Shares of restaurant company Yum China(NYSE: YUMC), comprised mostly of Pizza Hut and KFC restaurants, jumped on Monday morning after the company reported financial results for the third quarter of 2024. Yum China stock had recently dropped about 15% from 52-week highs but it's bouncing back today, with investors enjoying a 9% gain as of 10:30 a.m. ET.
Business is slow, but profits are soaring
In Q3, Yum China opened up more than 400 net new locations, lifting its total restaurant count to nearly 16,000 locations. Same-store sales fell 3% during the quarter. But having the new restaurants boosted Q3 revenue by 5% year over year. And management was able to turn this into 15% growth for its operating profit, which hit $371 million in Q3.
With profits rising, Yum China's management is generously giving back to shareholders. The company planned to return $1.5 billion to shareholders with buybacks and dividends this year and it planned to return $3 billion from 2024 through 2026. Its returns for 2024 are firmly on track. But with its Q3 release, management increased this longer-term goal from $3 billion to $4.5 billion.
This is a significant move for Yum China considering its market cap is about $18 billion. And it's a contributing reason the stock was up today.
A justified move for Yum China stock?
China's economy isn't doing the best right now and Yum China's same-store sales are consequently down -- that's true for many businesses in China at the moment. While ideally those would be increasing, investors can take solace in the higher profits.
There is room for improvement, to be sure. But I believe the move higher for Yum China stock is justified in light of how much it's giving back to shareholders.
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