YUMC - Earnings call transcript Q3 2018 | Yum China Holdings, Inc.

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Operator

Ladies and gentlemen, thank you for standing by and welcome to today's Yum China 2018 Third Quarter Earnings Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Wednesday, the 31st of October 2018. I would now like to hand the conference over to your speaker today, Millicent Tu. Thank you. Please go ahead.

Millicent Tu

operator. you, Thank thank XXXX and joining China's Yum Hello, conference you call. quarter earnings third everyone, for

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

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

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

highlights; the for You should CEO the financial directly Jacky this we'll thereto. to Yum operational first, would available remarks been reconciliation and three this will then carefully the results, sessions, IR to be call will open of the on XXXX consider turn A China. I Joey webcast will correlate measures financial our China's not questions. presentation, the over to website. note today's Ms. call call. does to and on provided the for and is like call has download. call quarter, information Yum management's A includes GAAP cover Today's cover Wat, the which presentation comparable quarter PowerPoint that time, Please reference, contains for Joey At available Joey? prepared of third

Joey Wat

thank everyone, for evening, Thank us Good and you good you, morning, Millicent. joining today.

biggest accelerated in drove and to and conditions tier both sales quarter, new we launching builds operational will In footprint We expand delivery third and brand, core in ecosystem products Tier at in the And solid systematically context our build quarter of to thanks trading easier providing first our core system sustainable by to dayparts. brands and each dine range execution introducing and we cities. brands. greater sales in and I low a in to create healthy cities, before make greater recognition, offerings our a high recorded detail growth. initiatives, First, an KFC, out strong excellent brand our initiatives mover growth value digital, traffic competition. advantage. on continue to growth, our overview give our innovative it particularly platform the data of for the soft X delivered of of improving high We growth

sales new investments margin during quarter, restaurant our Hut Pizza we managed optimized improved as remained While effectively products under in pressure the Pizza we productivity. and the labor Hut

progress our we on brand Hut traffic launched expanded greater channels. identity, as own delivery capabilities our and refreshed We Pizza also the revitalization generated further through a improved made value proposition, digital

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X,XXX term in cities our corridor. KFC we we X,XXX potential tiers China is Yangtze for currently the over across new smaller growth across stores accelerated in with cities. the near quarter, the builds high in During in tracking and China. all a XX,XXX on why region grow is of believe to focus brands This the all we a China, further are long-term the to in

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XXXX progress select extend Let's Crazy succeeded our look areas. in attractive in KFC, We year. August we in traffic Thursday a launched through This of to and at of driving products different promote additional it price the at will program point to rest these CNYX.X. take a very the

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China, X,XXX there also same We to the At more period kiosks last the were roll dessert in kiosks. over approximately year. continued the out quarter, XXX across from up of end

on integrate delivery. the and stores industry future, having industry holistic the restaurant In for These China. customers. create data would the digital, to in a in to turning restaurant online transformative are offline the with Now leaders assets impact experience a seamlessly

this three are growth. a achieving are for We build all and platform goal, focused on to in we investing areas sustainable

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or privilege slide of frequency to One our digital the which program, subscription basically members - paid is designed order of key customer is loyalty. the presentation, illustrated KFC on and increase pay initiatives XX loyalty membership

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fuel initiatives on categories, the expanding working including improving delivery are stage of underpenetrated We rider growing and next privilege dayparts growth, program. to delivery efficiency and the

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to on introducing digital, optimizing legacy of We the also us this perception our help will with fixing formats, shape is fundamentals, new which customers. brand traction. and is the enable are to The revitalization and target confident enhancing four pillars: delivery that gaining the better connect store program, focused

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we Pizza delivery areas, for have complete sales our sales, our XX% of past in up increasing channels with report growth close are making and that The service progress third own brand, X% the both to Hut double-digit to the from quarters, home delivery recorded accounting own we I'm through channels. these in and we integrating year-over-year. focused good on in pleased integration and the dine-in Over few quarter. orders is points

increasing orders delivered greater gives improving peak quality, hours. riders. We by the our of deliver during to ability us delivery proportion our over that are This dedicated are control also

During the quarter, XX% our our dedicated riders orders of already. delivered approximately

privilege improve We the trade out Hut and delivery will zone Pizza system rolled optimize improve and packaging menu delivery efficiency. for and also and continue to recently to mapping

improve to When value our product the the revitalization too we started we at and fundamentals. we look was the process, that menu let's needed and large offering Next, perception. that realized

We have fronts. a lot progress of on these made

have and simplified improved Pizza it significantly This menu. around SKUs Hut by to to restaurant to our customers We the make XXX-plus easier efficiency navigate for has currently menu XX XX. from XX%

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We also rejuvenate products image. consumers buzzworthy brand to and attract continued to launch our

Series cocktail the smoothies drinks China. categories launching salty progress and desert in and great we made quarter, in Dirty summer ice in egg During by key so-called cities Eastern the cream, desserts third

featured Some new Slide the XX on products are of of these presentation. exciting

in We entry more perception are attractive a starting introducing translate These for Pizza size into at delivery. better charging perception to popular prices addressing Pizza initiatives without increasing by value are the and Hut. and also products of Hut

compared shows tracking the that for new in in tier brand quarters, X the money value good particularly for always quarter past have taste, two to latest Our and cities. improved something scores third

remodels Lastly, store our we through multiple optimizing formats. portfolio are and

improve dining support in newer CapEx To such designed we more dining XXXX are the partially delivery of closure efficiency and customers remodeling to also fashionable portfolio. bistro, locations, and to small environment, order refresh in of up continue minimize We will our in remodel stores In are footprint diversified a Our by format as existing provide to complete smaller plan address stores are pace express better that Hut requirements the the to around store and and XXX time, and comfortable interiors. Pizza needs. the XXXX, XXXX. we store accelerating remodel different

are that will the We attractiveness this our confident improve of portfolio.

we & and new call concept, in COFFii & have In JOY. briefly and preferences. few opened the JOY Shanghai, turn I to I over Hangzhou Before adopting the like Nanjing past Jacky, test to six would demand stores, months, different mention to standalone coffee our formats three COFFii

very early pleased by still this are but so concept far. at of the We been the have stage progress

for Lo, who financial will detail performance the I With further findings in on will our detail. to call We that, the quarters. CFO, coming Jacky over the hand provide will and more plans in cover our our concept

Jacky Lo

Thank you, quarter revenues new $X.X to openings. Good to of the X% calling primarily morning in Asia, Total translation, Total translation. exchange sales reached to from foreign those exchange up year-over-year Joey. excluding foreign and calling U.S. excluding XXXX, billion year-over-year third the the accelerated evening store grew good quarter, those from in X% system due

up the stores, year, which XX% KFC over to XXX have We XX% year. In were the first XXX of period nine same the comparing opened have opened new quarter, new months we last stores. the during stores of

X,XXX end. portfolio as the Our of exceeded restaurants quarter

a KFC During declined Hut conditions X%. and Pizza third grew same-store by in by declined declined sales year-over-year X%, growth in system largely grew of same-store in X% sales system of China the quarter with X%, Hut trading year; sales same-store by while XX% KFC the the Pizza to sales underperformance while X% by the impact dining the same-store softer sales prior attributable sales by quarter, Yum XXXX, segment. lapping

due KFC decreased promotional by Hut to quarter, drop to a X% quarter. due average while decreased and During X% to by ticket comparing the increased upgrades, innovation X% campaigns. Pizza and year-over-year, year-over-year value continuous average increased activities second year-over-year smaller the ticket product by traffic

compared by traffic an declined the previous to X% Although as year-over-year, two improvement it's quarters.

COGS. effect. was last are XX.X% restaurant trend investment was under XX.X% and offset were which for period the more pressure, due gains starting to pleased year. quarter million Overall, second year. the in million in comparing $XX restaurant XXXX. were take savings investment $XX last first we We labor We efficiencies effectively quarter the and was KFC in which to restaurant the in XX.X% restaurant productivity at in positive $XX XX% China as quarter a to same year, the to comparing for remained sales partially other inflation, to and comparing million primarily as XX.X% the Yum product quarter Pizza third While period see to same optimization same revitalization margin compared of margin of promotions, Hut XX.X% with by traffic last period managed through labor good the and margin in the initiatives margin, this

was XXXX, of inflation inflation while was quarter third the wage compared For up X% to X% as period up same the year. commodity last

for identify our ongoing savings. FX. cost ex mix around overall X% We single review We'll XX% for expect commodity a The and one-off in cost benefits full high came cost single quarter, quarter year. opportunities a G&A decrease policies recorded last this G&A to to processes at After to expenses maintain inflation digit digit inflation we wage in the low another continue and decrease from and of structure, decrease control. at year-over-year

remains a G&A than ex of revenue growth third X% lower a Factors the G&A improvement to same-store growth new sales operating unit the such a year-over-year quarter while Operating in maintain the rate. had impact profit quarter. net growth profit long-term deleverage as goal FX. for and increased impact XXXX rate expense Our on make positive by

quarter this improved million negative operating operating impacted KFC FX. of in of XXXX, quarter translation profit the quarter. by depreciation the exchange year-over-year against profit impact profit continue Pizza X% X% ex For may of Due the year-over-year foreign operating the third improved year. during Such our fourth while dollar, to FX, ex $X total U.S. Hut negatively renminbi the by by

current points outside period Our we repatriation third on rate of subsidiaries in was by estimated provisions less income quarter the than certain X of reversal China. tax XX% the year the of percentage XXXX, effective lower to tax previously also same last intangible foreign earnings low global due made earned and tax of year U.S.

$X.XX third FX. period EPS the ex comparing XX% was quarter last XXXX, diluted in to the of year Finally, same up

cash city tiers, for restaurant Hut. period three years stable. new new remains KFC returns and to pretax Pizza all average the years two four for remained Our unit Across payback

store XXXX We lower cities. are quarter. expansion XXX $XXX to expected million and XXX our were XXX to XXX by months, into target be operating remodeled opening confident this in to is KFC achieve of came XXXX, first full in to our of CapEx $XXX new million. led nine an the XX% tier last year stores remodels increase in and of the to period same compared those year

closure are more reduce remodeling, With and we the partial rollout able time. to of flexibly invest

nine capital $XXX the of expenditures. generated million our strategy. net cash $X.XX billion let of subtracting cover me after flow Next, capital first cash we allocation from in $XXX of year, free operations the In months million and

balance million short-term Our we healthy billion dividend returned $XXX XX% our that returned always third we our cash share common the in $XX cash and Creating in dividend including stock including the strong $XX glad million of remains $XXX $X.XX with million $XXX to has received sheet of and dividends cash per repurchases $XXX months, over been cash investments. shareholders, top In shareholders, value we our board quarter. With and to to million nine I'm of by a of our for priority. cash increase to first $X.XX quarterly shareholders to approval million report our repurchases share. million. position,

total. by to increase in repurchase addition, we'll $X.X million In authorization $XXX the existing billion share

Meituan two ability These IPO XX.X to the approximately Dianping's shares repurchase we for remaining in of to subject in at model which In is There's is growth during basis, billion under including million also generate confidence $XXX this million fair share reflect the the market million, our has in part million and on approximately The investment our equity a new measures October of process. our shares business X.X authorization. We million ordinary this volatility. business cash. our delivery XXXX. invest investment quarter, $X measure company strategy. today, repurchased $XXX $XX As recurring value shares for price

let to up me call So to turn the open briefly back Joey questions. it before we

Joey Wat

Thank you, Jacky.

to portfolio by up, recognition, we is execution well strong tiers. our first-mover as and advantage sum grow city brand to and supported KFC So across all continues excellent perform

identity, Hut with for new with encouraged the by format are also are to revitalization connect We store positive we better around feedback fresh menu customers. receiving Pizza a and the program new

remain it sales strategy the Pizza time we brand long-term While reforms, growing urbanization, right the fourth that the take With the growth. we revitalize fundamentals under these are to penetration pressure expect disposable the to in see confident in Hut have the to opportunity to loan quarter, impact and will lower full return of unchanged. income remains and of in and cities, place it tier we China

to We restaurant our in will the invest our strengthen industry. growth Millicent brands in to continue I'll With core pass you back Q&A. leadership for that, profitable to start China's to

Millicent Tu

Joey. you, Instructions] questions. proceed. please the Operator, [Operator We Thank for now call open

Operator

you much line [Operator Brian line of Brian, now is Bittner. open. Thank first question our And comes the your so from Instructions]

Unidentified Analyst

Thank you little trading difficult you turn it a one how in secular make this you. the despite And mean place? Pizza may more initiatives quarter. by On headwinds I appreciate around not on that the you're the that? allocation Can is just it. some conditions elaborate softer then to confidence more the that Two Pizza a referenced questions, you little on Hut's strategy. facing and what Hut putting capital bit Pizza one on Hut,

Joey Wat

right. all Okay,

me Brian. Let thank - you,

certainly thoughts trading about we We are Let a thoughts the observing. that some into few trend me can the softer share provide conditions.

two, competition have grow. to continues terms the also delivery are in store in with foot of we and - at seen in for same Pizza in Consumers better more have promotions for And and a but seen an the openings in low-tier for also savings. looking value higher-tier and time, dine-in consumer. bigger traffic Hut slowdown cities is competitor, Number cities. First increasingly better intensified increase mid-, we

advantage and Fortunately, competitive to peers. of experiences we have lot a compared our

excellent with Hut, casual market are the recognition. dining segment the Pizza in western brand For we leader

chain We to development good the team and we growth. also have have very a nationwide have very a - supply good continue

casual will of of future a In QSR the terms balance dining, whether for the customers. in offline of it both a is in restaurant online be headwind, and experience and the business,

digital, very make we the as So progress the ordering have the in program tableside continue experience, mentioned earlier. and made important the as are we - there to offline online and very But the I in store the the side, such revitalization business. last we stores, on enabler forget year, the for the And offline we stores, the start the improve progress as good in it's let's also store, to not experience. great assets

committed I like we combination the So X,XXX and both question Hut one KFC, for we a see capital have that would before KFC. for and but comment China the on long-term, make one have of that the to cities the in as this is areas you we're guess, answer the we opportunity are still improvement last we in see I we always to Pizza X,XXX cities in long-term in don't can mention China we business well.

are Hut, right now, XXX China. Pizza only in in cities For we

does yet. that in are X,XXX So there Hut that not have Pizza China means cities

opportunity, we long the So fundamentals very in good. short obviously, are the term, But term, we bumpiness. believe the in the still the see

ask can you capital maybe the So Brian. question,

Unidentified Analyst

Over on be targeting, how that give assume that you're If we it. around Hut And that and to sounds really repurchase Pizza your what see it the the Yes. you was help about to can authorization $X that I authorization? should answer, It timeframe intriguing think would any billion for increase on super in share there' annual left. you share thank you you plan helpful. appreciate have using is us like repurchases

Jacky Lo

we share plan. we why buyback authorization. always buyback always Brian, work on ability, execute when board that's we generating share cash opportunistic in have confident our quantitative of we the number share is a And with the And very decision a well, our based factors. buyback been qualitative increase Yes, are obviously to and

million months, better in so to over we into in XX but months. last I came last the perspective, $XXX over $XXX the mean, to repurchased So six it million seven put

mean, I our we commitment from returning and just the to authorization I And perspective, our share execute just an - So clearly shows continue expansion commitment our ongoing think of value will plan to opportunistically. we the in repurchase the shareholders. is

a that, put to will just continue on to So but timeframe the used as we have execute we don't to. plan we

Millicent Tu

question Next please.

Unidentified Analyst

Thank you.

Operator

Thank you. And comes from is open. our Sara, [Sanford Sara Thank your question Senatore next Bernstein] line you. now

Sara Senatore

Thank had wanted follow-up question sort and unit I ask of growth to you. on then I a quick about prototype. the coffee

is Hut first slowed accelerated. just but the KFC So you Pizza pretty has dramatically

And system terms your roughly stable growth last of whole year. so year-over-year, versus is in

if wondering was just to whether it because I So it's way? has a would kind kind something of the understand - and out be returns persist to to Yum!, slowdown that that have that Hut be that's continue you something KFC you have just out does trying Pizza just to I feels perfectly Because in of with it with offset agreement under if your the like whether of want or work Hut was pressure. sort target set there's you achieve, Pizza

now. talk maybe to just you what global follow-up, and in if lot brands Costa. like that question, competitive And my could the from of market, some new was the we've and the then wondering to of that accelerated heard I dynamics enter in or sort just that's I of first attracted about you Starbucks wanted So initiative. coffee about a market you about and Obviously, entrants a growth ask

Joey Wat

Thank you, Sara.

the don't We a growth. specific what unit we with target for - the We for achieve have unit start the to core growth growth. brands. want is profitable me Let new

So Hut. talk Pizza let's start Hut KFC, I'll the about then with Pizza and -

to it the cities the covers quite lower-tier different. For is KFC, X,XXX range already cities versus dynamic in a in top-tier And lower-tier are of we cities. top-tier and

So two if I it, could describe use one strategies. the it's country, way to a

in driving top-tier the been our sales. cities, same-store focus has So

We And healthy the opening even tier can et the same-store but the the the the don't a new in the one aggressive again, net-net, are are what we growth. QX, is with growth stores have both in are store, even cetera. we for KFC seen still we for where very lower-tier in and of opened the we cities, sales drive see sales system single new existing cities there's but sales opening value, though in very transfer lot stores in of want lower system is the very And nice white space because us available see lower-tier offers, cities in imply we sales store store cities cities. right to to have from store. that we giving we lower-tier Even now new we result

doing store on when is holistically, right it opened sales a satisfies open whether both top-tier years believe what new the - with thing each profit, basis, we very two When you payback are economics. store, year we that can system open cities. a that less drive of we payback. criteria we And each nine first than store a So happy evaluate the driven - it see in are store. we for lower-tier the makes whether the two more same-store by we we months years and to And than in and cities sales KFC, stores in have entire the year, last

less long to open two as So stores, we than as can the are we year payback, committed new opening. satisfy store

Pizza Now, going transition Pizza Hut, we business are adjusting Hut our we through are and a model. obviously,

in the new still to that we it's opening adjusted our the stores can do. Hut we said, because thing right model. challenges despite With Pizza have are store still the you see, revitalization in As

delivery-friendly. First, the customer we are the that more are certain targeted new they toward and are opened? So have behaviors, stores of characteristics what locations they more customer needs,

growth this from both the a cetera. XXX the it's believe of going forward, much stores cost store, store on old average, we of dine-in the the square reduction. smaller Secondly, are business average, a Hut of with Pizza on support delivery upgrading overall, model new about much new the structure meters. so in better XX% et square to is and meters, The And XXX to - is better CapEx size about COGS,

growth. that's the So unit for

follows. In are terms as of coffee, my thoughts

coffee excited the at the three our years, of XXXX well. about category of And in we CNYX to category has been since We for sales we the sell billion year, KFC we But KFC alone. China category. going general. excited Hut offering very in are the have past exceed seen our coffee huge And X,XXX-plus growth a China coffee in And huge all KFC. have coffee in we significantly upgraded across about potential First, Pizza we're also coffee believe growth coffee also, as amount in when this stores. we right

to same at continue offering time, core brands. & At we standalone our our are in COFFii improve new concept exploring coffee JOY. will a We the

mentioned in I very process way six different earlier, we we our the when things using far, so we still early in opened now. different systematic business, a And once a stores, formats. produce have have we so we prototype, try our prototype As and have it's right

how it Second, pursue learn and we we and efficiency then scale to the We excellence. up operational find ways.

now, in you, still we're and the details due report the at Thank right we're we with course. and So prototype will model stage back Sara. still fine-tuning more

Sara Senatore

you. Thank

Operator

line And from your question. next [Operator Xiaopo Wei of comes ask the Instructions] question our from Citigroup. Please

Xiaopo Wei

delivery will related one conference, company which Joey. this major in shareholders, my your we My Alibaba, also digital you Ant that that in And Ele.me Ant - that Jacky limit And understand to to a and year. IPO, Meituan to Finance said your statement the your you question a is continue the build Finance while is said acquired of invested we will for in is out and that I press question one. understand ecosystem.

dynamics with just do to the platform I collaboration any So delivering or closer with Alibaba Thank you. we the the food Ele.me aggregators? have want in changed ask,

Joey Wat

on share and digital my comments can delivery, I Thank mention and his you, thoughts will on Jacky Meituan. Xiaopo.

we a part since and where learn and frequency future We delivery, area spending, customers. to And this see data higher the X can even in and offline. is we strategy. to dayparts do powerful really now. the Pizza XXXX since to for big restaurant marketing continue higher it's then value business and data that And we encourage both from believe KFC different continue another growth Pizza even have and investing digital delivery Hut. have be balance believe right and because number in digital We Hut been categories, learned Xiaopo, is built have actually tier we our brands, of delivery, driver committed cities we of so ecosystem for holistic and between and and power both year. at is up particularly our area to a also for form it. catch participation designed experiences, campaign And this to this our we for the the of then for that our visit businesses stores, very to member the build we'll increase For from of will online And we KFC a include program, and efforts of our last for

traffic mix of healthy We from has a our the terms have own not built from now healthy traffic. own our that Hut, mix own increasing own are XX% own channel, aggregator to XX% our our generated to very I'm Pizza delivered in sourcing healthy mention we channel orders and riders managed and - the also we while traffic also, of always a mix KFC of own by channel, riders. a between own - channel by report And has happy

in are delivery customers. So because the continue the digital to enabler we'll strategically for areas experience for and both while is stores to push forward our this total form both important,

So...

Jacky Lo

both to guess partners, Meituan closely sales and And our grow Xiaopo, delivery delivery is second Ele.me, with business. to on strategy your aggregator just question, work I our our

strategy part business in the aggregator on the platforms. on investment the as our we'll as and just So to invest channel grow own that of continue delivery to Meituan well is

Millicent Tu

Thank you, Jacky.

please. question Next

Operator

Please our much. of next from Thank Morgan from Lou question comes And Lillian so your line Stanley. the ask you question.

Lillian Lou

ratio over Hey. I we saw quite and XXX from little bps. a other occupancy - Morning, have management. question big about bit because third savings quarter, numbers a for about the think a I expense

mentioned, Joey advertisement, So rental basically, to And you. Thank from, How continue? improvement? how et are store we much cost? much savings other the from efficiency seeing this much like cetera? going How as the trend from savings

Jacky Lo

occupancy components. and actually it a Lillian, costs, Yes. includes other few

and advertising marketing, costs. other fee to Brands some So Yum! rental, utility, restaurant-related license and depreciation,

media in under mass now discount, advertising other marketing from factors. expenses mainly savings from two recorded to in is So the one, came Number utility And the and and are quarter targeted traditional also cost improvement we of shifting as there because which such savings. member this sales. are digital marketing

at of a store. cost-saving lot have the initiatives We

energy-efficient more example, For air conditioning optimizing appliances and water and processes like usage.

So costs occupancy these this are quarter. decline in the two major reasons behind the in

Lillian Lou

in trend? following going about sustainable quarters? see the Are what So we the to this

Jacky Lo

Yes.

have many we - we just years. mean, for this think will I doing been I

optimize cost quarter-to-quarter but continue It do our yes. fluctuates will optimize cost - continue we'll to to - We the structure. to structure, so

Joey Wat

our flexible point, Yes, smaller of and we meaning becoming the in management our depreciation more demanding add would in store of is become and in rental efficient to management as I is store terms business become model. more in helpful one which, more of format sort terms store, the size, the long-term cost, Lillian, of additional is

Jacky Lo

well. Yes. Lillian, seasonality there's to mind, keep also our in as business

Lillian Lou

and Jack. Thanks a Joey Sure. lot

Joey Wat

Lillian. you, Thank

Millicent Tu

Thank you, Lillian. And next question please,

Operator

of Evercore. And from Thank line from next comes line question you Matt is so Matt, much. your our McGinley open. now the

Matt McGinley

a question's margin? well Hut you in you. structure I managing the to and or a lower the how understand well quality I is guess investments would've investment a the which growth, there in was that relative that. how food margins decline an were was But in margin assume the as My to rolled from - shift margin, you dine-in and on perhaps, margin I to ad And did comp. managed in there margin into and food occupancy that, a of delivery you follow-up lower over pressure. year was that how the under gone ago Thank still food - cost you bit the than make offset continued of much it paper decline Pizza ticket little began that when the

Jacky Lo

Pizza more on Joey pressure some Yes. so margin, the condition encouraged the sales on the by softer casual faced of the made brand. on have Well, to dining, we Pizza progress more which well, trading revitalization mentioned, are the Hut competitive due prominent we as impact the Hut and a Matt, on environment, the this quarter. And

accomplished restaurant and food that effectively efficiencies We investment. optimization through margin pointed We also, labor you also managed the our out. of as

are the we optimizing have so management-crews utilizing been improving matrix efficiencies, on the scheduling, first the and digital the labor capabilities. So also, we labor

ordering, better the like also, to member like customers And food improve it example, on tableside investment, the efficiency. the product to For upgrade value also crew includes discounts. that actually both our

up has two previous with traffic So to the decline quarter, the the campaign in quarters. improved value this the step comparing in

X% versus China in prior So the only quarter. down X% was

investment the food. quarters in margin QX, obviously, over few in targeted so $XX million, food So about investment impacted a we we past more the but our in doing invest only are

with the it up by in promotion sales. But but traffic revitalization campaigns, value plan, but So in continue Supported better million the the believe pillars But gradually versus on pressure our Hut million Hut million that very sales. step targeted restore will was Pizza to in year. and $XX quarter, Yes, confident investment the activities of likely softness margins, Pizza we will in put the continue of just with and quarter. for drive some food. products invest in may four sales $XX that we are the the we will last and to said, first $XX current remainder

Joey Wat

little delivery lower delivery - the for the - learning certainly food average and add business, to even the targeted well, ticket on marketing with delivery. about ongoing accumulation our investment more business, delivery, customer more with And flexible a The comment but Matt. and with just for are knowledge we margin our

Millicent flexibility next short for for Okay. is please. - the delivery business softer important question Tu - A in given trading in the term situation the So and particular.

Operator

Cheng your Matt. comes now Michelle open. is so And you, of much. you the Michelle, the from line Thank Thank question line next from Goldman Sachs.

Michelle Cheng

KFC our next year? year, same-store will store our expansion but consumption is environment management. quarters? second sales for us reach And sentiment. store growth - of question Can My help we the we do into quarter, you consumption especially easy look over from this environment, like, in about this understand more expansion year's how terms to original probably Joey. - target, impact it's you, next we few given how very about the next But talked Understanding for Thank promotional for target?

Joey Wat

Thank you, Michelle. thoughts on have mentioned consumption sentiments. I my the

consumer for So KFC just competitor. really quick

looking and For consumer, value bigger definitely savings. for better

on For competitors, does we store will from stay the in our promotion terms Next that in aggressive year, very peers. can our in observe competition course. expansion? promotion, of goal our so How impact we increase

push for city lower-tier just expansion in and push sales sense. for We will to continue look makes same-store it our city payback, and the our at continue top-tier pipeline to we because aggressively will we'll store

earlier short city, in in store Brand the in share, sales sales it new brand lower-tier building chicken. define the the very and continue for successfully that. to that we do transfer the doing advantage The it KFC but term it For the system although implies term. short fried is helps been opening, builds in and long-term, it for go market And earlier important building. helps because our first-mover also we have that our it's years XX in, of we'll food. we taste And

while will KFC and bigger So consumption looking the in for to lovely slightly a customers. do the better offer I and it's wrong cheap called value the sentiment, savings, for There's on we'll can course. nothing next And say that. tougher some cheerful, expansion particularly stay term, something, year, it's store the for times during short term for

Michelle. thank So you,

Millicent Tu

Okay.

Next question please.

Operator

comes of question from next Merrill from our line the Chen America. Luo Bank of And Lynch

is line Your open. now

Chen Luo

at just the other big labor savings costs. Hut achieved was paper costs, occupancy one you. rising Pizza by margin got in the all and it If driven in Thank we and and whereas have on was I've cost looking question more the - erosion food details, QX margins. -

easy we actually laps cost. heading regarding are to see and going paper year, food the next So to

paper initiatives Hut? and still on Or the cost-saving assume we all are margin Pizza if a let's you. let's for low- bit say, of stable deleverage, achieve still stay So laps for mid-single-digit and at, are because the next year, cost, range outlook? Thank cautious given food sales going margins the for same-store to we decline easy largely

Jacky Lo

mean, I in Luo the just to we four and confident Chen, very that. Well, execute guess, we'll are continue pillars I

margin restaurant followed restore by to improvement. sales all, then and traffic So and first of that's going

once So continue improvement. is to one a on taking sales four traffic initiatives pillars. time I mean, execute we'll we the restaurant we'll at but recovers, step - just to it margin continue are to And drive different and restored, work

Joey Wat

focus continue our our continue I business. easy hope Chen, if have to management improvements in very, improve in very on thing the with scale we lap. manage profit But sales in the terms I we can - that given our XXXX, Luo our such focus achieve to of that saving and do XXXX. positive to mean, has in on there's margin. of that But called plan the really margin team easy, the no worked our and more or And to terms, hard is Nothing to

Millicent Tu

question. of we time, interest are In taking the Operator? last

Operator

Ling so Bank. Thank you much. of Deutsche from our line last And your is comes now open. Anne, Anne the question from line

Anne Ling

team, like, our just regarding Hi, sales same-store sales one, management you. quarter. same-store trend, third Thank the growth number in

not do important our it Pizza Festival check sales Mid-Autumn will trend. to we the this have at just Mid-Autumn KFC or Do have like all? any kind or for is not same-store you. our in Hut? whether sales Say, on the want impact Thank September, if will Just what like, Festival we be have

Joey Wat

shifts hi. vary manage with campaigns, and festivals add these Festival comment that quarters as very between opportunities. look we weekend Pizza brand. are marketing The for time but and by and will shift the I It's at We very common different do Anne, KFC our Hut.

[ph]. cake offer the ticket cake to customer Pizza result it of they also traffic It's cake we xian we the And Hut, helps xiao is to year KFC, love to rou is for moon the and the bing it also for But China a offered moon su eat So kind of moon and improve experience. for first pleasing. average. drive East

Festival year. reaction Mid-Autumn customer new continue and Hut that we'll next we something tried cake in likely was moon it's to positive, do celebrate again and very So to Pizza

Anne. you, thank So

Anne Ling

Thank you.

Millicent Tu

concludes and all you next quarter thank with a Have to call. you joining for look today's day. call. earnings presentation Well, China's time. Okay. we This forward speaking this third great Yum And

Joey Wat

all. Thank you,

Operator

for so does the Thank for participating. conference you you conclude that Thank much. today. And

You may all disconnect.

Yum China (YUMC) 31 Oct 182018 Q3 Earnings call transcript