Big restaurant chains say consumers are more cautious in China. Yum China is rewarding its investors.

By Bill Peters

'Looking ahead, we remain very positive about the vast growth opportunities in China,' CEO says

Shares of Yum China Holdings Inc. rallied after hours on Tuesday after the company, which runs KFC and Pizza Hut restaurants in China, said it planned to "significantly accelerate" shareholder returns this year, even as other restaurants warn of weakening demand in that country.

Yum China said its board had declared a 23% increase in its cash dividend to 16 cents a share, payable on March 26. And it said it planned to buy back $1.25 billion in its stock this year.

Shares jumped 16.2% after hours on Tuesday.

The company announced the investor payouts in its fourth-quarter earnings release. Yum China's total sales during the quarter rose 19% to $2.49 billion, above FactSet estimates for $2.32 billion. Same-store sales growth of 4% also topped estimates for a 3% gain.

Adjusted earnings per share of 13 cents, however, were below estimates for 16 cents.

The restaurant operator's results and planned buyback arrived as China's economy navigates a wobbly post-pandemic reopening, deepening concerns about debt and a spiraling real-estate market, following the collapse of property-development behemoth Evergrande. But Yum China Chief Executive Joey Wat, in the release on Tuesday, was optimistic about the company's prospects.

"Looking ahead, we remain very positive about the vast growth opportunities in China," Wat said.

"Currently serving just one-third of China's population, our ambitious goal is to extend our reach to half of the population by 2026," he continued. "Over half of our new stores are located in lower-tier cities, strategically positioned to capture the demand from long-term consumption upgrades there."

Elsewhere, chains like McDonald's Corp. and Starbucks Corp. have said recently that consumers in China have grown more reluctant to spend. Rivals, they noted, have cut prices.

Starbucks (SBUX), during its earnings call last month, warned of a "slower-than-expected recovery in China, driven by a more cautious consumer." However, executives said they weren't interested in entering the discount fray, and would instead try to position itself as a "premium" brand there.

McDonald's (MCD), during its own earnings call Monday, painted a similar picture of the economy in China.

"Certainly in China, as you've read about and seen with a number of other companies, consumer sentiment in the country is a little bit more under pressure right now," McDonald's Chief Executive Chris Kempczinski said.

"Q4 in particular, we saw the environment get more promotional," he said. "We didn't necessarily follow that, but certainly the environment's getting more promotional, and our focus is on making sure that we remain competitive."

-Bill Peters

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02-06-24 1800ET

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