(Yicai) July 31 -- Yum China Holdings, which operates the Kentucky Fried Chicken and Pizza Hut restaurants in the Chinese mainland, reported a 14 percent increase in profit for the second quarter from a year earlier, after earnings and margins grew for the ninth straight quarter.

Net income was USD244 million in the three months ended June 30, while operating profit also grew 14 percent to USD348 million, a record high for a second quarter, on a 13 percent gain in revenue to USD3.1 billion, the Shanghai-based company’s latest financial report showed yesterday. Diluted earnings climbed 21 percent to 70 US cents per share.

“We delivered strong second-quarter results,” Chief Executive Officer Joey Wat said on Yum China’s earnings conference call. “For the ninth consecutive quarter, we simultaneously grew system sales, operating profit, and OP margin.”

Same-store sales grew 1 percent, an improvement on the first quarter, driven by a 14th straight quarter of growth. The company also opened a net 560 new stores, a record for a second quarter and 67 percent more than a year earlier, lifting the total count to 19,297.

Delivery sales jumped 26 percent and accounted for about 54 percent of total sales, up from 45 percent a year ago. Chief Financial Officer Adrian Ding conceded that "rider costs continued to increase year on year in quarter two," trimming 140 basis points off margins, but Yum China "offset most of that through enhanced store operations." Restaurant margin held flat at 16.1 percent.

Yum China’s shares [HKG: 9987] closed 1.9 percent higher at HKD372.80 (USD47.53) each in Hong Kong today. Its stock in New York [NYSE: YUMC] added 1.4 percent yesterday to end at USD46.47.

Pizza Hut's turnaround continued, with same-store sales returning to positive territory at 1 percent and net new store openings nearly doubling from a year earlier to 174. Its new made-to-order Burger Bar format has expanded to more than 200 locations in six months.

Asked whether the burger push risked cannibalizing pizza sales, Wat said the product needed to be "very unique," adding that the early results are "double-digit sales to the parent stores and the margin is nice.”

Yum China's acquisition of the Pizza Hut brand in China, ending a 36-year licensing arrangement with Yum! Brands, is on track to close in August. Wat said brand ownership would let the company make "faster and sharper" decisions, recalling that in the past "there were a lot of conversations behind the scene" before such moves could happen.

Yum China raised its Pizza Hut net new store target for next year and 2028 to more than 800 per year, up from over 600 previously.

Wat said the company was "encouraged to see the rebound in June retail sales," adding that "the competition between the delivery platforms is more rational." Management reaffirmed full-year targets of mid-to-high single-digit system sales growth and a double-digit gain in earnings per share, alongside a goal of surpassing 20,000 stores by year-end.

Yum China returned USD402 million to shareholders in the quarter through share buybacks and dividends, and remains on track to return USD1.5 billion this year, about 10 percent of its current market capitalization.

Editor: Tom Litting