Investors Spit Out Yum China After Earnings Report

Shares of Yum China plunged after the operator of the country’s KFC and Pizza Hut chains reported its latest quarterly results, as the stock gave back some gains from a recent run-up despite a report that showed the company’s nascent turnaround was taking hold.

Yum China Holdings Inc.’s stock tumbled 12.9% in the latest session on Wall Street after the release of its third quarterly report since being split off from U.S. fast-food giant Yum Brands Inc., owner of the KFC and Pizza Hut brands. Before that, the stock had rallied more than 50% since late March, as investors bet on the company’s turnaround story following a difficult period.

Yum China reported that its performance improved in nearly every regard compared with its first two reports since being spun off and separately listed last fall. That included a 39% jump in its net profit year-on-year to $107 million, compared with a 21% rise in the previous quarter.

The company also saw similar improvement in its same-store sales, a widely watched barometer of performance for restaurants open more than year. Same-store sales rose 3% during the quarter, up strongly from the previous quarter’s 1% gain. Revenue was unchanged from a year ago at $1.56 billion. But that also marked an improvement from revenue declines of 2% to 3% in the previous two quarter.

“We are committed to building one of the world’s leading restaurant companies, and are executing against a plan that we have developed towards this goal,” CEO Micky Pant said in a statement. “We are making progress in the key themes we are investing in — loyalty programs, digital and delivery capabilities, and continued upgrade of restaurant assets and optimization of store formats.”

He added the company has signed up more than 100 million KFC and Pizza Hut loyalty members in total so far, and mobile payment exceeded 40% of company sales in the second quarter.

Yum China has struggled in the market over the last five years due to a number of factors, including growing local competition and several food-safety scandals. Both Yum and U.S. rival McDonald’s Corp. have taken steps to overhaul their respective stores by modifying menus and adding features to cater to China’s younger tech-savvy and affluent middle class.

To give its operations more flexibility, Yum’s U.S. parent spun off its China business late last year and introduced two locally based strategic investors. In the company’s first major move as a separate entity, Yum China in May announced its purchase of Daojia.com.cn, owner of the high-end Sherpa’s takeout delivery service.

Contact reporter Yang Ge (geyang@caixin.com)