YUMC - Earnings call transcript Q4 2017 | Yum China Holdings, Inc.

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Yum China 2017 Fourth Quarter and Fiscal Year Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation, followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today, Thursday, February 08, 2018. I'd now like to hand the conference over to your first speaker today, Ms. Shen. Michelle you. Thank ahead. Please go

Michelle Shen

COO; Kevin. Events broadcast you Good are evening, you, through website presentation President and Pant, Please IR our note, our a Presentations this morning joining us. call section. Thank PowerPoint and our for Wat, today a CEO; everyone. Jacky On Lo, our CFO. and live Thank and Joey good the and of our Micky available under call are

that events started, our presentations get Before I'd the which remind you call like investor earnings we contain are to and subject and statements, forward-looking to future uncertainties.

results included considered these forward-looking in in the SEC. our actual and also in statements. be the differ with release should statement filings certain cautionary with statements Our measures. materially presentation non-GAAP financial conjunction our This may factors All includes risk from earnings forward-looking the

measures the carefully consider You comparable should the GAAP reconciliation thereto. and

Page QX happy Joey will brand financial with questions let's Micky will discuss be opening start agenda results. highlights. and analysts from XXXX take X. year the After our on remarks, with will and full Jacky we'll Now, the to performance start investors. review and

turn me CEO Yum over to the Mr. of Micky Pant, call China. let Now,

Micky Pant

assume you online. you, Michelle, and will access #X. welcome everybody. if to our Slide Thank presentation you with have I And start I do,

a loss to In X% result of improved up of QX, X%, $XX also a plus growth tax plus announced $X.X same-store sales revenues our with sales as increase So up the U.S. Yum at delivered we X% tax at before a of million same-store fourth an Hut for quarter. quarter which onetime previously plus reform. Pizza translation. due results billion, charge, KFC versus came $XXX an a reaching sales performance and performance And the with total Foreign illustrates up same-store China, million, year impressive strong X%, ago. net in exchange overall reported both with

income net XX% excluding increase QX was of $XX year, million, our year impact, adjusted on this Excluding ForEx. an

regarding the more year You'll get the restaurants. details EPS diluted Adjusted reached on from X,XXX $X.XX, restaurants quarter, XX% ForEx. we new charge. was tax of total excluding a In year our CFO Lo, opened XXX and Jacky up

more in China. now across are X,XXX than cities We

continue progress delivery. of half over our over the our in We sales. strong for make sales accounted quarter company to reached and sales mobile Delivery digital company payment XX% and in of

We of we Our for loyalty surpassed QX paid dividend members paid Hut share XXX $X.XX share and and of $X.XX QX million. per exceeded in XXXX. million dividend a KFC announced Pizza per in XX a we've

operating exceeded sales look Pizza X% of KFC profit the year. up grew Full was X% Hut QX, the with on overall up Now, same-store year performance in at glad results revenues for were for to up plus sales an and Full increase plus an of exchange. plus million. for which $XXX $X.XX, XX% year. items in of was XX% versus last special ForEx. $XXX foreign increase diluted represents EPS excluding Adjusted net income year million is of the let's first full excluding Adjusted with X% take a Yum XX% year $X XXXX, XXXX, the as listed I'm a X% And China X. strong an we that independently achieved is year, report operating full same-store to on foreign billion, before year year solid Page an year increase company. of exchange translation which

at and the reached investments cash billion and stood $X.XX of end EBITDA adjusted billion, $X.XX short-term Our at XXXX.

been our new restaurants. new stores years. our moment the Little have in are XXXX, or have target Sheep over including remodeled by KFC XXX stores new XX% past We XXX either led by XXX the remodeled opening and We in restaurants five exceeded at of

price average repurchased the Lastly, $XXX share. totaling we of X.X million an shares at year $XX.XX million during per

a annual take quarterly later let's sales performance X, brand. Joey performance the walk our at on, us by Moving and to through will look Slide

same-store was X Hut. KFC performance improvement see strong top-line improved by sales were our momentum flat plus XXXX. This driven You Pizza after and steadily decline a at three we at can and and years a of

the trend strong a have encouraging, XXXX While of lap for is XXXX. performance two tougher in up set years XXXX and for

Our system openings. sales sales new year, a on and grew backed by store X% year strong same-store

Let's move to Slide #X.

as approximately our XXXX $XXX improve excluding and up retail sales operating same-store restaurant to to of on the XX% tax XXXX. continued targets growth is of margin structure, profit commonly margin solid margin restaurant back of XX% XX.X% and million, one building double-digit reached operating in ongoing impact aided maintain by increased known a profit Our in We XX% growth on VAT. and Restaurant which the ForEx.

previously, two mentioned XXXX. tough created challenging for growth years lap a of As strong

move you've business. our Let's to seen the before, continue we key and slide strategic #X, but to four on focus priorities for Slide

continue a record to is and that to invest China, we where have first leadership. The of in a understand we for growth market

business strengthen core Hut. KFC is in to second our Pizza The continually and

in to The in our at delivery areas. to and digital through strive the third is two stay and these forefront investment, leadership continued maintain position

and is as Joey, know it's China. I'll take is CEO day products, hand moment parts. Operating to from growth concludes our formats and for back to come Joey over Our drive now the you store future fourth I'll and our that Chief at but Yum Officer, the of the you will March priority Joey to over X Wat. through as and my remarks President you. end, innovation and

Joey Wat

Micky. you, everyone. Thank Greetings,

of sales the XXX and Slide up delivered KFC X% X% year of sales Hut as and system KFC We key XXXX. XX performance Now, XXX up as summarize built of year. performance units. performance well QX on let top-line with in same-store stores XXXX. solid with full in year the and me highlights KFC new Pizza Starting KFC, remodeled

positive X% growth margin growth. was numbers of and you X% Jacky Our year in improve. second On the more X% transactions same-store financial strong. cover also that sales It quarter grew in and growth up operating will detail. continued growth, X% consecutive year by Slide Restaurant full the fifth profit performance our will was making ticket average. in driven for in QX, to of XX, see and

with pleased our very performance growth. cities' Shanghai and with Beijing leading the are X We tier

we very to we in momentum tough challenges While by XXXX, two want New Year. encouraged of facing very Chinese on recent you KFC, in be years caution sales we especially lapping are the will that growth solid solid

Now, let's a sales strong driven system Slide on We X%, and double-digit XX. in QX, same-store move new of resulting sales store growth on by year to in growth sales system full opening. maintained

to XX. Slide move Let's

other launched It's was performance launched products, new tart of Musang King One our Chicken such factors Chicken of in products, KFC at product consumers is our focus well on food. including received Musang Pizza, stores. Jumbo series coated biggest Durian to egg Tanta] the innovative QX, [ph]. solid of our KFC Lay's [and Durian continuous contribute Chips. a with as by our that was Leg In Nomiji created buzz. KFC good and source star Right [ph]. and new also now, The

sold If to It's it will good. very be you coming very, also. are China,

needs. KFC festive different value our on abundant sizes customer as focused creating to the Second, fit to buckets customers season of during such

development offering of the trial exclusive and our to combination product, and they for size value in significant it member further essential Shian KFC selected members million, Examples portion a congee, of already their China. Third, Members premium Chinese continually Members a our offered We an ingredients. QX product. payment one, milk, our exceed get flavor [Tialo and trial as upgrading with we strengthened use which in [Toushan for K-Mall also XX%. with [ph] need launch, official scallop our reaching in crayfish considerable more step customers. member continue T-Mall. to the consumers XX%. redeem going We We of for started choices, privileges shrimp are even a sales free engage our of members QX to [ph]. phase and and get points new include breakfast cash one day hence is increasing first such can before our in new Tashiyajo] Mobile launched parts. Campbay it's sales exclusive XXX buy in Slide and loyalty digital merchandize XX, product. burger their Humpa] are represent of

our In X,XXX to continued We delivery company We're front. XX% XX, KFC year-on-year. of will capability leadership and the delivery XXX cities continue growth. represents stores XX% our to across now over maintain delivery in up Slide build XXXX, services. sales, its digital capacity over

for a complement certain future delivery digital attractive member limited dine-in days yen. XXXX, which Delivery such app delivery helped We XX KFC believe launched subscription discounted it at free to buckets This provide orders and website offer Prime, gift size. order through Thus and to capabilities fee the only. drive our channels. offers our reaching program in foundation free continued of brand unlimited of our business strong November orders We delivery a our as own delivery of we In XX or is growth. placed free

let's Now, Slide XX. move to

in Pizza store we that, new X% performance Pizza growth Jacky more program from X% more X%. numbers sales of In step last operating change increased restaurants our remodeling XXX for as a will started With the year Hut the detail. flexible system reported while XXXX review last from Hut. in Hut. cover of Pizza and same Let's XXX remodeled sales year, from stores, XXXX, profit year, grew last

X% X% by Pizza at value down offset X% and look traffic ticket increases in the business a sales offerings. take XX. mainly with same-store driven on Slide QX, same-store partially Hut growth sales grew Just by average, the in in increase, delivery

We also X% same-store ended sales the year with growth.

encouraging positive of XX. ahead the of lot XXXX, of to growth us. is year they while Turn since growth Slide work a first The still

were Full Our Move we last system X% products featuring across XX, there X% launched all QX. new products. an to categories. XXXX, in new Slide XX sales our and up stabilized XXXX, over October in menu XX new In year upgraded growth was launched at year-on-year XX improvement year.

invested to food. and continue in we We have invest our will

in out themed be In product ideas. been campaign, pilot will example Beijing in taste. Shanghai to the subsequently. conducting changing tested the for test national good is Successful have Italian One we keeping addition with rolled pilots and pizza, the new

popularity engaged William and black as products such interesting that as Chan as our Wai-ting, brand new We introduce leading generation. fun to such have leverage the pizza celebrities will ambassador younger their to

will X the Turning XXXX. Hut speed of the By strengthened million members our last version campaign a payment one of version trend review member raising quarter, of KFC. functions in rollout app our XX%. mobile sales and XX% the local summer is quick XXXX rollout user sales friendly we Pizza look, on Delivery X now introduced of to last X,XXX integrated We customer end one interface be with we available super accounted in delivery company forget XX, brand. year. XX, Slide have end to experience. Slide version Pizza dine-in Hut the on Pizza and stores digital XXXX, the More over delivery achieved better for network discussed with the similar X. XX% sales by only in At year-on-year. up Hut to we new represented enhanced of during services. our Over offer in XX% QX as November, the efforts. increased Pizza now to member XX fastest

progress growth We not in have system integrating to although support the good easy.

example, over of integrated menu and service. between been For home has dining XX%

certain We - Pizza identified the and are network for Slide different growth. models have need of multiple are also as Hut XXXX addressing future our strategy now consolidating locations. In store of The help XX, the closure. will customers rationalization store refined and our network we on stores

faster model smaller-sized time improve to a our service model, waiting intent opened This reduce concept. In Pizza core addition and casual Bistro, is efficiency. we to Hut

also to and keep investments support to and sales a our which formats further testing store program, expansion. very other loss. refreshed launch relevant lowered significantly XXXX, In It's important store modeling to customers. our we capital asset are We newly

Shanghai, XX, is turn second, XXXX store through revitalize a fix optimize areas; in to digital last a user drive The least, to Pizza Slide two fundamentals first, brand by. serves new we delivery to Wu further is key we Let's Bell from premium engaging new third, thousands models on Slide but capability enhance not experiment continue them; to Chang. growth. working in Hut's expanding to our menu our four XX, it's to close focusing and Jiao app, aggregators; closely one Taco while base in in shopping of ambience; mall using students store with restaurants opened

and Shanghai. which and exclusive popular restaurants in a feature Feng heart Li, tourist China, a other are a to of one of orders spot new new service is model delivered a The shopping which in The two menu the tables. new to Sheng

global welcome brand. We experience are this Taco remarks. and forward customers excited brand to That and my more to wide concludes growing look Bell to

to Lo, over you our Jacky Let CFO China. me turn of Yum

Jacky Lo

you, those U.S. calling to Joey. those the Good to calling and from Thank Asia, evening morning from good

results. start our and me with give full of And quarter our outlook. fourth So on year then an you overview XXXX color some let

our XXXX Let's year and XX. take full Slide QX look at a results on

Our impact percentage system sales robust by for our strong X% point of development the the full This sales the exchange. in year, Full foreign XX.X%, X% in expansion excluding drivers margin same-store year-on-year. margin elaborate plan. and grew on X.X year QX restaurant and will growth up slides. led for was subsequent restaurant I reached the

On to adjusted of foreign quarter, net the of full year, report margin in strong income and impact. the expansion, back XX% for excluding pleased revenue growth growth delivered that and we exchange the I'm XX%

And as reform. a call, I'll reported more the of net As one-time the beginning subsequent about charge U.S. million, impact of this tax explain the improved income Mickey at tax $XXX in result slide. mentioned our the of

leverage costs. moderate a KFC X In and had the And year. XX, and it strong quarter. VAT was by KFC first. year. also increased Slide percentage onto QX inflation the full sales was KFC, fourth half Moving the promotion the at in for same-store by offset improvement QX let's margin Full first points reached in benefit XX.X% wage look primarily benefit aided and of year driven a the partially margin Restaurant from commodity inflation. take by

For the operating full increased year, XX% profit year-on-year.

let's look Hut. XX, Slide Pizza to Turning a

was promotion by During wage Pizza partially margin mainly product X.X declined labor and same-store Hut's well due costs offset year-on-year, to leverage. as efficiency as percentage the fourth restaurant inflation sales and quarter, update, by point

improved For margin the basis points XX full year, Hut's year-on-year. restaurant Pizza

year. In in mentioned. to I just as the margin addition the to the the fact VAT contributed half expansion first of

million businesses. call, on part the integration of fix earnings upgrade. investment of driving million. we food invest we the also our In vital And of charge brands is in in it's to product QX, As had payment in And $XX discussed fundamentals. revitalization the network $X we QX store strategy

encouraging So result, profit as expect million profit. continue you in of and exchange. on Overall operating will of our will excluding I was operating like to And margin and X% growth that was as into would be we loss remind XXXX, that product $XX impact a investment million a impact XXXX. QX. continue the to foreign $XXX operating result,

effort. Tier series X,XXX restaurant across maintain We Slide XXX X of we talk Tier about deeper or XX, new phase stores and country. relatively below. to while penetration onto our Let's move of XX% development a are the in steady And almost across the city has new KFC of in a stores X, openings reaching lower builds tiers. KFC stores

Hut terms of in which tiers concentrated average tier Tier cities. two of city the across or of On more X return. cities years. unit Pizza are new XX% in at is other hand, And similar higher in the of stores payback cash around X is pre-tax The KFC

believe China discipline capture tier faster for development and Hut opportunities cities. we to and We unit slightly continues will higher this of great payback opportunities Pizza continue with to enjoy in While focus. a off

XX. go Slide financial that to our impacted There results. XXXX factors several Let's were

company, of VAT cost, As productivity optimize growth. look XX% our we operating mentioned But The costs Overall, of Since our year and always above to currency. always tailwind have profit inflation And new and G&A compliance inflation has been commodity inflation VAT structure from we XXXX. a benefit additional XXXX, the leverage, reporting in year-over-year earlier, it a meet cost public adjusted base G&A increased faced excluding our our was QX the in requirement. G&A and up XXXX. the we no wage as business. are onwards. drivers key was X%. same-store and X% commodity Wage company this of longer costs was in continue our XXXX, profit was first our sales incurred G&A year-on-year by increased slightly to In governance pressure impact. will XX% in foreign to beyond public exchange local to

Slide turn XX. to Let's

$X.XX see a tax currently enterprise based details China, $XXX And on items. earnings share. we an estimates the rate million levied generate authority. the withholding free to tax diluted tax As U.S. Tax is be be operations fast and which Slide regular million end Act, per $X.XX XXXX XX.X% Jobs by $XXX XX% and tax ability eight or outside cash effective net and per of a information. China's of and over China, years. payment to the this billion totaling year repatriated of are million $XXX tax repurchased Yum estimates million, XXXX, result X.X China of on reported model, short-term substantial reform, the in quarterly is you in can amount income China to powerful cash primarily shares, the of and our of Of $XX million business further company cash $X.XX generated subject we $XXX on was These tax to estimated investments. excluding XX% maybe And of cash. be the slide. We XX, or a In on highlights with of estimated XX% charge to share. the Cuts an at the million, available subject clarification one-time the flow aspect incurred of continue our current The dividend additional With change. to we paid the initiated special

create flow to reinvest our strong we'll our Given continue position our cash enhance strategic generation business, utilize value shareholders. and capability, into cash core to for

three XXXX. We'll changes reporting in Slide to make turn key let's Now, XX.

our income The significant the recognition revenue statements. change has of new no first to adoption standard, accounting relates the to impact reporting which

the can slide. details You on refer the to

align provide aim reporting industry with The third standard. second better to and transparency and changes

quarters same-store our changes There classify year fine-tune quarters. base stable growth using into XXXX no month. calendar XXXX as the significant same-store And three-month for numbers. is to also whole and XXXX First, a comparison. to by historical stores we'll in we'll sales submission change of stores a a which financial quarter a end base better month four follow April data growth through SEC sales calculation We'll our provide for of to our recap year-on-year and rolling opposed

move to you want Let's XXXX. outlook provide I for to XX. the with Slide

for here captured risks. the have opportunities We and you

program side, contribute in the the growing membership plus at steadily, help XXXX. will KFC our also demand momentum drive delivery will to expect in we grow to our growth to and businesses. On economy Sales robust

do we challenges. some However, see

and have Chinese Years in you As heard in make XXXX from Micky the lapping successful tough. two Joey, XXXX New and XXXX will

we're on While face track Pizza revitalization, with we roadblocks. Hut still may

single also low to see and We expect single labor of high inflation inflation digit. of digit commodity

Lastly, we laws. face to continue tax uncertainty in

we maintain development full On be will growth year. excluding sales system digit financial new be deliver we are to growth and impact. engines. growth, single to of high for And units our exchange XXX digital XXX around foreign profit will the operating front, restaurant double-digit We continue targets and the margin, delivery ongoing confident to able our XX%

on to that, over With be year. for Micky I Although hand fluctuations will quarter there on and year quarter the summary.

Micky Pant

Thank very just summary. we open Jacky, XX, minute. you, have We'll short a in But Q&A on thank a you, Joey. and the Slide

KFC overall performance Hut's of and with we is revitalization the very the are XXXX. of with pace Pizza First in pleased strong

Our builds our new exceeded targets. store

times New Years that We've two and very mentioned consecutive we've a cash years strong. been consecutive also of a that delivered Chinese have and healthy couple had already two - We position. sales maintained especially strong profit

efforts priorities, revitalization is XXXX, have and on Pizza weeks. Hut coming strategy. sales XXXX, all New KFC our is key period. our also have digital We'll make focus maintain In continue So we'll to drive that first in momentum, Year of continued critical lap that. And we'll to successful three Chinese focus to a

with I'll So Q&A. return so that's that to summary. And a can Michelle, quick that, we you our commence

Michelle Shen

to if people now each. for we to can We'll the instruction open as everyone limit many chance Micky. Q&A. order In questions Q&A. the call two for Thanks, please the provide Operator, ask would give to as questions, appreciate possible

Operator

have Morgan Thank our Instructions] you, Stanley. John. the Q&A from now Please session. ask begin John you. question, first ladies And question gentlemen. Glass here your from we We Thank and [Operator

John Glass

much. very Thanks

First, to are cautionary first-half, last years years. a Micky about or you two prior in store off laps when comments your Joey, versus at the a it, you're tough, had the just sales, so four same prior low on I coming more of negative stance base look

specifically the have prior you experienced the that more So around why put about volumes years And two now the Chinese your Or first years, could and if successful And and that's about more New is then? a half holiday really follow-up comment context your in your just was - after difficult? and broadly please. tougher? Year four is I that, you comment the around

Micky Pant

over Thank you, and quick to hand start then John. I'll Joey.

said in be In opportunity negative. opportunity I is X. side an exactly We sales right. good XXXX, We there pointed we think The as a XXXX. to you momentum. turned seems that it a plus It's and flat were grew threat. we

that's So indicator. one

sequentially However, it lapping in that sales building very sales a flat lapping growth you year. was easy store in plus difficult that our when more well business cannot same XXXX. performance than you're relatively a is avoided Normally, know X

we Now, balance these have factors out. also to

But think et the Chinese year that about have longer-term. far I take are the New from very business us is as you look, They last to this year. later concerned, Year As start. we first cetera is should optimistic we timing than

idea So Not go. how we no will that we don't no have idea. have it

Joey? years to that see been have really have possibility the have redoing open of it's detail say two goes. to in plans, strong so all the it impossible so have next missing what now how it But the caution or plans. We to QX be the it. of be like. really, it to will We'll performance But month, on very we last right look will depend

Joey Wat

is It's Thank New you will on two trading about for number Year to peak the XXXX, were XXXX nervous first double-digit. very of XX. season look see it I the was And If at lap Year, us. one just quarter Micky. back the New XX. John, Page think because you, we the I you. the we refer whether Chinese we Thank can Chinese quarter, probably

summer. - China Chinese peak two trading So New Year we our to in business and we have in it, the

So XXXX it strong, - profit. and sales so our was in terms expectation sees of

we So can we that are pleased XXXX. lap very in

not harder have first Day weeks' sales challenge. another Chinese to harder is the four everything has relatively Labor's three New XXXX Year, up labor on through And to it's our mention, shuts much, Chinese to typically a in enough make like time. sure can I because there's So serve. and on to store, that of every sudden we day, the hindrance And Year. we to even we tray intensity literally don't. but time, every period we down, short gone many is of tray day it's New day so how people mention Not day which it's mean, a on capacity

during our concentrated, are about sales, definitely it's cautious would But or Year. because impact period intensity caution, high happens, XXXX the short of something So it very from anything Chinese hence therefore, the snow and big we We very itself New John. try very best. like time, our intense,

John Glass

you're the new - impairment onetime the seasonality fourth That's XXXX? margins, in year place, basis some there to I margin or what that you the I'm there charge, rate that Pizza impact XXX help assess, any helpful. Are new just a this that frame was new I I nature? Hut in to think I to points the or is in due rollout, your way the now can but XXXX, guess, but is know, was anything into don't margins, that new be, know of on there menus in menu labor full was And menu trying was standards? the going sort run versus this below for new there's there the Is - the the XXXX onetime in new quarter this labor food at an

Jacky Lo

John. is, Sure, Jacky. This

So and as we plan, you also so our delivery. cost Hut in of CRM out, pointed - revitalization for have promotion we investment part product as upgrades. so make And Pizza the

in my all the as in mentioned million. all impact US$XX So remarks, was I prepared about

So that's about X.X% X% margin. our or on

to we XXXX. and QX make similar and QX intention - So in have investment full

will as there one impairment pressure But six operating million, is It XXXX. So we're on that onetime, still you assessing in additional may to ongoing, it's so, and time. pointed the network integration of of be charge impairment terms still margin similar potentially continue yeah be that's Yeah, in profit. the charge some integration. out,

Micky Pant

well, next because of have in not progress. think, turnaround declaring to you happened. Hut will started. I as Yeah, turnaround quarters, said watch that John, the we the couple We're The is work Pizza is has

We by experimentation, new encouraged formats. are very

Joey has that on margins. offering. think are upgrading products direction taken the toll about done has improve our right the I steps to a value These right the all in

so. looking guidance Let's then watch traffic where the give assessed next or sales more couple healthy The we at and we the of can are and is quarters reasonable maybe you think. good thing least the is

Operator

the next… And

Joey Wat

you, Thank John.

Operator

next Peng ask. UBS. comes Christine from from the question and Sorry, Please

Christine Peng

about is My inflation. food really management. Hi, question the

may management for And inflation wondering, back these brands, in view very two noticed Hut towards what year? you to China. and fully strategies last Pizza especially that respectively have growth I is was As actually strong the just pricing be hike the coming is for the QX prices for there plans momentum for given KFC, you. brand Will to the the Thank KFC XXXX. of any since

Joey Wat

Christine, thank you.

prudent pricing brands. our for be will We both of

abundant mentioned smart in value. value we got the we've As and presentation,

we have we where products, newer charged innovative So higher.

higher you like We traffic also notice. at charged or might stores not might higher

have also pricing our customers that to of higher If to But protect the different ticket we our you at mix well. you protect product top money competitive slightly we with the station tier price. average use and as to maintained for railway value [indiscernible] of of paying high-speed KFC customers. be will for mix price buy the tier And on

So that. we will continue

Operator

from next Please your question comes Evercore. question. from Matt The ask McGinley

Matt McGinley

difficult seemed flex near bit on KFC, compares. labor the Joey's before to Okay. the At the in understand wage inflation. the growth it's how Thank with become throughout dollars nailed comp a you context difficult the despite lapping to you. Question comment, of have year, I on last that it the year implying part the comparisons? the compares half. those you more to model entire maintain flex the through something the But the the labor model have with of with different on you harder difficult labor on first the first makes that. that's Are throughout margins

Micky Pant

No or in change in fundamental model there compared no is differentially XXXX the anything. XXXX to

while Chinese really so Year. everyone are in model, point to particular you more Chinese time, critical, have change volume New Joey's getting obviously think, is so everything selling labor the the that no to is much difficult There New higher Year dramatically the every perfection. all perform business is knows I to

Joey Wat

easy, to that It's very, out we'll careful, continue tough answer but events. in to and I months I if six point the never that few In period labor, stop typically law, because labor for of really work Chinese the Year, But on particularly easy, I days, question, will serving year question. of New the normal detail Chinese Matt. to is for mean it to your have pay we want availability have during hope on be is that. very by days we started those planning salary. three-eighths of try to few very the is to that order we never just we understand be trading side. the a availability Matt, What the New your

Matt McGinley

a increase explanation was well sales back with half cost earnings half front and over the comment, Excellent. hard - and large of and significant it's that it's should More we full the time And such but than with of had on the G&A, company, having the of basis quarter XXXX public of half rate comment year first then growth in a the back understand the larger it's you the being of year growth. build a helpful. that's the I'm the

So understand, on lumpy to expect the XXXX of kind the growth it the we or XXXX? see help in dollar you can of what look that should like should basis G&A in to relative us what nature

Jacky Lo

Yeah, question. your Matt. Thank you for

a company. understand as a full year you So are we in as public

some compliance. governance and additional different So we cost meet are requirements to incurring reports like that

where a first company. in about it So experience full does lot of the as our learning year

G&A for So a right we base believe seven have now, public we costs company.

identify were we G&A opportunities. managed cost the savings and so And actively costs

function to analyze our term, goal to growth. our below cost that G&A keep revenue we now, is structure. our right in optimizes So a But actually increased the are longer

Operator

question next And then Wei from Xiaopo Citigroup. from comes

Xiaopo Wei

first we seeing fact number That Joey's of Hut What slowdown we And as closed in opening you. increase also said company we are you revitalization XXXX, that versus of the two about, store in one mentioned, stores that investment is Hut Will investment in XXXX. sales. my you net been you XXXX? of our continued reduce of question continued and regarding that Thank Pizza noted stores. is a meaning, the question. XXXX the Pizza unit a the be new all recovery question say in higher remodel half we program, second Will has Hi, is for same-store that after number lot in the Joey, product. noted such to will

Joey Wat

Thank you, Xiaopo.

our not value investment, an For the are there food should that bit because as only compromise. improve point our think Because quality compromise, view area sales extent maintaining customer from for we low. improve I food is investment. part we many ingredient can mentioned a we to continue money investment, Not should back the will is Micky and bring should we we of I that to improve, but the customer while think food of before, the great our cost food, in

normal level. it So we and reasonable are to just the really bringing

like in second or increased think For so sort sales, investment half, you've I price per the reduced the actually se. of

typically a than you strategy as because aware pursue already, more to be is the look product, of the already we'll of think I might mix drink. sales cost higher at diverse our

can probably we balance. in something drinks that's do to So

of pricing tier mix the country cetera. So the of et the across the food, mix

that's So area can on. work we the

how units, opened, we unit, business because the relationships certain I cautious, well remain has with how is the new many new it the For recovering.

home the In terms would say, XX%, of the as Jacky Pizza integration we of closure, have particularly there mentioned quite I business. with but are XX% service - we continues. earlier, process Hut

or are not. a store what to close network we in consolidating and So still process the store of assessing

ongoing very and I would is less. that able be won't an process more be guidance, to or clear give So

criteria store, one thing, do your I right I answers we'll close out do make right a the it. we we healthy. think to keep our thing because have is sure question, if hope do, the And the Xiaopo. that to number up stores

Xiaopo Wei

Yeah, thank very much. you

Micky Pant

is Micky. Yeah, I - this Xiaopo, think,

came this think I up more, one Just before.

Little and As we those all were Sheep our is units, were cautioning XXX by own just of was not XXX restaurants they opened a opened you, capital. franchises, that there that

there. Sheep a in keep have mind, year. well. and a that the just did We're very Little So countries different many that's fantastic year But in business gone pleased we've right into doing

Michelle Shen

Thank you, Micky.

please. question Next

Operator

your Senatore from question Bernstein. next Sara. question, the ask from And Please comes Sara

Sara Senatore

you. thank Oh,

if Just that actually on two may been have addressed. topics already I follow-ups

Is aside seeing And that miss some it Hut a Is question I So where my are happening? is as returns orders And to then, dense lower the not that expected? towards sense are general? about of as first Are there margins. give want being quite actually is mix delivery a lower margin base didn't I I of The it? shift to average first cannibalization some impact well about markets? the was a delivery you that in just in something. my that check? in investments it point that's Pizza the maybe of from it you that about just just second the lower rationalization. is the part some know with Can there make beverages, question. working newer store margin seeing markets you're from

Joey Wat

Thank you, Sara.

cannibalization side. the from promotion we customer delivery additional margin the For the there charge depending delivery don't see a margin of the delivery on here occasion, the maintain business and delivery, and Pizza as the pricing big very delivery we run we might From and the margins, but healthy well. fee the for some business, on

So business aggressive comfortable we grow we are delivery could. to as as our

home based Hut Because separate store question, rationalization. second they historically, business. your run dine-in service, Pizza For as were and

a So that in therefore, was both good quite it normal trade out there. probably business zone,

brand, really stores Now, it, under do and our one looked do asked we store. we ourself, stations, when numbers in we at two need or put we we it certain one

also there the stores, maintain help have now. is in but will enough enough And to capacity need we is other to if volume. two out Sometime one, some no might yet one, other there which for pick we case,

is of the So because instead an cetera, same. equal et there some so regional rationalization integration, therefore of the difference

the… get I hope So

Sara Senatore

Thank you.

Joey Wat

Sara. you, Thank

Michelle Shen

question next please. Yeah,

Operator

next question, your the Please from Oppenheimer. ask Bittner question And comes Brian from Brian.

Brian Bittner

thank Hi, you. got questions. I two

for the there confused on part slightly this laps year first still something New that That's head consumer New a of regarding into of it on first caution to this more very question. seeing clearly you the just specific difficult Is year. execute, or you're skittish are Year? as the I'm lagging the just more makes Year my you First, in year's you or Chinese the kind

need Second with growth making same-store comp sales XXXX. all Thanks lot. hold question in flat in to margins overall you're the do just is, to or investments see you XXXX, what a

Joey Wat

take then, can question first question. the will I and think second you take I the Jacky,

New and For the sales a the a like it's Christmas, being difficult retailer during Chinese high. a Year, bit every year so a because year, is nervous the is

we sales Chinese of very then, will year - about chicken. Chinese icons we that's was somehow year and case, sell king so culture because course, difference, pushed is John chicken just XXXX when to we I cautioned mentioned that you was the it. such if the manage number at traditional was the our and monkey what last on kids' the think So profit biggest iconic the in I in monkey, as the as the of unusual, that then so, and say high ages is all for year see question, a I'm the we earlier, our popular and XXXX are it of And And asked moving leverage.

customer So - margin-wise, in that's well. can we of something engage terms our that very we

dog. have although not spin an of positive year word. task, the is have very we the But plan. to of It's as very XXXX mentioned, Now, it's Micky easy solid very difficult

up very customer view, internal, XXXX. very come like So, new, of to year, said, we just we And continue it more to with to But there. - time. period with such the shorter we some of just very that campaign - time challenge causal the the we the our engage put sure innovative that periods, casual not it's within for way. but that ourself another for teach It's make every have is

Jacky. question, the second For

Jacky Lo

well, are restaurant XX% Brian, we very Well, all, margin. first to long-term financing But Okay. our the target committed goal. of that's achieving of that ongoing

be So, there I are year like you year. our equity-owned. Well, will as fluctuations on XX% about of appreciate, or actually restaurants can quarter quarter on said,

traffic to most also the priority growth So healthy growth. first is important same sales priority and maintain the driving and on store focus

exciting rest products for and year. for have and very of marketing campaigns the the Chinese some we out So innovative coming

impact are inflation our So of you commodity inflation But this can flow huge bring labor and through, we facing as appreciate, will low-single-digit high-single-digit. also margin. of

investing on as believe Pizza also focused offset to we're well, product overall, installed efficiency in upgrade. our is So our COS these the to But inflations. improving right Hut we just place keep

your to be so, to And similar XXXX. the or impact will the will similar magnitude - QX in

they now growth. to our to focus will create continue our our obviously, pressure is same-store So right drive margins, just sales but some on

Michelle Shen

question, Next please.

Operator

question. your the Please And Goldman comes Cheng ask from from Sachs. Thanks. Michelle question next

Michelle Cheng

thank just the We question. average comparison new in us first And size encouraging And that the also, in both Thank contribution. KFC the margin difference management, Hut. the accelerate be in the mentioned. process. previous contribution you. Can years? still the also we Hut Pizza cautious strong members on unit regarding we and likely have you next the see some But also about few will expansion. Hi, KFC contribution? expansion you. sales is is and that XXXX I bit my Number based the little can members store I KFC, between seen the to Pizza clarify and If That's secondly, very two still questions how given give growth understand Joey for integration have we the here. customer. a one ticket want on member same is

Joey Wat

Michelle. you, thank Okay,

the both frequency for back see can get I both over of can and average XXXX. are contribution, we But grown traffic then Hut. is certainly to we number then member we very members right for business, our members absolute compared team very And detail to are quite and terms our XX delighted million very, have - million because you. the our in think now the IR significantly XXX sales we - a ticket both to for KFC for certainly better For that And for Pizza the customers. say significant

engage continue a to certainly in that's So invest membership thing we program. our and good will and

the can question I pipeline. a revising we mentioned new good certainly store and more the We pipeline question. same-store Second with the relationship as the that's opening, store that think sales, it afford available improvement is sales, I location on more very certainly better earlier, And keep of our rent. because KFC restoration, the it's has the

will open, stores, we right for we'd go see certainly pipeline, we store more continue site if So, revise why not? that it, can our open the we to and modify

Michelle Cheng

Thank you.

Michelle Shen

question, Next please.

Operator

Lynch. from Chen the ask question Please comes your of Merrill America Luo today final Bank from And question.

Chen Luo

questions. I Thank got you, two management.

The first question occupancy I got from the cost.

from doing deliveries. that pressure XXXX, wage of business decline how which And quite So Apart has us? decline us second much is can And on coming continued meaningful reason ration growth you from and that the and to sales we which erase unit in the kind on they going any will days. that delivery the there smaller orders, is cost dramatically. leverage this that, from declined aggregators. are inflation? or also we the these the store can to that update charge behind give the percentage help of in to percentage decline? Thank they sales same inflation a online And other the an Also, heading at fantastically Do you. And future is of that offset for are business. behind us economics they charge that concerned are fees delivery expect size the in that the question food

Jacky Lo

some we to well. mainly - Michelle, I'll cost but Pizza leverage, media VAT improvements shift as also the for came benefit On in there take Hut so the and occupancy from our a and the first were that product question first. sales upgrade, advertising first half also

see why you improvement occupancy year on that's So year.

Joey Wat

very if And it model. protect one. on sales, think hard our cost our the course, core percentage is order landlord imagine, based continue I of as very before, which from business so to I call, of of our not of in the strength, work also, Day. can with you today's And delivery, the negotiation a add, for we'll I rent percentage I is on occupancy Investor When significant that believe aggregator, that in mentioned it comes stores,

percentage our not the all business, system. have is for let's do aggregators, delivery, traffic captured business, is aggregator. of do our the all traffic about of traffic slightly ourself. of roughly then, forget, the Pizza the but half we in delivery the Hut, vehicle data we delivery from higher For KFC we - And And from the the

working area own our very is drive traffic are we to the So hard that channel on. ability

be by in confidentiality to Now, we the because provide the aggregators, terms not with agreement information, will of unfortunately, commercial arrangement you able the such we are bound you. with aggregators. with Thank

Micky Pant

my Wat privilege Micky. and to I'm is gratitude. just shareholder, of a lead CEO. a Well, over great a your and I It's couple confident over years. very Joey reins new as as the express you China want And thank very questions. been the to joy back for to very to This pleased last much our to Okay. hand And Yum personal

person lead as company right into head As the track demonstrated She's been this had we to record. you know XXXX. she's excellent. She's -

you thank much. very So

Joey Wat

you, Micky. Thank you. Thank

of All of aspects leading in building China, our innovation we to us the at Yum business. are all brands for long-term committed through

food our and on delivery, and We will improve focus continuing while our strategic on experience. priorities digital to in-store

very momentum, of two with XXXX challenges Hut lapping the Year. solid finished Pizza of we we While Chinese continue of successful revitalization New to and sales face

However, confident long-term and China. prospect of the remain I Yum in opportunities growth

Michelle Shen

you, call. thank today's you. Thank we Joey, conclude you, that, Micky. and With Thank

Operator

Thank does call that you participating. conclude today. Thank gentlemen, for all conference you. our for and Ladies

all and You may disconnect goodbye.

Yum China (YUMC) 8 Feb 182017 Q4 Earnings call transcript