Nomura: Yum China’s third-quarter same-store sales under pressure as opening pace accelerates and earnings forecasts are cut

What pressures lie behind third-quarter growth?

Yum China’s third-quarter revenue rose 8% year over year to 3.48 billion dollars, slightly below the Bloomberg consensus of 3.51 billion dollars; excluding currency effects, revenue grew 2% year over year.
Sales at existing stores of both major brands were under pressure: same-store sales at KFC and Pizza Hut each fell 3% year over year, while average spending per customer declined 5% and 8%, respectively. Nomura believes weak consumer sentiment created operating challenges.

Third-quarter operating profit rose 13% year over year to 451 million dollars, slightly above the market consensus of 449 million dollars; excluding currency effects, it rose 6% year over year.
KFC’s restaurant margin rose 0.1 percentage points year over year to 18.6%, while Pizza Hut’s rose 1.9 percentage points to 15.3%. Improved operating efficiency, more favorable raw material costs and Pizza Hut’s savings on licensing fees together supported the margin improvement.

The company added a net 692 stores in the third quarter, a record for a single quarter, and raised its full-year 2026 net new store guidance from 1900 to 2400. At the end of the third quarter, its total store count reached approximately 19.9 thousand; the company aims to reach 30 thousand by 2030.
Franchised stores are playing a larger role in expansion: in the first three quarters of 2026, they accounted for 45% and 47% of new KFC and Pizza Hut openings, respectively. Nomura believes this will help the company expand further into lower-tier county-level cities in China and support sustained shareholder returns through increased market share.

Nomura incorporated faster store openings and slightly lower same-store sales growth into its model. It believes the latter will create greater operating deleverage pressure, so it cut its earnings forecasts for fiscal years 2026 through 2028 by 1% to 2%.
The bank maintained its Buy rating and lowered its target price for the Hong Kong-listed shares from 464 Hong Kong dollars to 445 Hong Kong dollars; its valuation continues to use an enterprise value to EBITDA multiple of 10 times for the next 12 months. Nomura remains positive on the company’s performance in product innovation and operating efficiency.