Yum China Expects Delta Variant to Eat Into Profit

By Tony Owusu

Shares of Yum China Holdings  (YUMC Get Yum China Holdings, Inc. Report were lower Wednesday after the Chinese counterpart of KFC, Taco Bell and Pizza Hut owner Yum Brands  (YUM Get Yum! Brands, Inc. (YUM) Report said the delta variant of the coronavirus was hurting results.

Yum China says "significant operating deleveraging" is leading the company to forecast a 50% to 60% drop in third-quarter adjusted operating profit from a year earlier. 

Yum China shares at last check dropped 6.2% to $57.42.

The company said key eastern cities in China like Nanjing and Yangzhou were the most affected by the variant, leading the Chinese government to lock down many tourist locations. 

The company said that at the peak of the outbreak in August 2021 the company had to close more than 500 of its stores across 17 provinces. 

Same-store sales in August declined by a mid-teens percentage year-over-year and nearly 20% when compared to 2019. 

Yum China's profit margins are also being pressured by higher commodity prices, wage inflation and an increase in promotions. 

The company said its business recovery remains "uneven and nonlinear" as the Delta variant wanes, but regional outbreaks occur. 

To mitigate the outbreaks, Yum China plans to leverage its 330 million member digital channels, use delivery and takeaway options, and emphasize its "ready-to-heat and ready-to-eat" retail products. 

The company says it would provide additional information on its long-term strategy at its virtual investor day, Sept. 23. 

Yum China's announcement comes amid China's crackdown on industries ranging from gaming to ride-hailing to technology and videogames


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