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UPDATE 3-Yum China posts positive Q1 on takeout sales, tax break
April 5, 2017 / 9:04 PM / in 8 months

UPDATE 3-Yum China posts positive Q1 on takeout sales, tax break

* Q1 SSS up 1 pct vs estimated 0.7 pct fall

* Q1 profit jumps 20.7 pct helped by tax reform

* Shares up 10 pct after market close (Adds executive comments, details)

SHANGHAI, April 6 (Reuters) - Yum China Holdings Inc posted a slight rise in first-quarter same-store sales, helped by a jump in takeout demand and improvement at its flagging Pizza Hut brand as the newly spun-off firm looks to revive growth in the world’s second-biggest economy.

The operator of fried chicken outlet KFC, Pizza Hut and Taco Bell in China saw same-store sales rise one percent in the quarter, ahead of analyst forecasts of a 0.7 percent decline, according to researcher Consensus Metrix. That helped lift the firm’s shares 10 percent after market close.

The small bump, compared with flat same-store sales in the last quarter of 2016, is a positive note for the fast-food giant which started trading as a stand-alone company in November and has been battling to turn around sluggish growth.

Yum China, previously the Chinese unit of Yum Brands Inc , has seen food safety scares and changing consumer tastes drag on growth. Prior to the spin-off, China had been the main profit and sales driver for Yum Brands.

“We expect to face many exciting opportunities and also challenges in the market place,” said Yum China Chief Executive Micky Pant in an analyst call on Thursday, adding the result marked a “solid start” to the year helped by delivery sales that were up around 40 percent.

Yum China saw operating profit grow 22 percent for the quarter, helped by a reduced tax bill brought about by local reforms, but hit by currency exchange losses and rising labour and food costs.

That growth helped the chain amass $1.25 billion in free cash, which it said it would look to invest in new or overhauled stores, potential opportunities outside its core business, or to pay back shareholders through dividends or buying back shares.

“We are examining cash deployment opportunities right across the spectrum from growing our core business, to growing beyond our core and finally returning excess cash to shareholders,” Pant said.

The chain, which has 7,663 outlets in the country, said it remained on track to open 550 to 600 restaurants this year while delivering double-digit growth in operating profit, excluding adjustments for foreign exchange.

Same-store sales in its Pizza Hut casual dining business rose 2 percent, their first rise in over two years, although Pant noted this was against a weak comparative quarter in 2016.

Sales at KFC outlets rose 1 percent, helped by increased promotions celebrating the Lunar New Year and 30th anniversary of KFC in China. Analysts had expected a fall of 2.4 percent.

Total revenue fell 1.5 percent to $1.28 billion, but beat the average analyst estimate of $1.27 billion.

Pant added 2017 was a “very significant” year for the firm - its first full year as a standalone company as well as marking three decades since the first KFC outlet in Beijing.

The anniversary was behind a planned year-long “back to 1987” campaign, aiming to evoke the brand’s history in China where as an aspiring, imported brand it saw stellar sales growth for many years until a sharp slowdown in 2013.

“This is a great way to make a nostalgic connection with consumers across China many of whom cherish the memory of their first visit to a KFC,” Pant said. (Reporting by Jessica Kuruthukulangara in BENGALURU and Adam Jourdan in SHANGHAI; Editing by Maju Samuel and Christopher Cushing)

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