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Yum China Plans to Accelerate Shareholder Returns

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Shares of Yum China Holdings Inc., the operator of KFC and Pizza Hut in China, saw a significant rally after the company announced its plans to “significantly accelerate” shareholder returns this year. This positive news comes at a time when other restaurants are reporting weakening demand in the country.

Dividend Increase and Stock Buyback

Yum China’s board has declared a 23% increase in its cash dividend, raising it to 16 cents per share. This dividend will be payable on March 26. Additionally, the company plans to buy back $1.25 billion of its stock throughout the year.

Strong Financial Results

In its fourth-quarter earnings release, Yum China reported a total sales increase of 19% to $2.49 billion. This exceeded FactSet estimates of $2.32 billion. Furthermore, the company achieved a same-store sales growth of 4%, surpassing estimates of a 3% gain. However, adjusted earnings per share of 13 cents fell short of the expected 16 cents.

Optimism for the Future

Despite China’s uncertain economic climate due to the ongoing pandemic, concerns about debt, and a struggling real estate market, Yum China’s CEO, Joey Wat, expressed optimism about the company’s prospects. Looking ahead, Yum China remains positive about the vast growth opportunities in China.

Expanding Reach and Capturing Demand in China

China – With a population of over 1.4 billion, China presents a wealth of opportunities for businesses looking to expand their reach. However, despite its potential, many companies are facing challenges in capturing the attention and spending power of Chinese consumers.

Lower-tier cities in China have become prime targets for retail expansion, as they offer immense growth potential. With an increase in disposable income and a desire for premium products and services, consumers in these cities are eager to embrace new offerings.

Competitors Feeling the Pressure

During its earnings call last month, Starbucks acknowledged a slower-than-expected recovery in China, primarily driven by a more cautious consumer. However, instead of joining the discount fray, executives at Starbucks emphasized their commitment to positioning the brand as a premium choice for Chinese consumers.

Similarly, McDonald’s CEO Chris Kempczinski highlighted the challenges faced by the company in China. He noted that consumer sentiment in the country was under pressure, resulting in a more promotional environment. While McDonald’s chose not to follow suit with price cuts, they remain focused on maintaining competitiveness amid the changing landscape.

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