Covid hurts Yum China’s business; Shares plunge 4.3% in Hong Kong

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Multiple waves of Delta variant outbreaks persisted throughout the fourth quarter of 2021 in mainland China, hurting Yum China’s business, the company said in its latest earnings report today.

From Yum! and operated as an independent company since 2016, Yum China is the largest restaurant chain in China with more than 11,000 restaurants across the country as of December.

Shares of Yum China traded in Hong Kong fell 4.3% by midday to settle at HK$342.60, and were on track to hit their lowest close since a secondary listing there in September 2020 at HK$412 per share. The stock also trades on the New York Stock Exchange.

The operator’s revenue from KFC and Pizza Hut restaurants rose 1% in the three months to Dec. 31 from a year earlier to $2.29 billion; net income increased, but mainly due to the non-cash gain of $618 million from the revaluation of a previously held stake. (See the announcement here.)

“Widespread outbreaks have prompted stricter public health measures nationwide in pursuit of a goal of zero Covid-19 cases,” Yum China said. “These preventive measures, which include mass testing, regional closures and travel restrictions, have had a negative impact on the restaurant industry and our business” and have led to “reduced travel, less social activities and softened consumer demand”.

As the Covid-19 outbreaks resurfaced, the percentage of same-store sales declined year-over-year in November, Yum China said. Although sales trends have picked up slightly, same-store sales were still down more than 10% year-over-year in December, he noted.

Looking ahead, Yum China warned, “the situation remains unstable.” In January, cases of the Omicron variant emerged in China, spreading to major cities like Beijing, Shanghai, Tianjin and Shenzhen. A lockdown in Xi’an, which began in December, lasted most of January, the company said. At the height of January, more than 500 stores were temporarily closed or only offered take-out and delivery services, compared to nearly 300 stores in the fourth quarter.

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