Yum China Accelerated Growth as Customer Traffic Strengthened
Second-quarter revenue rose 13% to $3.138 billion as restaurant transactions increased.
Yum China Holdings (YUMC), the restaurant operator, accelerated same-store transaction growth to 5% in the second quarter, marking a 14th consecutive quarter of transaction gains.
The traffic improvement lifted same-store sales 1% after they were flat in the first quarter. System sales growth also increased to 6% from 4%, though both measures remained below their fourth-quarter growth rates.
Revenue rose 13% from a year earlier, accelerating from 10% growth in the first quarter and 9% in the fourth quarter of 2024. Diluted earnings increased 21% to $0.70 a share, while operating profit rose 14% to $348 million. Revenue, profit and earnings each declined sequentially from the first quarter.
Operating margin expanded 20 basis points to 11.1%, its ninth consecutive quarter of year-over-year improvement, though the expansion narrowed from 30 basis points in the first quarter. Restaurant margin was unchanged at 16.1%, as rider costs offset the benefit of sales leverage while delivery grew to about 54% of company sales from 45% a year earlier.
KFC led the improvement, with system sales growth accelerating to 7% and same-store sales rising 1% for a fifth straight quarter. Transactions increased 4%, offsetting a 3% decline in average ticket, while operating profit rose 14% to $332 million and restaurant margin expanded 20 basis points to 17.1%.
Pizza Hut system sales growth increased to 6%, and same-store sales returned to 1% growth as a 13% transaction gain outweighed an 11% decline in average ticket. Restaurant margin contracted 40 basis points to 12.9%. The chain added 174 net new stores, nearly twice the year-earlier number, bringing its footprint to 4,549 restaurants.
Yum China reiterated its 2026 outlook for more than 20,000 total stores, over 1,900 net additions, $600 million to $700 million of capital spending and $1.5 billion of shareholder returns. The company expects its $1.2 billion acquisition of the Pizza Hut Mainland China brand to close in August and plans an offshore bridge loan of about $1.2 billion. Eliminating license fees is expected to support Pizza Hut’s margins and make the transaction immediately accretive to earnings.
Beyond 2026, Yum China expects to return roughly 100% of annual free cash flow after minority-interest dividends. That cash flow is expected to average about $900 million to more than $1 billion annually in 2027 and 2028, and to exceed $1 billion in 2028.