Yum China (NYSE:YUMC) reported third-quarter 2026 revenue growth of 8% in reporting currency, while operating profit rose 13% and diluted earnings per share increased 20%, CEO Joey Wat said during the company’s earnings call. Excluding foreign-exchange effects, system sales grew 3%, core operating profit increased 6%, and the company recorded its 10th consecutive quarter of growth in system sales, operating profit and operating-profit margin.
The company said same-store sales were 97% of the prior-year level, reflecting difficult comparisons against delivery-platform subsidies in the prior year as well as adverse weather in August. Same-store transactions continued to increase, however, marking the company’s 15th consecutive quarter of positive transaction growth.
Wat said Yum China’s restaurant margin expanded 50 basis points year over year, while operating-profit margin rose 40 basis points. The gains reflected operational initiatives designed to offset sales deleveraging, including rent reductions, lower delivery-rider costs per order, supply-chain efficiencies, automation and greater use of its operations support center. Pizza Hut license-fee savings following Yum China’s acquisition of the Pizza Hut brand in mainland China also supported margins.
Store Growth Accelerates
Yum China added nearly 700 net new restaurants during the third quarter, a quarterly record, ending the period with 19,989 stores. The company said it remains on track to surpass 20,000 stores this year and raised its full-year net new-store target to more than 2,400 from 1,900 previously.
During the first nine months, Yum China opened 1,888 net new stores. CFO Adrian Ding said more than half of new locations were opened in new cities, strategic locations or trade zones without existing dine-in or delivery coverage, an approach intended to limit sales transfer from existing stores.
The company is using formats tailored to lower-tier markets, including KFC Small Town, Pizza Hut WOW and KFC-Pizza Hut Gemini locations. These formats accounted for more than half of new openings in lower-tier cities during the year, Ding said. Yum China continues to target a two- to three-year payback period for new stores.
Wat said KFC and Pizza Hut still have substantial expansion potential, noting that the brands remain absent from roughly 1,000 and 1,500 cities, respectively. She also said Pizza Hut has more than 1,500 cities where KFC operates but Pizza Hut does not.
KFC and Pizza Hut Results
KFC opened more than 500 net new stores in the quarter and surpassed 14,000 restaurants. System sales increased 3% year over year and operating profit rose 4%. KFC’s same-store sales were 97% of the prior-year level, as a 3% increase in same-store transactions was offset by a 5% decline in average ticket to 36 yuan.
Ding said KFC’s restaurant margin increased 10 basis points, as efficiency gains outweighed the effect of sales deleveraging. The lower ticket average reflected growth in smaller orders from customer segments and locations such as KCOFFEE and KPRO, partially offset by delivery mix effects.
Pizza Hut added nearly 200 net new stores, bringing its total to more than 4,700 across 1,300 cities. The brand’s system sales rose 1%, while operating profit increased 21%, aided in part by the elimination of license fees previously paid to Yum! Brands. Same-store sales were 97% of the previous year’s level, with transactions rising 5% and average ticket declining 8% to 65 yuan.
Pizza Hut’s reported restaurant margin improved by 190 basis points. Excluding license-fee savings, the margin increased 30 basis points, as streamlined operations and automation more than offset higher food costs, Ding said.
Margins, Earnings and Capital Returns
For Yum China overall, third-quarter restaurant margin was 17.8%, while operating-profit margin reached 13.0%. Operating profit totaled $451 million, up 6% year over year excluding foreign-exchange impacts, and net income was $311 million, up 3%. Net income was flat excluding the impact of the company’s Meituan investment.
Diluted EPS was $0.91, up 12% year over year, or 8% excluding the Meituan investment. Ding said the Pizza Hut brand acquisition contributed about $0.02 to third-quarter diluted EPS after interest, financing expenses and taxes.
Cost of sales increased 20 basis points to 31.5%, reflecting value offerings and investments in KCOFFEE, KPRO and Burger Bar. Labor costs rose 30 basis points to 26.5%, although rider-cost pressure moderated to 30 basis points during the quarter. Occupancy and other expenses declined 100 basis points to 24.2%, supported by lease renegotiations, lower rents in lower-tier cities and other efficiency efforts.
Yum China plans to return $1.5 billion to shareholders in 2026. In the first nine months, it returned $1.08 billion, including $778 million in share repurchases and $302 million in dividends. The company expects fourth-quarter repurchases of about $315 million.
Growth Initiatives and Outlook
The company said its side-by-side business modules are contributing incremental sales and profit. KCOFFEE Cafe exceeded 4,000 locations and is on track to exceed 5,000 by the end of 2027. KPRO surpassed 700 locations and is expected to exceed 850 by year-end, with a goal of 1,500 locations by 2027. Pizza Hut Burger Bar surpassed 300 locations and is expected to exceed 500 by year-end and reach 1,000 in 2027.
Wat said KFC’s Apple Sparkling Americano sold more than 1 million cups per week during the peak summer season, while non-coffee drink sales more than tripled year over year in the third quarter. Pizza Hut’s burger category posted high-double-digit sales growth, while pizza unit sales rose 17% in the first nine months.
For the fourth quarter, Yum China said it is seeking a sequential improvement in same-store sales despite a higher comparison base. Ding said October performance was broadly in line with internal expectations, while a more broad-based autumn school break in November could provide a tailwind. Before the impact of the Pizza Hut transaction, the company expects fourth-quarter operating-profit margin to be relatively stable year over year. The Pizza Hut deal is expected to add approximately 50 to 60 basis points to restaurant and operating-profit margins in the quarter.
Looking to 2027, management said it remains confident in delivering its previously outlined three-year growth algorithm, including a full-year same-store sales growth target of 0% to 2% and continued double-digit EPS growth.
About Yum China (NYSE:YUMC)
Yum China Holdings, Inc is a restaurant company focused on operating and developing quick-service and casual-dining brands in China. Headquartered in Shanghai, the company serves customers across mainland China through a large network of company-owned and franchised restaurants, supported by digital ordering, delivery and loyalty platforms.
Its principal brands include KFC, Pizza Hut and Taco Bell, for which Yum China holds the exclusive rights to operate and franchise restaurants in China.
