What is driving Yum China Holdings Inc (NYSE: YUMC) stock lower

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Yum China Holdings Inc (NYSE: YUMC) stock lost over 5.1% on 30th July, 2020 (as of 11:02 am GMT-4; Source: Google finance). Despite sales improvement in April and May, June sales was under pressure hurt by school holidays and more stringent social distancing due to rise in regional infection. This impact was due to the higher mix of younger school-age customers leading to delays and short school holiday from KFC and Pizza Hut.In China, >99% of stores in China are now open, with sales and profits trending unevenly. Moreover, during the third quarter, management expects the “recovery is non-linear and uneven”.

As per the financial performance highlights, the overall revenues fell 11% on a year over year basis to $1.90 billion as compared to $2.12 billion in the prior corresponding period. The Total system sales lost 4% yoy hurt by fall of 6% at KFC and 12% at Pizza Hut, excluding F/X while the Same-store sales lost 11% yoy due to 10% decrease at KFC and 12% fall at Pizza Hut, excluding F/X. Restaurant margin also fell to 13.7%, against the 14.7% in the prior year period. The Operating Profit lost 38% yoy to $128 million against $204 million while Net Income lost 26% yoy to $132 million against $178 million in the prior corresponding period. The firm offloaded their equity investment in Meituan during the quarter while currently has 4.2 million shares of Meituan. The firm’s realigned cost structure and productivity improvements enabled them to deliver $128 million operating profit. Digital orders, including delivery, mobile orders and kiosk orders, comprised over 86% of KFC’s Company sales and 61% of Pizza Hut’s Company sales in the second quarter of 2020, rising from 62% and 29% respectively in prior corresponding period.

The firm has over 265 million members while interacting with members within a digital ecosystem supported by their Super App, strategic partnerships with online platform and in-store digitization. Member sales accounted for over 60% during the second quarter which rose in double-digits. The firm is targeting 800 to 850 new stores for this year while investing in digital, technology and supply chain. Their 2020 CapEx plan is unchanged in the range of $500 million to $550 million.

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