures in these services could harm its business and reputation[124] Supply Chain and Operations - The company collaborates with over 800 independent suppliers, most of which are located in China, and employs more than 1,400 staff in its internal integrated supply chain management system[27] - In 2022 and 2021, the company acquired land to establish eight new logistics centers to further consolidate its supply chain network[27] - The company operates a global-class logistics management system and utilizes 33 logistics centers to distribute supplies to its self-operated and franchised restaurants, as well as third-party customers[27] - The company has a seasoning factory for its Chinese cuisine division, which produces and sells seasonings to Huang Ji Huang and Little Sheep franchisees[27] - The company adopts a centralized procurement model to enhance the efficiency and effectiveness of its purchasing process, ensuring quality control and better pricing through bulk purchasing[27] - The company's ability to maintain consistent food quality depends on the effectiveness of its and its franchisees' quality assurance systems, which are subject to various risks[99] Franchise and Brand Management - Approximately 86% of Yum China's restaurants are company-owned and operated as of December 31, 2022[5] - Approximately 14% of restaurants operated by franchisees as of December 31, 2022, with plans to further develop the franchise model in specific channels and lower-tier cities[13] - The company completed the acquisition of a controlling stake in Huang Ji Huang, a leading Chinese casual dining franchise, in April 2020, and established a Chinese cuisine division to manage its Chinese dining brands[18] - The company owns registered trademarks for brands such as Little Sheep, Huang Ji Huang, COFFii & JOY, and East Dawning, without incurring franchise fees for these brands[63] - The company pays a franchise fee equivalent to 3% of the net system sales of the franchised brands to YUM[62] - The company has exclusive franchise rights for KFC and Pizza Hut in mainland China (excluding Hong Kong, Macau, and Taiwan) for 50 years starting from October 31, 2016, with an automatic renewal option for an additional 50 years[62] - The company plans to expand the Taco Bell store network to at least 225 locations by the end of 2025, securing a 50-year exclusive franchise and sub-licensing rights in China upon achieving development milestones[62] Innovation and Product Development - Over 500 new and improved products were launched across all restaurant brands in 2022[30] - The company operates a 27,000-square-foot innovation center in Shanghai to develop new recipes and menu ideas[30] - Focusing on food innovation and value positioning, with iconic promotions like KFC's "Crazy Thursday" and Pizza Hut's "Scream Wednesday" driving customer engagement[13] - Exploring new restaurant models and formats to cater to diverse customer needs and occasions, leveraging local expertise and first-mover advantages[13] - Expanding new retail offerings, including pre-packaged foods like steak and fried rice, and developing the proprietary retail brand "Shao Fan" to capture at-home consumption opportunities[17] Regulatory and Compliance Risks - The company is subject to Chinese laws on mergers and acquisitions, including the Anti-Monopoly Law, which may impose strict regulatory approval and review requirements, potentially hindering growth through acquisitions[46] - The company must comply with Chinese cybersecurity laws, including the Cybersecurity Law, Data Security Law, and Personal Information Protection Law, which impose strict data privacy and security obligations, particularly for entities handling over 1 million users' personal information[46] - The company is subject to regulations on overseas securities issuance and listing, including cybersecurity reviews for companies with over 1 million users' personal information planning to list abroad[46] - The company's Chinese subsidiaries are restricted in their ability to distribute dividends, as they must allocate at least 10% of post-tax profits to statutory reserves until reserves reach 50% of registered capital[49] - The company is subject to Chinese corporate income tax laws, requiring resident enterprises to pay taxes on taxable income from both domestic and overseas sources[50] - The company has not faced significant adverse impacts from regulatory compliance in the past, but future changes in laws or interpretations could affect capital expenditures, profitability, and competitive position[48] - The company must navigate potential delays or costs in obtaining necessary permits, approvals, or licenses, which could disrupt operations and harm its reputation[48] COVID-19 Impact - The COVID-19 pandemic has significantly impacted the company's operations, with an average of over 2,500 stores temporarily closed or offering limited services during April and May 2022, leading to a year-over-year same-store sales decline of over 20%[101] - In November 2022, the number of stores temporarily closed or offering limited services peaked at over 4,300 due to regional COVID-19 outbreaks and tightened control measures[101] - In December 2022, over 1,300 stores were temporarily closed or offered limited services due to staff shortages caused by widespread infections following the relaxation of COVID-19 restrictions[101] - The company expects continued operational impacts from COVID-19, including potential resurgences of the virus and changes in consumer behavior post-pandemic[102] - The company's insurance does not cover losses incurred due to pandemics, adding financial risk[102] - The company faces inherent risks in the food industry, including supply chain disruptions and increased raw material costs due to health crises like COVID-19[100] Labor and Employee Management - The company employs over 400,000 staff, including approximately 145,000 full-time and 261,000 part-time restaurant service team members as of December 31, 2022[66] - Female employees accounted for over 50% of the company's workforce by the end of 2022, with women holding 53% of director-level and above positions in senior management[69] - The company operates 30 "Angel Restaurants" across 27 cities, providing employment for nearly 200 individuals with special needs as of the end of 2022[70] - Total training hours for employees in 2022 amounted to approximately 9 million hours[71] - The company's "Bench Planning" program allows most operational leadership talents to grow internally, with college graduates able to become restaurant managers in as little as two years[72] - The company's digital training platform enables employees to participate in training programs conveniently, even during the pandemic[73] - By the end of 2022, approximately 5,000 employees received subsidies and obtained higher education degrees through the company's continuing education program[74] - In 2022, over 12,500 restaurant managers became shareholders of the company through the Restricted Stock Units (RSUs) plan, with a restaurant manager turnover rate of about 9%[75] - The company established a RMB 10 million relief fund to provide financial assistance to employees in need, covering emergency situations, major illnesses, or economic difficulties[77] Sustainability and Environmental Goals - The company aims to achieve net-zero emissions across the entire value chain by 2050, with a target to reduce Scope 1 and 2 greenhouse gas emissions by 63% by 2035 compared to 2020[80] - The company plans to reduce food waste by 10% per restaurant by 2030 compared to the 2020 baseline, using AI/IoT technology to improve sales forecasting and inventory management[83] - The company commits to ensuring 100% of customer-facing plastic packaging is recyclable and aims to reduce non-degradable plastic packaging by 30% by 2025 compared to 2019[84] - The company aims to achieve a "zero deforestation" supply chain and plans to source 100% RSPO-certified sustainable palm oil and 100% FSC-certified paper packaging by 2025[85] Real Estate and Leasing - The company operates 11,161 self-owned stores in China, with 11,105 located on leased properties and 56 on owned properties[87] - KFC accounts for 8,174 of the leased store properties, while Pizza Hut accounts for 2,745, and other restaurants account for 186[87] - The company leases its headquarters in Shanghai and Dallas, Texas, and operates 15 non-store properties, including logistics centers and office buildings[88] - The company has subleased over 150 properties to franchisees and third parties[88] - The company's initial lease terms for self-operated restaurants in China typically range from 10 to 20 years, with no renewal options[88] - Approximately 6% of the company's existing lease agreements will expire by the end of 2023, with potential challenges in renewing leases under favorable terms[110] - Lease agreements typically include fixed rent, a percentage of annual sales revenue, or a combination, with potential rent increases that could impact operating costs[111] - Intense competition in China's retail property market may hinder the company's ability to secure ideal restaurant locations at reasonable lease terms[112] Tax and Financial Risks - The company's Chinese subsidiaries are subject to a 10% withholding tax on dividends paid to their direct offshore parent, but under certain conditions, this rate can be reduced to 5% due to a tax arrangement between Hong Kong and mainland China[40] - The company paid a total of $202 million in dividends and repurchased $466 million worth of common shares in 2022, funded by cash held outside mainland China[40] - The company made a $95 million capital injection from a Hong Kong-registered subsidiary to its mainland Chinese subsidiaries in 2021, with no such injection in 2022[42] - The company's ability to declare and pay dividends may be limited by Chinese laws governing distributable profits[43] - The company's Chinese subsidiaries are required to obtain various approvals and licenses, including food business permits, environmental protection assessments, and fire safety inspections[44] - The transfer of cash from the company's Chinese subsidiaries to offshore subsidiaries is subject to Chinese government currency exchange controls, which could limit the ability to pay dividends or service foreign currency-denominated debts[44] - The company is subject to Chinese regulations limiting loans and direct investments from overseas holding companies to Chinese entities, with loans to wholly-owned Chinese subsidiaries capped at statutory limits and requiring registration with the State Administration of Foreign Exchange (SAFE)[46] - The company's Chinese subsidiaries are subject to a unified corporate income tax rate of 25% on global income, with potential reductions based on specific qualifications[52] - The company's new retail business is subject to a VAT rate ranging from 9% to 13%, with input VAT rates for materials and services adjusted to 13%, 9%, and 6% since 2017[52] - Dividends paid by the company's Chinese subsidiaries to their direct overseas parent companies are subject to a 10% withholding tax, which can be reduced to 5% under the Hong Kong-Mainland tax arrangement[53] - Gains from the direct sale of equity in the company's Chinese subsidiaries are subject to a 10% withholding tax, with a 0.05% stamp duty on the transfer value[55] - Indirect transfers of equity in the company's Chinese subsidiaries may be recharacterized as direct transfers and subject to a 10% corporate income tax if deemed to lack reasonable commercial purpose[55] - The company's Hong Kong subsidiary, which holds equity in the majority of KFC and Pizza Hut restaurants in China, is expected to continue qualifying for a 5% withholding tax reduction on dividends under the Hong Kong-Mainland tax arrangement[53] - The company expects that transfers of its shares by non-individual shareholders in public market transactions will not be subject to taxation under China's indirect transfer rules due to the listed company exception[57] - The Tax Cuts and Jobs Act (TCJA) in the US, enacted in December 2017, set a unified corporate income tax rate of 21% and impacted the company by exempting foreign-source dividends received from foreign subsidiaries starting from the tax year beginning after December 31, 2017[57] - The Inflation Reduction Act (IRA) in the US, signed into law in August 2022, includes a 15% Corporate Alternative Minimum Tax (CAMT) for certain large corporations and a 1% excise tax on net stock repurchases made after December 31, 2022[58] - Hong Kong subsidiaries are generally subject to a profits tax rate of 16.5%, with the first HK$2 million of profits taxed at 8.25% for entities established in Hong Kong from 2018 onwards[58] Legal and Regulatory Challenges - The company is subject to evolving and increasingly stringent laws and regulations on data privacy and cybersecurity, including the Cybersecurity Law, Data Security Law, and Personal Information Protection Law[119] - The company may incur additional costs to update existing information technology systems to comply with data privacy and cybersecurity regulations[120] - The company's ability to manage risks related to information security and protection is critical to avoiding penalties, including fines, business suspension, and license revocation[120] - The company faces risks related to new retail and e-commerce operations, including challenges in predicting customer demand, managing inventory, and handling complex logistics, which could lead to increased inventory write-offs and higher product return rates[127] - Social media can significantly impact the company's brand and reputation, with negative comments or inaccurate information potentially causing severe damage to its business and financial performance[127] - The company is exposed to risks from non-compliance with anti-bribery and anti-corruption laws, which could result in significant penalties, reputational damage, and adverse effects on business operations[129] - The company is subject to both U.S. federal income tax and Chinese corporate income tax, with a standard Chinese corporate tax rate of 25% and an additional 10% withholding tax on profits remitted outside China[129] - The company is impacted by global tax reforms, including the U.S. Tax Cuts and Jobs Act of 2017 and the Inflation Reduction Act of 2022, which could increase its tax liabilities and affect its financial performance[131] - The company's operating performance is highly dependent on consumer discretionary spending, which is influenced by factors such as unemployment rates, disposable income levels, gasoline prices, stock market performance, and consumer confidence levels[132] - The company faces intense competition in the food and beverage industry, including competition from food delivery platforms, shared kitchens, and grocery stores offering convenient meal options[133] - The company must obtain and maintain various licenses and permits to operate its restaurants in China, and failure to do so could adversely affect its business and operating performance[134] - The company's intellectual property, including trademarks and proprietary recipes, is crucial to its success, but may not be adequately protected under Chinese law[135] -

Financial Performance - Total revenue for Q3 2022 was $2.68 billion, a 5% increase from $2.55 billion in the same period last year[6]. - Operating profit rose by 77% to $316 million, compared to $178 million in Q3 2021[6]. - Net profit reached $206 million, a 98% increase from $104 million in the same quarter last year[6]. - Adjusted net profit was $208 million, a 117% increase from $96 million in Q3 2021[7]. - Diluted earnings per share were $0.49, a 104% increase from $0.24 in the same quarter last year[7]. - Company restaurant revenue reached $2,561 million, up 11% from $2,310 million in the same quarter of the previous year[24]. - Operating profit for the quarter was $316 million, representing a 77% increase compared to $178 million in the same quarter of 2021[24]. - Net profit attributable to Yum China Holdings, Inc. was $206 million, a 98% increase from $104 million in the same quarter of the previous year[24]. - The company reported a restaurant profit margin of 18.8%, up from 12.2% in the same quarter of 2021, reflecting a 6.6 percentage point increase[24]. - The operating profit margin improved to 12.3%, compared to 7.7% in the same quarter of the previous year, marking a 4.6 percentage point increase[24]. Restaurant Operations - System sales increased by 5% year-over-year, with KFC and Pizza Hut growing by 5% and 7% respectively, excluding foreign exchange impacts[6]. - The company added a net of 239 new restaurants in Q3, bringing the total to 12,409 locations as of September 30, 2022[6]. - Same-store sales remained flat year-over-year, with KFC unchanged and Pizza Hut increasing by 2%[6]. - The company opened 403 new stores in Q3 2022, resulting in a net increase of 239 stores, primarily driven by KFC and Pizza Hut brand development[12]. - Yum China operates 12,409 restaurants across over 1,700 cities in China as of September 2022[22]. - As of September 30, 2022, the total number of self-operated restaurants for KFC was 7,437, and for Pizza Hut, it was 2,590, resulting in a total of 10,027 restaurants[39]. - The company reported a net increase of 1,030 restaurants from new openings and closures as of September 30, 2022[41]. Market Strategy and Expansion - The company aims to add between 1,000 to 1,200 new stores by the end of the fiscal year[3]. - The company expects to open approximately 1,000 to 1,200 new stores in 2022, with capital expenditures estimated between $800 million and $1 billion[16]. - The company plans to continue expanding its market presence and investing in new product development to drive future growth[25]. - The company plans to continue expanding its market presence through new restaurant openings and potential acquisitions[40]. - The company is focusing on enhancing its product offerings and technology development to drive future growth[40]. - Future outlook includes continued expansion and potential new product development to drive revenue growth[45]. Membership and Sales Channels - The membership program now has over 400 million members, with member sales accounting for approximately 62% of system sales in Q3 2022[10]. - Takeout revenue represented about 38% of restaurant income, an increase of approximately 4 percentage points year-over-year[10]. - Digital orders, including takeout, mobile orders, and self-service kiosk orders, accounted for around 91% of restaurant income in Q3 2022[10]. Financial Health and Investments - The company repurchased approximately 270,000 shares for a total of $13 million at an average price of $48.05 per share in Q3 2022[9]. - The board declared a cash dividend of $0.12 per share, to be paid on December 20, 2022[9]. - The effective tax rate for the quarter was 29.9%, an increase of 1.6 percentage points from 28.3% in the same quarter of 2021[24]. - Total costs and expenses for the quarter were $2,369 million, a slight decrease from $2,376 million in the same quarter of 2021[24]. - The company reported a decrease in inventory from $432 million to $321 million, a reduction of approximately 25.7%[28]. - The company's cash and cash equivalents increased to $1,211 million from $1,136 million, reflecting a growth of about 6.6%[28]. - Total liabilities decreased to $4,528 million from $5,301 million, a reduction of about 14.5%[29]. - The total equity attributable to shareholders was $6,418 million, down from $7,056 million, representing a decline of approximately 9.0%[30]. Sustainability and Recognition - Yum China was ranked 359th on the Fortune 500 list in 2022[22]. - The company has been included in the Bloomberg Gender-Equality Index for four consecutive years[22]. - Yum China was selected for the Dow Jones Sustainability Index in 2021[22]. - The company has received certification as an outstanding employer in China[22]. Future Outlook and Guidance - The company continues to face uncertainties in the market, with expectations of potential negative impacts on sales and profits due to economic pressures and inflation[8]. - Forward-looking statements regarding 2022 performance outlook are included in the press release[21]. - The earnings conference call is scheduled for November 1, 2022, at 8 PM ET[19]. - The earnings report and related materials will be available on the investor relations website[19].

Financial Performance - Total revenue for Q2 2022 was $2,128 million, a decrease of 13.2% compared to $2,451 million in Q2 2021[2] - Net profit for Q2 2022 was $83 million, down from $193 million in Q2 2021, representing a decline of 57.0%[3] - The basic earnings per share for Q2 2022 was $0.20, compared to $0.43 in Q2 2021, reflecting a decrease of 53.5%[2] - The company reported a net income of $193 million for the first half of 2022, compared to $436 million in the same period of 2021, indicating a decline of 55.7%[3] - The company’s total revenue for the six months ended June 30, 2022, was $5,034 million, with KFC generating $3,611 million and Pizza Hut $995 million[31] - The company reported a net profit of $83 million for the quarter ending March 31, 2022, compared to a net profit of $181 million for the same quarter in 2021[40] - The company’s total income for the first half of 2022 was $995 million, down from $1,079 million in the same period of 2021, reflecting an 8% decline[123] - The company’s net profit for the six months ending June 30, 2022, was $272 million, down from $575 million for the same period in 2021[42] Revenue Sources - Company restaurant revenue for the first half of 2022 was $4,574 million, slightly up from $4,564 million in the same period of 2021[2] - KFC and Pizza Hut generated total restaurant revenue of $2,026 million for the quarter ended June 30, 2022, with KFC contributing $1,571 million and Pizza Hut $443 million[29] - Franchise fee income amounted to $19 million, including $13 million from KFC and $2 million from Pizza Hut, for the same quarter[29] - The company’s revenue from transactions with franchisees and joint ventures reached $62 million, primarily from food and packaging sales[26] - The company’s other income for the quarter was $133 million, with significant contributions from various service offerings[29] Costs and Expenses - Total costs and expenses for Q2 2022 were $2,047 million, down from $2,218 million in Q2 2021, a reduction of 7.7%[2] - The operating profit for the second quarter of 2022 was $81 million, a decrease from $233 million in the same quarter of 2021, primarily due to the impact of COVID-19[42] - The company reported a restaurant-level impairment of $15 million for the quarter ended June 30, 2022, compared to $13 million for the same period in 2021[74] - The company experienced a 4% increase in labor costs and a rise in utility rates, contributing to the decrease in restaurant profit[119] - Management expenses increased to $63 million for the quarter ended June 30, 2022, up 7% from $58 million in the same quarter of 2021[116] Assets and Liabilities - Total assets as of June 30, 2022, amounted to $12,054 million, a decrease from $13,223 million at the end of 2021[6] - Total liabilities decreased to $4,752 million from $5,301 million at the end of 2021, reflecting a reduction of 10.4%[6] - Cash and cash equivalents at the end of the period were $1,147 million, slightly up from $1,136 million at the beginning of the period[6] - The total equity attributable to shareholders decreased to $6,529 million from $7,056 million, a decline of 7.4%[6] - The company’s total current liabilities were $2,099 million as of June 30, 2022, compared to $2,332 million as of December 31, 2021, marking a decrease of about 10.0%[53] Investments and Acquisitions - The company is exploring potential acquisitions to strengthen its market position and expand its footprint[1] - The company invested $255 million in Q4 2021 for a 28% stake in Hangzhou Catering Group, increasing its ownership in the Hangzhou KFC joint venture to approximately 60%[9] - The company acquired a 5% stake in Shengnong for approximately $261 million, making Shengnong the largest poultry supplier[17] - The company reported unrealized gains of $20 million and losses of $18 million from its investment in Meituan as of June 30, 2022[20] - The company completed an investment of $255 million in Hangzhou Yingfu, acquiring a 28% stake, which resulted in a total ownership of approximately 60% in Hangzhou KFC[15] Market and Operational Challenges - In Q2 2022, same-store sales decreased by over 20% year-on-year due to the severe impact of COVID-19, with an average of over 2,500 restaurants temporarily closed in April and May[103] - The company expects that the future development of the COVID-19 pandemic may continue to have a significant and lasting adverse impact on its operational performance, cash flow, and financial condition[144] - The company anticipates challenges related to its growth strategies for Lavazza and COFFii& JOY, which may not yield the expected benefits[166] - The company is subject to ongoing tax audits by various tax authorities, which may impact its financial position and operating results[76] - The company is exposed to fluctuations in raw material prices, which could adversely impact its financial condition and operating results[165] Shareholder Returns - The company declared a cash dividend of $0.12 per share for the quarter ending March 31, 2022, totaling $50 million[39] - The company repurchased $400 million worth of shares or 9 million common shares under its buyback plan during the first half of 2022[156] - The board has authorized a total share repurchase plan of $2.4 billion, with no expiration date for the authorization[186] - The estimated dollar value of shares yet to be repurchased under the plan is approximately $1.2 billion[186] - The company’s ability to pay dividends may be restricted by applicable Chinese laws regarding distributable profits[157] Strategic Initiatives - The company plans to continue investing in technology and innovation to enhance customer experience and operational efficiency[1] - The company aims to expand the Taco Bell network to at least 100 stores by the end of 2022 and to at least 225 stores by the end of 2025, supported by capital from Yum[97] - The company is currently evaluating the impact of new accounting standards effective from January 1, 2023, on its financial statements[161][162][163] - The company plans to invest in digitalization, automation, and logistics infrastructure as part of its future capital expenditures[154] - The company aims to expand its business footprint in existing and new cities, believing there is significant growth potential in the Chinese market[103]

Financial Performance - Total revenue for Q1 2022 was $2.67 billion, an increase of 4% compared to $2.56 billion in the same period last year[7]. - Operating profit for Q1 2022 was $191 million, a decrease of 44% from $342 million in the same period last year[7]. - Net profit for Q1 2022 was $100 million, down 57% from $230 million year-over-year[7]. - Adjusted net profit for Q1 2022 was $102 million, a decrease of 56% compared to $233 million in the same period last year[7]. - The adjusted operating profit for Q1 2022 was $193 million, a decrease of 44% from $345 million in Q1 2021[8]. - The company reported a decline in net cash generated from operating activities to $171 million from $331 million in the previous year[28]. - The company’s net profit attributable to Yum China Holdings, Inc. was $100 million for the quarter ending March 31, 2022, compared to $230 million in the same quarter of 2021, a decline of about 56.5%[33]. - The adjusted EBITDA for the company was $365 million for the quarter ending March 31, 2022, down from $476 million in the same quarter of 2021, indicating a decrease of approximately 23.3%[33]. - The company’s basic earnings per share (EPS) was $0.23 for the quarter ending March 31, 2022, compared to $0.55 in the same quarter of 2021, a decline of about 58.2%[32]. Sales and Store Performance - System sales decreased by 4% year-over-year, with KFC and Pizza Hut declining by 4% and 1% respectively[7]. - Same-store sales fell by 8% year-over-year, with KFC and Pizza Hut down by 9% and 5% respectively[7]. - The company opened 329 new stores in Q1 2022, bringing the total number of stores to 12,117[7]. - The company opened 522 new stores in Q1 2022, resulting in a net increase of 329 stores, bringing the total to 12,117 stores as of March 31, 2022[13]. - The company plans to continue expanding its restaurant network and enhancing its product offerings in the upcoming quarters[40]. - As of March 31, 2022, the total number of self-operated restaurants increased to 7,668, up from 7,437 at the end of 2021, representing a growth of approximately 3.1%[36]. - KFC generated $1,991 million in revenue, while Pizza Hut contributed $542 million for the quarter ending March 31, 2022[39]. Operational Challenges - The company faced significant operational challenges due to the Omicron variant, with over 3,000 stores temporarily closed or offering only takeout in April 2022[4]. - The company experienced a significant increase in operational costs, particularly in food and packaging, due to inflationary pressures[40]. - The restaurant profit margin was 13.8%, down from 18.7% in the same period last year, primarily due to declining same-store sales[7]. - The restaurant profit margin for KFC was 15.2%, down from 19.9% in the previous year, reflecting a 4.7 percentage point decline[25]. - The restaurant profit margin was 10.7%, down from 15.3% year-over-year, reflecting a decrease of 4.6 percentage points[26]. Tax and Financial Metrics - The effective tax rate for Q1 2022 was 33.1%[7]. - The actual tax rate for the quarter was 33.1%, up from 29.6% in the same quarter of 2021, indicating an increase of 3.5 percentage points[32]. - The effective tax rate increased to 33.1%, compared to 29.6% in the previous year, reflecting a 3.5 percentage point increase[24]. Shareholder Returns - The company repurchased approximately 5 million shares for a total of $232 million at an average price of $46.57 per share in Q1 2022[10]. - The company has approximately $1.4 billion remaining in its stock repurchase authorization as of March 31, 2022[10]. Digital and Membership Performance - Digital orders accounted for approximately 88% of restaurant revenue in Q1 2022, up from 86% in the same period last year[11]. - As of the end of Q1 2022, KFC and Pizza Hut had a combined membership of over 370 million, with membership sales accounting for about 62% of system sales[11]. - Takeout revenue represented approximately 36% of restaurant income in Q1 2022, an increase of about 5 percentage points year-over-year[11]. Company Recognition and Rankings - The company was ranked 363rd on the 2021 Fortune 500 list and was included in the Bloomberg Gender-Equality Index for the fourth consecutive year in 2022[23].

Business Overview - Yum China reported a system sales of $9.9 billion for the year 2021, establishing itself as the largest restaurant company in China with over 11,700 restaurants as of December 31, 2021[9]. - KFC, as the leading fast-food brand in China, had over 8,100 restaurants across more than 1,600 cities by the end of 2021, significantly outpacing its closest competitor[9]. - Pizza Hut is the largest casual dining brand in China, with over 2,500 restaurants in more than 600 cities as of the end of 2021, approximately six times the number of its closest competitor[10]. - Approximately 85% of Yum China's restaurants are owned and operated by the company, with the remainder being franchised[9]. - The company has exclusive operating rights for KFC, Pizza Hut, and Taco Bell in mainland China, excluding Hong Kong, Macau, and Taiwan[9]. Expansion and Growth Strategy - The company plans to focus on expanding its business in existing and new cities, capitalizing on the significant growth potential within China[9]. - Yum China aims to enhance its digital and delivery capabilities, as well as invest in technology and quality assets to improve restaurant performance[6]. - The company aims to expand its restaurant network to 20,000 locations, currently tracking over 1,100 potential sites without KFC or Pizza Hut[14]. - The company is exploring various new restaurant models to support further expansion, particularly in lower-tier cities[16]. - The company plans to continue investing in digitalization and supply chain improvements as key growth drivers[13]. Digital and Technological Initiatives - As of December 31, 2021, KFC and Pizza Hut had over 330 million and approximately 110 million members respectively, with digital ordering accounting for 86% of restaurant revenue[19]. - The company is focusing on enhancing its digital infrastructure and delivery capabilities to drive sales growth and improve operational efficiency[19]. - The company has invested in digital technology to modernize operations, opening digital R&D centers in Shanghai, Nanjing, and Xi'an in 2021 to enhance internal digital capabilities[32]. - The company has integrated mobile ordering and payment features into its super apps, with approximately 1,600 KFC restaurants in China implementing facial recognition payment by December 31[33]. - The company has developed and launched a digital wallet in collaboration with UnionPay to provide convenient payment options within a single application[112]. Supply Chain and Logistics - The company emphasizes the importance of logistics and supply chain management in its operational strategy to ensure efficiency and quality[6]. - The company collaborates with over 800 independent suppliers, primarily located in China, and employs more than 1,400 staff in its integrated supply chain management system[28]. - In 2021, the company established three new logistics centers to strengthen its supply chain network, utilizing 32 logistics centers for distribution to self-operated restaurants and franchisees[29]. - The company has implemented a centralized procurement model, allowing it to maintain quality control and achieve better pricing and terms through bulk purchasing[29]. - The company is subject to various regulatory risks, including potential tax liabilities related to acquisitions and compliance with food safety laws[84]. Financial Performance and Market Position - The total sales revenue of China's food service market in 2021 was approximately $738 billion, with the company holding the largest market share based on system sales[40]. - The company recorded a loss of $38 million and a gain of $104 million from equity securities investments in 2021 and 2020, respectively[133]. - The company recognized a gain of $618 million from the remeasurement of previously held 47% equity in a joint venture after acquiring control in the fourth quarter of 2021[134]. - The company has not experienced any significant violations of the master franchise agreement, and it actively monitors compliance with its terms[93]. - The company has paid a cash dividend of $0.12 per share quarterly since Q4 2018[200]. Employee Development and Corporate Culture - The company has a "Bench Planning" career development program that allows most operational leadership talents to grow internally, with graduates potentially becoming restaurant managers within two years[48]. - The company funded continuing education programs, with 3,800 employees receiving subsidies for higher education degrees by the end of 2021[51]. - The company has established the China Nutrition Society - Yum China Health Fund in collaboration with the China Nutrition Society (CNS) to improve nutrition for children in impoverished areas[63]. - The company has been recognized as an outstanding employer in China for four consecutive years, ranking among the top 20 employers in the restaurant sector[55]. - The company encourages and rewards employees for getting vaccinated against COVID-19 to ensure health and safety[54]. Environmental and Social Responsibility - The company aims to achieve net-zero emissions across its entire value chain by 2050, in line with the Science Based Targets initiative[57]. - The company has set a goal to reduce food waste by 10% per restaurant by 2030 compared to 2020 levels, promoting food bank initiatives and expanding biodiesel conversion projects[60]. - The company aims to achieve a 30% reduction in non-biodegradable plastic packaging by 2025 compared to 2019 levels[59]. - The company has faced challenges in sourcing alternative packaging materials to meet environmental standards, which may increase operational costs[147]. - The company is committed to reducing the weight of non-degradable plastic packaging by 30% by 2025, in response to increasing public concern over environmental sustainability[147]. Risks and Challenges - The company faces significant risks related to food safety and foodborne illnesses, which could adversely affect its reputation and business operations[84]. - The company is exposed to labor shortages and rising labor costs, which may affect operational efficiency[80]. - The company’s financial performance may be adversely affected by fluctuations in raw material prices[80]. - The company faces significant risks related to currency exchange fluctuations, as most of its revenue and costs are denominated in RMB[145]. - The company anticipates continued operational impacts from COVID-19, including potential government actions such as lockdowns and travel restrictions[90]. Regulatory and Compliance Issues - The company must comply with various tax obligations, including value-added tax, customs duties, and local taxes, which could further complicate its financial situation[120]. - The company is subject to various regulations regarding foreign investment and mergers, which may complicate future acquisitions[172]. - The company faces potential penalties and legal repercussions due to non-compliance with foreign exchange regulations in China, which may restrict its ability to make payments and receive dividends[166]. - The company is subject to increased public scrutiny regarding data security and privacy, which may raise compliance costs and risks[109]. - The company must ensure compliance with the National Foreign Exchange Administration's guidelines to avoid financial penalties related to foreign currency transactions[170].

Financial Performance - Total revenue for the quarter ended June 30, 2021, was $2,451 million, a 29% increase from $1,902 million in the same quarter of 2020[4] - Net profit for the quarter was $193 million, compared to $136 million in the same quarter of 2020, representing a 42% increase[4] - The company restaurant revenue reached $2,233 million for the quarter, up 32% from $1,692 million in the same quarter of 2020[4] - The operating profit for the quarter was $233 million, compared to $128 million in the same quarter of 2020, marking an 82% increase[4] - Total comprehensive income for the quarter was $251 million, compared to $143 million in the same quarter of 2020, indicating a 75% increase[5] - The company reported a diluted earnings per share of $0.42 for the quarter, up from $0.34 in the same quarter of 2020, a 24% increase[4] - Net profit for the six months ended June 30, 2021, was $436 million, compared to $202 million for the same period in 2020, representing a 116% increase[6] - Cash generated from operating activities was $773 million, up from $452 million in the previous year, indicating a 71% increase[6] - Total revenue for the six months ending June 30, 2021, was $5,087 million, with KFC at $3,566 million and Pizza Hut at $1,079 million[22] - The company reported a net profit before tax of $257 million for the quarter ended June 30, 2021, compared to $181 million for the same quarter in 2020, representing a growth of approximately 42%[68] Revenue Sources - The company's revenue primarily consists of restaurant income, franchise fees, and transactions with franchisees and joint ventures[14] - Restaurant income is recognized when customers obtain food and make payment, with net amounts shown after deducting relevant sales tax[14] - Franchise fees include upfront fees and ongoing fees, with initial franchise fees recognized as income over the term of the franchise agreement, typically 10 years for KFC and Pizza Hut[16] - Revenue from transactions with franchisees includes sales of food and packaging, as well as advertising and other services provided to franchisees[17] - Total income from other segments was $106 million for the quarter ending June 30, 2021[20] Assets and Liabilities - Total assets as of June 30, 2021, amounted to $11,304 million, compared to $10,875 million at the end of 2020, reflecting a growth of 3.9%[7] - Total liabilities increased to $4,476 million from $4,404 million, marking a 1.6% increase[7] - Shareholders' equity rose to $6,575 million as of June 30, 2021, compared to $6,206 million at the end of 2020, representing a 5.9% increase[7] - The company reported a decrease in inventory from $398 million to $380 million, a decline of 4.5%[7] - The company’s long-term operating lease liabilities increased slightly from $1,915 million to $1,941 million, a rise of 1.4%[7] Market Expansion and Strategy - The company plans to continue expanding its market presence and investing in new product development to drive future growth[4] - The company believes there are significant expansion opportunities within China, focusing on both existing and new cities[76] - The company is exploring market expansion opportunities and new product development to enhance its competitive edge in the fast-food industry[71] - Yum China plans to open 500 new stores in 2024, expanding its market presence significantly[142] Shareholder Returns - The company declared a cash dividend of $0.12 per share for the quarter ended June 30, 2021, totaling $51 million[30] - The board has authorized a share repurchase program totaling $1.4 billion, with $692 million remaining available for future repurchases as of June 30, 2021[34] - The company has suspended share repurchases since the second quarter of 2020, with no shares repurchased in the six months ended June 30, 2021[34] Tax and Regulatory Issues - The company continues to face scrutiny from tax authorities regarding transfer pricing audits from 2006 to 2015, which may impact financial performance[63] - The company is undergoing a tax audit related to transfer pricing, which may have significant adverse effects on its financial condition and operating results[117] - The company anticipates potential significant developments in tax assessments within the next 12 months[63] Operational Performance - KFC and Pizza Hut generated total revenue of $2,505 million for the quarter ending June 30, 2021, with KFC contributing $1,734 million and Pizza Hut $538 million[20] - KFC's system sales growth for the quarter was 25%, with same-store sales growth of 14%[94] - Pizza Hut's total revenue for the quarter was $538 million, a 26% increase from $424 million in 2020[100] - The company reported a restaurant profit margin of 15.8% for Q2 2021, up from 13.7% in Q2 2020[84] Challenges and Risks - The company faces various risks that could significantly affect its future performance, including food safety issues and supply chain disruptions[130] - The company is exposed to commodity price risks affecting food costs, which are managed through pricing agreements with suppliers[134] - The company has limited ability to pass on increased costs due to competitive pressures in its operating environment[134] Investments and Acquisitions - The company completed the acquisition of a 5% stake in Shengnong for approximately $261 million, which is the largest poultry supplier in China[36] - The company is assessing the potential benefits of acquisitions and strategic investments, which may not be realized in a timely manner[130] - The company has a joint venture with Lavazza Group to explore and develop the Lavazza coffee shop brand concept in China[76] E-commerce and Technology - The company has begun its e-commerce business in 2017, allowing customers to purchase various products directly through its platform[8] - The company is investing $100 million in new technology for digital ordering and delivery systems[142] - The company is focusing on enhancing its e-commerce business, which presents its own set of challenges and risks[130]