YUMC - Earnings call transcript Q1 2018 | Yum China Holdings, Inc.

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Yum China 2018 First Quarter 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, 2nd of May, 2018. I would now like to hand the conference over to your first speaker today, Ms. Tu. Millicent you. Thank ahead. Please go

Millicent Tu

of operator. section. Yum Hello, Please you you, the live and that our available IR website everyone, first quarter joining under webcast a China's and call. and PowerPoint for call XXXX are a on Presentations Thank Events presentation thank this earnings note conference

China; Jacky Lo, CFO Joining us Ms. are Mr. call Joey Wat, the and company. on today's CEO of Yum of

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

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

You quarter comparable should reconciliation Yum call includes measures will highlights sessions, the thereto. results. XXXX China's discuss and Today's and discuss carefully first, will financial Joey the three first GAAP consider Jacky

We to turn call will like Wat, call Ms. to Joey? I the CEO to this Joey time, then questions. Yum over would China. At open of the

Joey Wat

Thank call of successfully Millicent. I I Yum quarter. growth new first today. profits, I few accelerating like would during my rate This the team. some reinvested Hello, a earnings my in $X.XX We equity to very shine our cash lessons opportunities XXXX. do in business, joining build lapping wonderful interest an the and we shareholders and XX% slide China and would a China thank return very on to food everyone, increasing is however, value quarter. for in high-level share. some on we comments additional a excel flow, two acquiring of the with strong trials both build you, Hut, our continued quarters Wuxi - four, operationally, you reinvented With made the with cash both and XXXX past CEO and bold to We financially the excited learned. providing first sorry, Yum quarter. bumpy China KFC, equity Pizza I'm begin stronger total dividend strong interest KFC Yum to us were Yum revenue in and China. a and XX%. became of with since and a ahead, to experienced declared best achieved per

will and to color double-digit in We give to effect loyalty take are growth, both I'll but on committed Pizza brands. fuel increased to later the membership a revitalizing continued Delivery call. more Hut, show. for high the time the year-over-year

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six. at Looking slide

IP consumer signature premium very ingredient crayfish restaurants. innovation, KFC's spicy products popular burger, breakthrough products Year off-line New multilayered to Besides to national value of young Year, chicken series different key from innovate, of for campaign One and offered delicacy ticket seven product products. in sales bucket of wing a a and adults a stuffed chicken is using audiences, and KFC Chinese effective stuffed which is recap Chinese deployed premium usually successfully the a On small excellent by our from to to mature We marketing new of abundant bucket. is popular Chinese online the drove a our important affordable needs very period single-person to a factors such our at wings, an to consumers. efforts requiring delighting variety celebrities and burger, served lot during abundant Slide to and combo, food average a The covering Crayfish New value a Guangdong QX. offering drive content-rich with which Language] a contributing Chinese, among at all we of were was launched sales. our multiple window. in of Chinese and consumers [Foreign combination a is our labor, high-end vital jumbo marketing New brief of ability capture to premium new is make and capture to prices. Year chicken consumers. among The performance KFC kids target level,

decorate We media of themes traditional Chinese lot This during some had and are and customer Chinese with a stores proud to coverage extremely that work of National the New opportunity Year. our positive to of China's type with reviews. Museum generates the characteristics event we

region In and to their campaign also for addition markets. the their localized paring national designed launched campaign, each

efforts Our touch the drove digital eight. delivery Slide our strong progress paid growth as first to I sales on quarter. would on we off in and like

Rationally million of of that launched digital members and digital towards base. our the up ago, of the XX% we XXX A customers to marketing, in pre-order membership restaurant XXXX, KFC sector. quarter offer. XX% XXXX. delivery represent service. it first content leveraging our the shifting QX on of and exceed Member to in we our XXXX. reached loyalty maintain sales, up are our in XX% continue sales appreciate from In and we year first We compared XX million, leadership the convenience sales quarter

identify for across XX% explore now XXX In continued to XXXX, cross-selling continue XX% QX targeted and offer up be year-over-year. opportunities. delivery X,XXX stores Over growth of will We sales key cities delivery Delivery to marketing ways a more driver. represented sales, services.

was quarter, members yen. late-night this delivery up sign uplift XXXX, run. offers although too we and during Prime subscription delivery any the the to for share members QX which of XX number We trend of XX frequency a early for launched free at expand also our days will fee stage, unlimited in delivery our dayparts. KFC it increasing in An that are long at hoping meaningful it's breakfast

strong are for ideas. of and opportunities We we'll strength. grow to proud strength of look KFC's some fundamentals Slide explores from these nine to

we has daypart offered since very This XXXX increased food breakfast. First, convenience exciting through as the growing and choices been fast pre-order.

to growth continue from daypart. drive will We this

available Secondly, nationwide. in stores Coffee. is ground Freshly our now coffee

and product innovations and up through together in-store campaign, the our is task key awareness execution. consumer with marketing to Our build digital effective X,XXX-plus our restaurants

Third, the expanding and in cream more past category. new was pipeline. Matcha our ice dessert are the chocolate launched flavors during quarter

have dessert the XXX kiosks, we March, same As XXXX. in XXX including ones, of more stand-alone period over than

are first I Restaurant sales performance. Next In last like will attributable declined challenges margin eventually were input. last that deleverage that quarterly brand. and discuss we revitalization, and Please We would we period slide would same the Hut's same to the to overall year. to compared XX, to build primarily investment like efforts change still to experiencing of to of sales new as Pizza maintained discuss to on. point the be turn and sales operating Hut flat XX. year-over-year, currently I the some to to continue gears was compared of down same-store these we out XXXX, journey X% alleviated are year. Jacky period the continuing will profit further rejuvenate quarter Pizza system number this year-over-year, later X% down make of and our

dining service casual quick it will to for new need our has us will there and combination, appreciate, It ideas. the tested offering, With take a you the proposition, we some As be in will in already time Pizza some be work effective we improved. dine-in. and through food confidence mix the measures encouraging given carry have the continue and we dining SKU setbacks, markets many over delivery scale, fundamentals complexity big initial we to to to implement said will time chain to all get those Hut We where value quality, already and biggest observed encouragement. no casual despite with - we including the to X,XXX Therefore test stores. is biggest and selected and China, good results need are of that, overnights in markets. relentlessly right Having fix, between such

also the We tune business and to need find model both dine-in. for delivery

food. in X Unfortunately, in XX, slide QX, to January, March. which launched our food Abalone in new X February, efforts on attempts Pizza pizza Turning These X and a X is performance expectations. in were we below pizzas, of bold innovation. our initial was in three review on In

appeal mass perception. tiers. be niche products managing with were these all Our - consequently consumer have in intelligence value a competitive the show did Price and not enough money too for bit the city country should also while that across

strike between need to We a balance and operational also efficiency. product good innovation

have We through will and innovation rolled which mechanism the out product be XXXX. strengthened gradually testing pipeline

to digital review XX, Turning slide quick of a efforts. our

Hut pleased up compared from Pizza XX XXXX, end have over XX the million are QX year. to that last report same to We by members million of period

sales entice We last and and Hut different increase already downloads. Super-App The last X QX July of from our just offers million have was members to year, to year. types in launched member X% has in been accumulated testing Pizza XX%

now Pizza Hut sales, services, for XX% During up XXXX Over delivery the past XXXX. stores to compared accounted quarter, offer QX of up delivery XXXX XX% year-over-year. from

We to own long-term. good brand business and customer in ensure our experience will channel strengthen continue the to our through delivery build

stores revitalization. delivery are Hut's to XX. of Turning four multi-format slide digital, pillars and Pizza Fundamentals, the

- and have revitalize stay Pizza test the to we During will continue test ideas and we focused to quarter, Hut. many will

is priority on continue we top focus our food. food, Our to will and

learned good low-tier some money balancing efficiency. focus operational we product that across on high offer during launched cities, new food to and past and As products discussed need earlier, and taste innovation the We and value quarter. lessons for

digital expanding our capability user are engaging and also enhancing by We our base.

functions the have run. cost service. new will a positive and impact to online our add table This in our customer potentially the will We improve ordering labor to app such in queuing on continue long as

drive continue our to will formats. course will and increase least, in expand and Last delivery the not but we channel new with to continue geographically through experiment we traffic own aggregator, We as optimizing growth density.

builds store All all, there's In and of and remodel's strategy. the store to and rightsizing work pace done, are new for to revitalization We different one occasions, we in our We update committed QX, in to needs. or design are of lot third our and confident be small bistros management remains formats. maintained store continue in locations small will plan store a XXXX. formats different to and cater

over results. to financial first Next, turn Jacky I would to quarter discuss our like to

Jacky Lo

my important with to morning calling you And quickly Good to I'm quarter factors on of want basis for calling from from thoughts you results. remind consider and January U.S. and our full highlight those Asia, Joey. accounting first to on on performance, to that before I'll I adopted, you you, you Today to going the evening some Thank those retrospective review standard new XXXX we recognition good the provide revenue X. the I as begin,

grossed All I on standard April XX. recast transactions figures This amortized on have want to reflect let's take now of new reported. said, quarter now being The sales our comparative higher income. numbers. highlights look impact netted for accounting the revenues we related years recognized, in periods significant total an net number already are: year-over-year of two have are costs number immediately in performance provided The instead which initial and are are with accounting XX. prior a impacts to franchisees why no instead been revenues off. filing prior comparisons being first standard, has franchisees recast All that slide in on With our are and to our restaurant on at the one, our previously SEC than two, XXXX the is up based and of

opened with X,XXX both in sales We foreign are and of the X%, up before restaurants we first same-store new the pleased revenues in results growing our total more alone, In details year-over-year; system. financial that slides. solid total a translation. later quarter reaching exchange provide reached achieved X% XXX in and we restaurants plus I'll billion, quarter, $X.X

gain item. million which Our acquisition operating a Wuxi of a treated from as KFC, profit was $XXX special the $XX million, which include we resulting

profit Net million, foreign $XXX our exchange. foreign Excluding year-over-year, this down X% was item, operating year-over-year million, by $XXX XX% excluding income up excluding was adjusted exchange. special

up $X.XX, exchange. excluding parts double-digit increased XX was XX% Slide diluted the Overall, Finally, our excluding exchange profit foreign moving operating the EPS foreign behind operating year-over-year, growth. XX% shows impact. profit year-over-year,

same-store were declined profit X% our positive leverage HR unit sales growth. inflation we The our operating to first have ForEx. been supply and wage Excluding in business, pressure faced X% year-over-year, always adjusted effort X% the special inflation teams, excluding a quarter. Wage and items, drivers new inflation excellent and net and the chain thanks and at at by of commodity our our commodity kept

be expect Hut year. wage inflation be Pizza in single to to in digits $XX We invest cost promotion low inflation about full We quarter. and single and commodity for high the this for million digits food

policies last was A processes of mainly year. fine upgrades currency task consolidation to local G&A see innovation, the formed expenses review G&A XX% are second been believe While our time increases in our around do quarter acquired year-over-year food product will the Daojia, which tuning approach we and expenses. thing has due some the employee force and it results. salary are long-term and only the in we up were in take right that to to to

and our revenue expenses our and dollar rate goal foreign a are U.S. our And average managing incurred impact rate working renminbi, XXXX operating quarter spot rate of translation the the this the rate. on we the in continue profit We the growth exchange by quarters. positive $XX for favorably results, future long-term G&A to to our positively lower performance may achieve than finally, million. current actively impact Based translation growth G&A of contributed versus

same-store XX, strong year-over-year, of which $XX a foreign was food will As or average the profit. wage productivity performance offset impact. ownership. in with mentioned, value grew XX% maintained of compared quarter, remained the operating and flat KFC and KFC inflation. cost margin acquisition contributing outstanding momentum our KFC. X% the improved gain the investment, gain double-digit year-over-year than period profit previously same driven driven On and to see result sales Restaurant XX% leverage of gain, Slide to you the sales Wuxi growth. fair in held year, financial as of excluding ticket sales re-measurement due system XX% The sales million by X% X%, primarily last Operating more by promotion to at exchange up

quarter. on move XX. Hut on let's Hut Now a Pizza experienced Pizza Slide to bumpy

sales Although system sales sales was Negative year-over-year. was for five ticket continue X%. promotion, Hut the average. Pizza X% sales X% was a new in down margin the Restaurant unit same-store quarter, X from The attributed down to X% primarily same-store sales in and decline were and food key from points deleverage. a and drivers in declined and points two transactions decline points investment inflation

investment previous As is Hut, recognize food turn a The the this and of and earnings in million was early quarter. sales this earnings we discussed us call decline the for on margin in this brand's sales part result of Operating same-store $XX and top year-over-year is priority challenge strategy. to Pizza mainly revitalization was call, at around. We this declines. profit

Hut we what we revitalize for and Pizza As restore committed and believe reasons remain identified to are and confident have growth. decline, the Joey indicated, the sales

to deployment turn flexible development and our models. and talk business of to to XX Thanks approach let's development effort. about the our Slide multiple Now

restaurants around We approximately accelerated quarter, China's and XX% new tier new the half XX% average At are at across have continued the Pizza tiers. openings cities. this across builds open cash to tier KFC period the every lower XXX We of city pretax portfolio years tier units in cities. Hut our new for different XXX At of lower the net of new in two with and restaurant payback restaurant first in quarter, new end are and Yum KFC builds maintains new trade units new of the gross first of quarter. city zone. end

period and pretax is in tier restaurant three payback than years cash Hut in While than the average cities four for years less less Pizza lower higher cities. new tier

get We China across continue brands. great all for to sites of our

to development, opportunities excellent growth. on an doing our in We of offer that the is uniquely restaurant to China team for leadership development top from a result, the capitalize to a ability a is Slide great substantial range free cash developer of we the business position at as to target XXX runway our of highlights an which store increase approximately continues unit XXX Our midpoint. XXXX of are range to powerful XXX And X% XXX, model of Yum our positioned have opening increased job long China. new flow. to continuing we believe in for China, and as a generate XX

free $XXX million During in cash the flow after first million cash quarter, and $XXX $XXX net we from subtracting operations million expenditures. capital of of generate

Our balance cash investments. with short-term sheet remains billion over in strong and $X.XX

business, we position in KFC to XX% entity an core XXX million. Wuxi invest strategic China slightly Given XX% our for interest our to We our in generation Yum restaurants. for Wuxi KFC us acquisition, continue utilize additional and value cash consolidate holds interest enhance more allowing acquired $XX KFC Upon capability, to an into capital create shareholders. around with than

position Joey strategy. generating significant, our value In addition, of and cash to restaurant call in June. for opportunity runway shareholder to would view developer was to another growth to we turn $X.XX excess the to our in declared committed shareholders. like China, increase $X.XX as operator. long it With and paid A summarize cash and Board strong the at back at share per discuss giving paid Directors per that, cash dividend cash as ability and our continue We remain to over be leading to our March, our the share in dividend future to returning

Joey Wat

Thank you, Jacky.

priorities the be business, drive for and digital from China, value continue on core our and four strengthen innovative. delivery strategic will key We focus business,

of stage team pioneer, to one in claim the age. that to in members I gathered become the started insurance will that Millicent to managing program, including order year a one Shanghai, our most China, restaurant restaurant coverage our continue half with internal of are create years RGMs need RGM's RGMs, shareholders. by Yum they eligible to where China, be an more adapt been vision units safety In and X,XXX children, around family believe will I care March XX, announced ahead. this be with to innovate, time able RGM world's ahead qualified family pride, in to value The for shared With culture. this need peers and of RGMs assets our to additional managers of consumers in to which for are event good offering second which has pioneer we our the over and of stay our turn we we Q&A. valuable for will industry. win company be be March RGMs. XX our you the is unit As stay is This parents quickly up At parents supplemental we their emphasize XXX critical elderly XX, competitors from program that, net We restricted stock three of benefit Yum granting innovative to constantly insurance restaurants. more evolving, my with China. second for most agile to commence providing number available to XXXX. with designed the year, RGM to X,XXX We which to in than made On general spouses

Millicent Tu

you, Joey Thank Jacky. and

please to each appreciate everyone limit two will proceed. ask give questions. In we for the Q&A. questions, to call order chance questioner We a would open Operator, now to

Operator

Your Instructions] Lynch. from America question you. Bank question. line first from comes of ask Chen Merrill your the Thank [Operator Please of Luo

Chen Luo

the got management questions team. you, I've result. Thank on Hi. QX two

a Pizza on additional learned, from all for elaborate And my to strong by margins the this same-store have was declined now, performance can there reasons weakness? company X%, further margin in generate enough for My is second any growth Apart to in same-store question. the sales a impression behind to same-store the delivered Hut? few sales as should growth of on operating very same-store measures sales - to of whether The or we leverage same-store the well have margins the So highlight X% sales create flattish. we growth lessons sales is that as also for growth, sales going restaurant just improve product business question KFC. Pizza are you same-store quarters, first a QX, are depute but seen KFC new expansion. launch some OP that quite we be same-store margins QX Hut, largely take but we is X% sales the And flattish less-than-expected of First X%.

flattish i.e., or there is particular KFC the you. Thank advertising expenses? for any behind other So some QX, in additional reason margins

Joey Wat

you. Thank

and for question Hut me can Jacky on KFC. Let the Pizza the the elaborate take question margin

For journey a Pizza time. Hut, will take this it is and

in size, dining for XXX be fix. concept of there We in XXXX over actually can stores China are and cities casual with the biggest over no this quick now business

and four not In terms to we in are we we revitalized and our lot also recent to have learned reflected about have lessons what these in important it, pillars do remember on It's that financials. was of tests going of learned a been some efforts and quarter we all the done lessons. the focusing plan [indiscernible]

In food. first area is focus, the terms of of still

China pricing the consumer the the showed niche itself, not were money particularly that the for niching QX. mass products we product, because is in more for product Our all best in for the of And managing too perception. and value for tier to intelligence is need have probably cities the appeal,

better these going trading innovation in balance also important learned are particularly that, else going - And addition very the do So during we to are of the period. forward. have is lessons we two peak we efficiency, and better to do what differently. to could what operational else And

We help and our rightsizing continue the the to experience in stores. remodel, be multi-format quarter stores. will We more business. and channel store during brand sales delivery and small a business. on our member improve user stronger we long-term for to several have more started delivering emphasize drive our own nine for the and This add Also bistros

in revitalize focusing the revitalization pillars and is household Hut its Pizza we to name doing a Pizza Hut on plan. we China, confidence we in So are brand. these key four have are -

We we take have Jacky, are that we the in the... you do around right for strategy KFC successfully years, or areas the few improvement confident revitalization want for turned last and for identified have brand have the Hut. revitalizing Pizza the right we and to

Jacky Lo

rightfully Chen, went plus out, there so But couple question your on KFC year. versus why sales stay on of same-store flat your up pointed sales X% at you as time, reasons that's on are same margin, leverage margins margin. the last

is product, The was the burger, crayfish the first reason products. the premium chicken stuffed premium there wings, these all are

in we actually So invest product upgrade.

The second reason is inflation.

inflation so and we year. cost So quarter as one, have X% then also up for which RGM there last labor, KFC. X% was we up commodity earlier, didn't event of labor in was was And mentioned an

So investment that achieved after with technologies inflation, other able leverage with flat that's costs the all increasing But and are in forward, investment, these the rental improve. event and offset and was the QX. sales But and RGM to said, all efficiency it product structurally, going the also digital, in we trend. labor why productivity data considering and just will

to intend our savings we So top into line. reinvest

Chen Luo

Thank you.

Millicent Tu

question Next please?

Operator

of next Please of Sara comes from the Bernstein. The question Senatore ask. line

Sara Senatore

if much. on Hut again. very you may, Thank Great. couple A questions, Pizza I

that as seems was issue. comps instead the know, guess prices I bit So was food first a offering maybe a X-star appealing value that of X-star you've an broadly that you're X-star products back before, go weren't the you a appears wanted and I you as when know, And few it like like initially and slowing, at it feedback if gotten maybe started quite little Hut Pizza prices. maybe think of view you years about

in continued value, to question back if see think guess I the that of expect need go have pressure a price So channel, a then please. question instead on I value for the is that testing alternatively, you emphasis we about delivery point? about on maybe And And is my on if we shift better the trend place? a should focused ticket to more there

Joey Wat

Sara, thank you.

tried we this to our after product only testing imagine, niche the in full product, cities. year, the in But and have For very the wide more products. focus do in But have Shanghai office is as we are - the for QX XXX you because our - if need realized - to business has portfolio, on we QX the to the look we the process. coverage at we testing, it product we broaden not trial

do to - we expand better of if So the market products have better makes can that testing product skewed need what so sense. top of is that us we our tier to to more coverage city, and the

limited offer we For while question your on thing focused value strike have balance the - a only I is of value. the value At on being believe LTO right the welcome. same that because not can LTOs, time product. the time, we

menu. revamping are also We our entire

that LTO So the there's mix we between average. that can called menu we believe manage something ticket the and the to the manage

ticket on going the what's balance after are question the average. of Sara, we that and your to value way the that's go So delivery?

Sara Senatore

And to do of how brand has members of delivery, XXX the That's just of, own and then course you. change? channel talk about looking that more a affect you very KFC strong a for could the healthy yet Thank the delivery Great. you shift into you bit your on still little to helpful. million loyalty Just and a aggregator. context example, in and very business are

to So have aggregators in strong Hut? through the a channel China you is that are it just shift so is possible it Pizza to have your customers to presence? own that Or always

Joey Wat

you, Thank XXXX. year-on-year Delivery QX XX% at Sara. in grew

split our KFC, about is XX%. versus XX% For

increasing It's trend strategically Thank channel but in work It's on And own through strategic it. continuing the brand we're we growing building. on Sara. about I do easy, - have our long-term, Hut, shared and past, the is not we think so see customer we important the it's the easy, delivery you, in not the the delivery our recognize For importance through experience business long-term own of Pizza XX-XX. channel to but of QX. during because

Sara Senatore

That very Thank much. makes you sense. you. Thank

Millicent Tu

you. Thank

Next please… question

Operator

The next ask. Stanley. question Please is from Lillian Lou of Morgan

Lillian Lou

Thanks, management. questions. have two I

one is a on Pizza Hut. First follow-up

don't I mentioned if your turnaround share correctly, So start XX forward, $XX And first we also rental time, quarter because the on increase Hut is target much conference can the what's Q? question similar the And two of you you occupancy remember investment that turnaround have quarter call second of the us first months we initial investment we years how first were costs? past going still compared terms quarter. with see that's in are Are in to in the - XX XXXX Thanks. there Because Pizza rate, from to time how first particular? million for trend rates in i.e., occupancy number to going in the in the definition in fourth much track? to in similar in our leverage

Jacky Lo

I'll Maybe first question. the answer

Joey Wat

Yes.

Jacky Lo

You can...

Joey Wat

the rate. then And occupancy

Jacky Lo

Okay.

Lillian, on product upgrade. quarter we QX In pizza the in investment. invest So quarter million USXX this this

So have heard preference. insights expectation key in earlier some so provide very with like as terms and there which learned, Joey, you were us lessons from useful of consumer

it will for so we the take work last so and the cost to as challenges, investment August will strategy, continue fundamental to fixing only extremely overcome some of product investing journey, in hard revitalization obviously And but continue those the our And started time. we year.

like more first or first it's the catch a quarter this So in half year, the of up. in

invest to we'll but few moderately. we So over in invest the continue next will quarters, food,

from the So we'll there continue be will continue taste to at food but pressure investment. be the our with as some expect in also efficiency. value least for operational will money margin balance I on term, innovative, you heard, near and price, But

Joey Wat

Thank Jacky. you,

In thinking question aggressive, of to months time terms line, plan we XX revitalization but are XX at not the our is the changing this point. of the

it Thank to a We it are overcome needs full ready to and if take prepared longer to be. challenges extend to you. measures bit

Millicent Tu

Okay.

please. question Next

Lillian Lou

occupancy And on rate the overall?

Jacky Lo

just the is long term increasing trend. - rate occupancy think it I rental is

there's question, Lillian. rental. don't if know, I - on I your leverage So just answered no from

Lillian Lou

Yeah, sure. Thanks.

Operator

Yes.

from We have a of ask. question Brian Oppenheimer. Please Bittner

Brian Bittner

I'm happened as going still we investments. into decelerate sign actually I what just really were the a way they And really went you that, were significant it was that there the also no made to in did. at time to XXXX, when Hut they the were XXXX, because healthy. back somewhat at they stable quarter understand in when look and to first actually And trying happened sales Pizza exactly

you Because into what so versus wasn't occurred the XXXX? us first the can first sales going on on in a think bad exactly So understand what was first help over quarter? weakness there throughout drive all quarter better the I happened just going Thanks. we're to trend quarter, what the confused in

Joey Wat

Thank you, Brian.

LTO of as food it we the by and down taste have Because a few little numbers. number pattern, We a the the much have I has - for QX earlier, is sales traffic the reason LTOs, going traditionally, in to too slowed terms during LTOs. gone one The and reviewed we can the the for far driven value see bit also the perception. mentioned And bit money little the the was now. very

time bit. preparing on back pull means, revamp, we now of the to the not working launched rest same we were menu April learned the the have At other the than XX. rest still a So the of are QX, during products products until LTO, and

three New pizzas the QX very LTOs by Chinese the of And focus the pretty our is unfortunately So our expectations. much intense were trading. period below and Year was the QX, driven was

adjust more obviously quickly product try operationally, there's be very but our to best we longer the very So our done term. to in

Brian Bittner

do dining of China Is full tracking Okay. relatively overall sector how performing? is service in the sector for And full challenged? dining the service you a have way

Joey Wat

QSR. the dining When the - our not as - mean dining but only that average dining, for is moved very well. China I XX. casual compared we Chinese the concept from dining, is have to very, area would I casual competitive Western good say to moved QSR, is to competitive competition other around - in casual we XX, the ticket That KFC other price very casual competitive. very

It's is integrated. of We XXXX. new with we well. area competitive logo confident turnaround we working brand and one bit more. we in The the calendar team are Pizza half operating fully a presentation. Chinese logo effort sealed [ph] that is That Pizza business menu be now of the But to integrate long-term. and to of are the a but Home indeed, is business competitive our the in it brand our is team focused under at started we very on. on We logo that, new dine-in cover one area can the the complicated That of and completed and addition Service management integration majority Hut So as in synchronized two management page of the - now. our Hut, very second and

do. hope have the complicated plan. develop We optimize But answers riders, bit formats. a smaller and to question, I for more integration continue we aggregators your to takes to time integration network remapping, that It of is revitalization the store store economics store Brian. evaluate bit unit

Brian Bittner

you. Thank

Operator

Please Wei comes next of question. The the line Xiaopo Citigroup. question from ask your of

Xiaopo Wei

Morning, Joey.

very that upside question X% same-store sales KFC the quarter, to sales, We first us. in the KFC a noticed that very first was even high XQ. quite your surprise lapping is The The in mentioned had Joey. for strong

do Hut, on learned you [ph] first Number KFC? rest upside we bold quarter surprising shall you do margin How will the you pressure lesson the quarters, expect question Thank first you mentioned the less consecutive what the trials That's be that versus two for quarter? see number pressure few made the the in operation in Pizza So you. year, in lessons. you the one. that of learned but in you we'll applied think think the question to i.e., next

Joey Wat

Xiaopo. Thank you,

think each New China National in resonates markets resonates our enjoy very was [Foreign And very, come our is national program intense Chinese we time What I - well well. I'm see our Museum marketing but call with Language] in marketing the very, it exciting and because strong Chinese happy as customers. the exhibits - upside very to national best. the marketing very the business, doing KFC our - of way, marketing, we do also on a only of our focus KFC, but the time that very very it's well. particular regional the consumers. we are so for effective they can with a XX not it a such And well was for for local excited cooperation and very Chinese Year very with the For to the bring try the just New Year That always - we treasure encouraging both Chinese period short home lap, particularly we the in

learning forward make we young it is our and while tradition, to modern customers. to more our going go back interesting So for

as a lot everything and play as time terms and impact rest the Hut Pizza the our could we Hut that mitigate the And certainly on the use I in to for of can are same have mentioned menu. well. mentioned, invest we For And and the as of it's continue in other the permanent Jacky the learning it trials, margin bold on to measures the manage the to we'll the food, earlier, we the certainly margin, will we It's learned that well. but between year at we in balance LTOs as revitalization. mix Pizza products

Jacky Lo

what supplement question. margin just said pressure I'll the Joey just on

believe second So in I right we in for be so food. strategy, said, half, continue food we'll smarter. to the we'll the invest investing But like is

So also we'll thing. want continue I to cetera. to out just But et one for be balance innovative but point value we price, money, quickly

the was another timing New Year, not lesson hours our just the learned, below when it's there labor Chinese during expectation. performance Just was sales will

Year. adjusted labor New the So have Chinese we matrix the of

actually slight improvement. efficiency the has shown So

in in efficiency will So digital to improve Pizza technology crew. Hut and to our help invest of we continue

all in overall, hopefully is drive our initiatives these to the ease just on sales. margin. But [indiscernible] continue priority So pressure the will

Xiaopo Wei

last Pizza there meaning the be of margin. normalized margin the And the We that year. follow-up that another on the is investment from Hut second second Pizza right Is in base in half that understanding? will remember Hut account the started year, half and for of

Jacky Lo

That's right.

correct. You exactly are

like So of the right up we year in a It second half catch will normalize the first is - more half. now. this

Joey Wat

you. Thank

Millicent Tu

you. Thank

Next please.

Operator

Evercore. [Operator is Matt of Instructions] The Please McGinley from next question ask your question.

Matt McGinley

you. Thank

right was on partners, equity Wuxi, the back the I part ownership? will what unit is increase this do the by see that gave that in you year? year? And basis? with specific Does increasing this or your a used have forward concourse guess a the anything impact confidence units what on the a Wuxi we of that? to the ownership unit is that on of on unaffiliated the cash XX those your growth have in count increase of acquisition increase to in into And [ph] why this to bigger now for time the financials half On capital go early will to growth, unit

Jacky Lo

question our strategy. Matt, is investment on capital the allocation in part of This Wuxi. first

growth just business, And our M&A. yes, shareholders. multiple growth, like by ways authentic create we So investing can obviously into organic value for in core also

that's our allocation the JV part back strategy. buying So capital of ownership, overall

buying restaurants. about which KFC, $XX KFC in spent about million back we are it has So - XXX Wuxi

company positive - quarter line impact So top will for a by KFC entities on one, since now consolidating our it our these sales. be has there'll so help right all X,XXX. Roughly over sure,

additional consolidate restaurants. XXX So

Just and Joey in terms the of I'll first can elaborate just new maybe builds, answer as then well.

revised for part of So after it mean, growing don't it's number organic we target just restaurants, growth strategy. But XX that's a or XXXX. specific also - additional is our target. I chase target our building but

can we expand time, we So one at on expand. the we but new definitely store more build a will store development

priority. always that's our and - So

good at there's jump and sure. for a zone or good we'll there's location if builds, we for a it, can new accelerate So example trade

build. brand good, to returns, ultimately is and are So if continue we at such we getting will returns we momentum look the good

to given KFC the store in some And there growth - also pipeline and so has target was increased our is KFC. related sales XX all

Joey Wat

Jacky. Thank you,

Operator

line next Ling question your the Deutsche Anne question. comes Please Your of ask from of Bank.

Anne Ling

Hi.

which Just that listed the on understand by follow-up [ph] owned company. some are question I is a affiliates, acquisitions. another is other Jinjiang currently which there Asia

first And check the did allocation earnings-wise? Thank might the acquisition, to acquiring also for you. what just is So chance acquisition wanted when the adopting Wuxi aggressive And like acquire the terms be capital - any did benefit you of from strategy much for other investment? quarter, how the in there you is it? more the

Jacky Lo

answer your I'll Anne, question.

JVs another acquire, can So two that ongoing yes, process. just there the that's after we acquiring are but Wuxi, an

nothing at point, there's the I in pipeline. this mean, So

Wuxi, So in we acquired of - in mid-February. terms that but

half of on So topline And that the was XX, consolidate for quarter. contribution we X.X%. about February of the about the

Anne Ling

Okay. margin? And similar they have do

Jacky Lo

of The same Yes. margin for our KFC more the all is restaurants. or less

Anne Ling

Okay. Thanks.

Operator

question. of is Please Cheng your Sachs. Goldman The ask from Michelle final question

Michelle Cheng

operating and you. had operating do to impact? is guidance question we like of My one-off exclude management. Thank this confirm morning, Since the growth profit your the about given performance, guidance. Good year-to-date growth profit can Hi. you double-digit I this earlier and double-digit XXXX see this

Jacky Lo

to is right long-term first the priority ongoing so I now Michelle, revitalize to of are Yeah, turnaround financial Pizza we our just committed just Hut. - mean, the target,

to inflation. our sales same-store the on turnaround So improve growth as far efficiencies strive we want as maintain have then, our growth, same-store Pizza will impact for operating both And to offset just we we to for positive brands also can improve healthy margin do we then Hut. And sales profit.

this So financial fluctuations overall to maybe year-on-year. or But committed targets. ongoing now, there are all quarter-to-quarter we right

Michelle Cheng

you. Thank understand. Okay,

Operator

now back no are today's to this questions hand further at time. like to I would There the Please presenters. conference continue.

Millicent Tu

conclude Thank call. that Thank much. you, you very operator. the we and gentlemen, wit Ladies

Jacky Lo

Thank you.

Operator

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

You may disconnect. all

Yum China (YUMC) 2 May 182018 Q1 Earnings call transcript