Finance

Yum China operates KFC and Pizza Hut stores in China.
CEO Joey Wat told CNBC in an interview Friday the company is spending more on tech, an investment that’s allowed it to open more stores without having to hire more staff.
Yum China is also considering the use of generative AI to help store managers understand and analyze store data better, Wat said, emphasizing it’s still at a “very, very early stage.”

Pedestrians walk past a Pizza Hut restaurant and a KFC restaurant, both operated by Yum China, in Beijing, China, on Sept. 5, 2020.
Bloomberg | Bloomberg | Getty Images

BEIJING — Yum China is spending more on tech, an investment that’s allowed it to open more stores without having to hire more staff, CEO Joey Wat told CNBC in an interview Friday.
Yum China operates KFC and Pizza Hut stores in China, among other brands. Its U.S.-listed shares rose by 5.45% Thursday after the company increased its net new stores target for the year by 300 — and plans to return $3 billion to shareholders over the next three years.

“From 2016 to now we increased our number of stores by about 80%. However, our number of staff almost stayed flat [around] 430,000 people,” Wat said via video conference.
With technology, she said staff can be promoted to manage multiple stores and support the opening of new locations.
Yum China said Thursday it plans to invest $3.5 billion to $5 billion over the next three years to grow its store network, improve its supply chain and boost digital capabilities. This year alone, the company plans to spend about $700 million to $900 million.

Wat said the company began to invest in technology during the Covid-19 pandemic to improve visibility into its supply chain and inventory levels in a period when certain stores might need to close due to lockdown controls.
Companies from Alibaba to Walmart’s Sam’s Club have been using software to manage warehouses and supermarket inventory in China — to sell services such as one-hour grocery delivery.

Yum China is building more of its own logistics centers where it can integrate more technology into its supply chain and reduce carbon emissions, Wat said, noting the company ultimately aims to own 30% of its logistics centers rather than having to rent them.

AI at work

As a result, store managers don’t have to order inventory anymore — ingredients are automatically pushed to the store with the help of artificial intelligence-based forecasting, Wat said.
That tech reduces labor and operating costs, as well as food waste, she said. Wat added that current logistics center coverage also has the capacity to serve Yum China’s planned store openings in the near term.
The company has 33 logistics centers, and plans to increase that number to at least 45 in the next three to five years.
Yum China is also considering the use of generative AI to help store managers understand and analyze store data better, Wat said, emphasizing it’s still at a “very, very early stage.”
She said the company is still assessing what can be done in-house, and what requires external help.
Generative AI uses large models to create content that can resemble what a human being might produce — but in a far shorter time frame.

Consumer trends

To meet such tech investment and company growth goals, Wat did not specify whether Yum China would hire more staff. “We will hire whoever we need to hire,” she said.
She claimed the company didn’t lay any people off, not even during the three years of the pandemic.
China’s broader economic recovery from Covid lockdowns has slowed in recent months. The latest available data for young people ages 16 to 24 showed a jobless rate of around 20% this summer, while the overall unemployment rate in cities has been far lower near 5.2%.
Overall uncertainty about future income has weighed on consumer spending.
Despite business expansion, Yum China said it expects same-store sales this year to reach 90% of 2019 levels.
Wat noted that Yum China opened more than half of its stores after 2019, and that its stores are roughly split between the country’s larger cities and less developed areas.
She described summer business as a peak time for the company, especially with local tourism, and said transactions remained “solid” in September after the start of the school year.
Yum China also has a local joint venture with Italian coffee brand Lavazza, which now has more than 100 stores in China.
Wat said that in addition to coffee, the company is exploring how to introduce more food products for the brand in China. More

Retail sales grew by 4.6% in August from a year ago, beating expectations for 3% growth forecast by a Reuters poll. The increase was also faster than the 2.5% year-on-year pace in July.
The National Bureau of Statistics last month stopped reporting the unemployment rate for young people ages 16 to 24.
Late Thursday, the People’s Bank of China said that it was cutting the amount of cash that banks need to have on hand by 25 basis points, effective Friday. It was the second reserve requirement ratio cut this year since one in March.

BEIJING — China’s retail sales and industrial production picked up pace in August with better-than-expected growth, according to National Bureau of Statistics data released Friday.
Retail sales grew by 4.6% in August from a year ago, beating expectations for 3% growth forecast by a Reuters poll. The increase was also faster than the 2.5% year-on-year pace in July.

Industrial production grew by 4.5% in August from a year ago, better than the 3.9% forecast and faster than the 3.7% increase reported for July.
Within that category, the value added of equipment manufacturing rose by 5.4% from a year ago. The output of solar cells and service robots surged by more than 70% from a year ago.
The latest industrial production and services output figures indicate Oxford Economics’ third-quarter GDP forecast is intact, and steady activity would mean the economy can reach 5.1% growth this year, said its lead economist Louise Loo in a report Friday.

Fixed asset investment, however, grew by 3.2% year-on-year in August on a year-to-date basis. That missed expectations for a 3.3% increase and was slower than the 3.4% pace reported as of July.
The figure was dragged down by a steeper drop in real estate investment, and a slowdown in infrastructure investment. Only manufacturing saw the pace of investment pick up.

Statistics bureau spokesperson Fu Linghui said the real estate market was still in a period of “adjustment” and noted declines in sales and investment. He said the property sector would recover as recent policy took effect.

The key is to maintain the shape and pace of the economic recovery so that companies are willing to continue investing and residents are willing to continue consuming.

Bruce Pang
chief economist and head of research for Greater China, JLL

In the first 10 days of September, average daily new home sales fell by 19.3% from a year ago, better than the 24% decline in August, according to a Nomura report, citing a Wind Information survey of 21 major cities in China.
“It’s too early to conclude that property easing hasn’t been effective — the most meaningful property easing measures had been implemented end-Aug/early-Sep after all, including nationwide mortgage loosening initiatives and measures across all four Tier-1 cities,” Oxford Economics’ Loo said.

Private sector investment drops

Within fixed asset investment, private, non-state investment fell by 0.7% in the first eight months of the year from a year ago — worse than the 0.5% decline in the first seven months of the year.
That decline reflects weak sentiment about the future, said Bruce Pang, chief economist and head of research for Greater China at JLL.
He said it will take time for recent policy and measures to take effect.
“The key is to maintain the shape and pace of the economic recovery so that companies are willing to continue investing and residents are willing to continue consuming, forming a virtuous cycle and a balanced recovery,” Pang said in Chinese, translated by CNBC.
The urban unemployment rate for cities was little changed at 5.2%. The statistics bureau again did not report the jobless rate for young people.

It said last month it will stop reporting the unemployment rate for young people ages 16 to 24. The bureau said it was reassessing its methodology, and would resume releases at an unspecified date.
While spokesperson Fu said the bureau didn’t yet have a figure to share, he added that data from some departments showed more young people were able to get jobs in August.
He noted that pressure on employment remains, and more effort is needed to expand the number and quality of jobs.
China’s economic rebound from the pandemic has slowed since the second quarter, dragged down by a real estate slump. Exports, another key driver of China’s economy, have also dropped as global demand for Chinese goods wanes.
The statistics bureau release described August data as showing “marginal improvement.”
“The national economy showed good momentum of recovery with high-quality development making solid progress and positive factors accumulated,” the statistics bureau release said. “However, we should be aware that many unstable and uncertain factors in the external environment still exist.”

Workers make pods for e-cigarettes on the production line at Kanger Tech, one of China’s leading manufacturers of vaping products, on September 24, 2019 in Shenzhen, China.
Kevin Frayer | Getty Images News | Getty Images

Within retail sales, online sales of physical goods rose by 7.6% in August from a year ago, according to CNBC calculations of official data accessed via Wind.
Autos saw sales rise by 1.1%. Among the categories with faster growth were cosmetics, up by 9.7% and communication equipment, up by 8.5% in August from a year ago. Catering sales grew by 12.4% during that time.
Services sector retail sales grew by 19.4% in the January to August period from a year ago, slower than the 20.3% pace recorded for the period through July.

More rate cuts

Late Thursday, the People’s Bank of China said that it was cutting the amount of cash that banks need to have on hand by 25 basis points, effective Friday. It was the second reserve requirement ratio cut this year since one in March.
In the last several weeks, Beijing has announced a slew of measures to support the real estate market and consumption.

Monetary policy has remained relatively loose compared with aggressive rate hikes in the U.S. and Europe.
Also effective Friday is a reduction in the foreign exchange reserve requirement ratio for financial institutions to 4%, from 6%. The planned cut was announced two weeks ago.
The central bank has also trimmed other benchmark rates, such as the one-year loan prime rate.

China’s slowing economic growth

Moody’s on Thursday downgraded its outlook on China’s property sector to negative from stable. The firm expects sales to fall by around 5% over the next six to 12 months.
“While the Chinese government has recently strengthened policy support for the property sector, we expect the impact on property sales to be short-lived and differentiated between tiers of cities,” Cedric Lai, vice president and senior analyst at Moody’s, said in a release.
Uncertainty about future income has kept consumer spending relatively muted.
China’s consumer price index rose by 0.1% year-on-year in August, reversing a decline in July. Core CPI, which excludes food and energy prices, increased by the same 0.8% year-on-year pace during both months. More

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Arm Holdings will help jump-start the IPO market, according to the venture capitalist behind Airbnb and Pinterest.
FirstMark Capital’s Rick Heitzmann believes real fundamental demand for IPOs is returning.

“People are looking for the new toy,” the firm’s founder and partner told CNBC’s “Fast Money” on Thursday.
Chip design company Arm, which is affiliated with Softbank, jumped almost 25% in its Nasdaq debut on Thursday. Its market cap ended the day at $65.2 billion.
“This isn’t even a real IPO. This is a re-listing of a company by Softbank to the public similar to Kenvue which was the J&J [Johnson & Johnson] spinoff,” added Heitzmann. “There are people who want to buy IPOs.”
According to Heitzmann, there’s a more rational backdrop for IPOs now versus the zero-interest rate environment. He believes Arm executives set the IPO for success.
“They had to price for the pop. If Arm would have traded down today, the market would have felt a lot differently,” said Heitzmann. “They also have a very small and limited float. So, therefore, they’re constricting demand and pricing it the right way.”

And, Heitzmann expects next week’s Instacart IPO to follow in Arm’s footsteps.
“It’s the reason they’re going to price Instacart down 70% from the last private round.” said Heitzmann, who does not have a stake in Arm or Instacart. “They’re pricing it to get into a good new normal for an upswing.”
Instacart is set to price after Monday’s market close and start trading on Tuesday under the ticker CART at the Nasdaq.
Heitzmann sees shares of the grocery pick-up and delivery service performing well out of the gate. He notes Instacart’s advertising business should also be a boost to its bottom line.
“They’re selling very low margin products in order to advertise against them,” he said. “It’s been a good model for supermarkets. It’s been a good model for Amazon.”
Yet, Heitzmann questions which investors will actually feast on the Instacart and marketing automation company Klaviyo, which is scheduled to go public next Wednesday.
“People were wondering how much appetite is there from the big traditional IPO buyers,” Heitzmann said. “We’re going to find out next week.”
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JPMorgan Chase is stepping up its appeal to small business customers by planning to offer digital payroll processing.
The bank has picked San Francisco-based fintech player Gusto to provide the underlying technology for the feature.
The product will help JPMorgan compete with fintech players including Square and PayPal, which already have payroll services.

Co-founders Eddie Kim, Josh Reeves, and Tomer London of fintech startup Gusto, which handles payroll services for small businesses.
Courtesy: Kelly Boynton | Gusto

JPMorgan Chase is stepping up its appeal to small business customers by planning to offer digital payroll processing, CNBC has learned.
The bank has picked San Francisco-based fintech player Gusto to provide the underlying technology for the feature, according to Gusto CEO Josh Reeves.

“If you’re a customer of Chase payments solutions, you can go to payroll from the same exact place you do banking,” Reeves said. “It’s the same experience, with the same login and credentialing; all that stuff becomes easier when it’s in a one stop shop-type environment.”
JPMorgan, the biggest U.S. bank by assets, has poured billions of dollars into technology in recent years. It’s part of a larger battle for the loyalty of American retail and business customers as fintech players including PayPal and Square morph into do-everything providers that threaten traditional banks. Both companies have their own payroll services.
JPMorgan has previously rolled out fintech features, including a Square-like credit card reader for small businesses and early direct deposit for consumers.

Everyone needs to get paid

When it came to payroll services — a universal chore for small business owners, some of whom still use paper checks to pay workers — JPMorgan decided to partner with Gusto rather than build its own solution.
A fintech partner like Gusto is better able to manage the complexity of offering payroll services nationally. There are nuances to individual states, cities and counties that make the sector difficult to crack, according to Reeves.

Using Gusto will help JPMorgan to speed its time to market for this service, which will go live by the end of 2024, according to a person with knowledge of the situation. The offering will disburse salaries to employees, generate tax documents and pay stubs, and file to local and national agencies.
JPMorgan has 5 million small business customers and more than 200,000 users of its payments-solutions offering, according to the person.
Gusto was founded in 2011 and serves 300,000 small and medium businesses. It was last valued at $9.6 billion. The startup competes with traditional and newer providers including ADP, Intuit, Paychex and Rippling.

–CNBC’s Jon Fortt contributed to this article. More

Striking Writers Guild of America members walk the picket line in front of Netflix offices in Los Angeles, July 12, 2023.
Mike Blake | Reuters

Check out the companies making headlines in midday trading:
Visa — The credit card behemoth’s stock fell 2.5% after announcing plans to change its share structure. Visa’s Class A shares are held by the public, its B shares are held by U.S. banks, while C shares are owned by foreign banks. The company wants shareholders to approve an exchange offer that would release transfer restrictions on portions of the Class B stock.

Semtech — The semiconductor stock rose 10% after beating earnings expectations for the second quarter. Semtech earned 11 cents per share after adjustments, exceeding the consensus estimate of 2 cents per share from analysts polled by FactSet. However, the company offered weak guidance for the third quarter.
Penn Entertainment — The sports betting company’s shares rallied 8.7% Thursday. Deutsche Bank initiated a short-term catalyst call to buy Penn, citing an inexpensive valuation ahead of the launch of ESPN BET, which debuts in November.
Netflix — The streaming giant’s shares slipped 2.8% in midday trading after Chief Financial Officer Spencer Neumann said the ongoing Hollywood writers’ strike is bad for business. Speaking at a conference Wednesday, Neumann also cautioned that its ad-supported streaming option wouldn’t help move revenue forward in the short term and said operating margins would grow slower moving forward.
Yum China — The restaurant conglomerate’s shares gained 5.4% during midday trading after it announced new financial targets and unveiled plans to expand to 20,000 locations by 2026 during an investor day.
AMC Entertainment — The meme stock darling fell 1.1% after AMC said it had completed the equity offering it announced earlier this month. The movie theater chain said it sold 40 million shares at an average price of $8.14, raising about $325.5 million.

Etsy — The e-commerce retailer’s stock rose 3.2% after Wolfe Research upgraded Etsy to outperform from a peer perform rating, citing improving consumer spending and margins.
HP — The PC and printer stock slipped 1.7% on news that Warren Buffet’s Berkshire Hathaway sold about 5.5 million shares of its stock, amounting to roughly $158 million, a regulatory filing showed.
Exxon Mobil, Chevron — Shares of the oil majors were trading higher Thursday as U.S. oil prices surpassed $90 per barrel for the first time since November 2022. Exxon shares gained 1.7%, while Chevron added nearly 1%.
— CNBC’s Samantha Subin, Pia Singh and Alex Harring contributed reporting. More

An AMC Theatre on March 29, 2023 in New York City. AMC Entertainment shares jumped as much as 13%, following a report that Amazon was looking to buy the theater chain. 
Leonardo Munoz | Corbis News | Getty Images

Check out the companies making headlines before the bell.
Yum China — Shares rose over 3% in premarket hours as the Chinese restaurant conglomerate announced new financial targets and unveiled plans to expand to 20,000 restaurants by 2026 during an investor day.

AMC Entertainment — Shares of the movie theater chain jumped 5% in premarket trading after AMC said it had completed the equity offering it announced earlier this month. The company said it sold 40 million shares at an average price of $8.14, raising about $325.5 million.
Etsy — Shares of the e-commerce retailer added 4% before the bell after Wolfe Research upgraded the stock to an outperform rating from peer perform. Wolfe cited three reasons for the upgrade: a rebound in consumer spending, the potential for margin improvement and an improved emphasis on Etsy’s primary franchise.
Semtech — The semiconductor stock rose 1% in early trading despite offering a fiscal third-quarter forecast late Wednesday that calls for a loss of 9 cents to 22 cents a share on revenue of $190 million to $210 million. Analysts had estimated it would earn 12 cents on revenue of $247.7 million during the period. In the second quarter, the company earned 11 cents a share, after adjustments, exceeding analyst’s expectations of 2 cents per share, according to FactSet.
Penn Entertainment — The sports betting stock climbed 3% in premarket trading following a short-term buy call from Deutsche Bank. The bank said there’s reason to believe the stock should see upside ahead.
First Solar — The stock climbed about 2% higher after BMO Capital Markets upgraded shares to outperform from market perform, citing a recent selloff that has created an attractive entry point for investors.

Exxon Mobil, Chevron — Exxon Mobil and Chevron gained about 1% each before the market opened as oil prices reached their highest levels this year, with Brent crude topping $93 a barrel. Occidental Petroleum and Devon saw early morning gains as well.
HP — Shares of the printer and PC maker fell more than 3% in premarket trading after a regulatory filing showed Warren Buffett’s Berkshire Hathaway sold a portion of its stake. The conglomerate sold about 5.5 million shares of HP, worth around $158 million. The Omaha-based giant first bought the tech hardware stock in April 2022, becoming its largest shareholder. Berkshire still owns over $3 billion in HP shares.
General Motors, Ford — Shares of the automakers were up fractionally in premarket trading after United Auto Workers President Shawn Fain said Wednesday night that a strike was “likely” against the companies if a contract agreement can’t be reached before the 11:59 p.m. ET Thursday deadline. Ford CEO Jim Farley struck back, saying the company has received “no genuine counteroffer” on its proposals.
— CNBC’s Michelle Fox, Alex Harring, Yun Li, Tanaya Macheel, Jesse Pound and Pia Singh contributed reporting More

Source: Finance – cnbc.com More

is a leading semiconductor intellectual-property supplier, designing chip technology that is used in high-tech gadgets, including most of the world’s mobile phones. The company then licenses that tech out to the industry’s major players and collects royalties. Roughly five chips in every smartphone are based on ARM’s design and that number’s increasing as the mobile Internet continues to grow.One of ARM Holdings’ biggest customers is . The Cupertino, Calif.-based company licenses its processor
Photo: Chris Ratcliffe | Bloomberg | Getty Images

IPO and tech enthusiasts are excited about the Arm Holdings Plc initial pubic offering, and with good reason: it’s the first big tech IPO in more than two years.
A lot is riding on its success. In this case, “success” for investors means demand is high and the price rises in the weeks and months after the IPO.

Still,  initially the deal will mostly be lacking one natural buyer:  Exchange Traded Funds.
Arm will be launching its IPO Thursday on the Nasdaq, selling 95.5 million shares at $51, the high end of the expected price range of $47-$51.
Tech investors increasingly use ETFs to gain exposure to broad tech sectors, and subsectors, like semiconductors.
However, some investors who would like to get immediate exposure to the Arm IPO through ETFs may be disappointed.
ETF indexes have inclusion rules
ETFs are generally a desirable target for corporations to sell stock to because the ownership base skews toward passive and long-term ownership.

However, this particular IPO highlights several difficulties that even large companies like Arm have in acquiring a broader ownership base through ETFs.
For the most part, ETFs are backed by indexes. These indexes have rules that must be carefully adhered to in order to qualify for inclusion.
Unfortunately, partly due to Arm’s own decisions and partly due to the way the major indexes are constructed, ARM initially appears to be ineligible for the largest ETFs.
Problem #1: Arm is not in the S&P 500
The largest index provider is S&P Global. To be included in broad technology ETFs like the SPDR Technology ETF (XLK), which tracks the S&P 500 Technology index, a stock must first be in the S&P 500, which Arm is not. 
The first problem is that Arm is not a U.S. company, it’s British — which generally would exclude it from the S&P indexes.
“It is unlikely it would be included in the S&P 500 given its domicile is in the UK,” Matt Bartolini, head of SPDR Americas Research at State Street Global Advisors, told me. “That would exclude it from inclusion out of the gate.”
State Street runs a large suite of ETF products that are tied to S&P indexes, including the largest ETF in the world, the SPDR S&P 500 ETF (SPY).
Howard Silverblatt at S&P Global also noted that S&P requires a stock to have traded for one year and have four consecutive quarters of profitability to be considered for inclusion in the S&P.
Next problem: a free float below 10% 
Many tech companies now routinely float very small amounts of stock (10%-15% of the shares outstanding), because restricting supply increases the chance for higher prices. 
But Arm appears to be particularly parsimonious, floating roughly 9.3% of the company, according to Renaissance Capital. 
That is another problem for many ETFs, which generally require that a company float 10% or more of the shares to be eligible for inclusion.
That’s the case with the S&P indexes, Bartolini tells me, as well as the largest semiconductor ETF, the Van Eck Semiconductor ETF (SMH), which also requires a free float of 10% or more. 
Van Eck CEO Jan Van Eck told CNBC on Monday that his firm was still evaluating whether Arm would be eligible for inclusion in his ETF. 
Other index firms used by ETFs have float requirements as well. Todd Sohn, who covers ETFs at Strategas, tells me that Vanguard Total U.S. Market (VTI), which uses the CRSP U.S. Total Market Index, also requires a 10% float for fast-track IPOs.
There are ways to get the float above 10%. First, SoftBank could exercise the greenshoe, an optional over-allotment of stock which could add an additional 15% of shares, which would put them just over a 10% float. 
When would that happen? “In general, it’s not announced in connection with the pricing, though it can be,” Matt Kennedy from Renaissance Capital told me. “It can also be disclosed a couple days afterward when they announce the closing. Or, at the very latest, a month or so afterward in an 8-K or 10-Q filing.” 
Another way is simply to sell additional shares after the six-month lockup period expires. 
Potential ETF buyers: Nasdaq-100 ETF, IPO ETFs 
There are some potential ETF buyers. 
For example, Arm may be eligible to enter the Nasdaq-100, the top 100 non- financial stocks in the Nasdaq, because that index has no float or market capitalization requirements. The Nasdaq-100 is reconstituted every December. 
The Invesco Nasdaq-100 ETF (QQQ) which uses the Nasdaq-100 index as its benchmark, is one of the largest ETFs in the U.S.
Other ETFs that specialize in buying IPOs are potential Arm holders, but their buying power is relatively small.
The Renaissance Capital IPO ETF (IPO), a basket of recent IPOs, requires a free float of only 5%, so Arm potentially is eligible for inclusion there.
However, Nate Geraci of the ETF Store cautioned against trying to play IPOs in this manner.
“I’m simply not a fan of investors attempting to play IPOs in the first place,” he told me.
“One of the benefits of being an ETF investor is that you don’t have to worry about company-specific events such as this. Investors should obviously understand what’s going on underneath the hood of any ETF they own, but I would dissuade anyone from buying an ETF simply because it has an allocation to the latest hot IPO.” More