Yum China just gave investors a new reason to worry about the Chinese economy

By Claudia Assis

Yum China stock drops 10%, fast-food operator sees 'softening demand'

Yum China Holdings Inc. late Tuesday gave investors a fresh reason to worry about China's economy.

Yum China's shares (YUMC) fell about 9% in the extended session Tuesday after the owner of Pizza Hut, KFC and other fast-food brands in China missed Wall Street expectations for its third quarter, saying that "softening consumer demand" emerged in recent weeks, and cast doubt about its current quarter.

Quarterly results were "robust results despite macroeconomic headwinds," Chief Financial Officer Andy Yeung said in a statement.

Same-store sales growth was "solid" but "we observed softening consumer demand emerged in late September through October," the executive said.

"Looking ahead, the fourth quarter is a seasonally small quarter in terms of sales and profits; hence small fluctuations in sales could have a more pronounced impact on our margins," Yeung said.

Yum China earned $244 million, or 58 cents a share, in the third quarter, compared with $206 million, or 49 cents a share, in the year-ago period. Adjusted for one-time items, Yum China earned 59 cents a share.

Revenue rose 9% to $2.91 billion, from $2.68 billion a year ago. Same-store sales increased 4% year over year, including 4% increases at KFC and 2% at Pizza Hut, the company said.

Analysts surveyed by FactSet expected the company to report adjusted earnings of 65 cents a share on sales of $3.12 billion.

Shares of Yum China have lost 4% so far this year, contrasting with gains of around 9% for the S&P 500 index SPX.

-Claudia Assis

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10-31-23 2324ET

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