YUMC - Earnings call transcript Q2 2019 | Yum China Holdings, Inc.

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to today's Yum China 2019 Second 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, Wednesday, the 31st of July 2019.

I would now like to hand the conference over to your speaker today, Florence Lip. you. Thank ahead. go Please

Florence Lip

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

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

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

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

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

Today's call three sections. includes

results. second will Yum China's XXXX Joey financial cover quarter and Jacky highlights; First, will the cover

the questions. then to will We open call

on this A information for The call website. which operational for available available is be will download. and our contains of the financial presentation, PowerPoint webcast quarter,

to CEO to I over turn At call would Yum this of like time, the Wat, China. Joey Ms.

Joey Wat

Thank and you, today. thank joining us Florence. you for Hello, everyone,

of the of I'm share why to of As we some we want I reasons the about and China. year, the the Yum where are future excited hit midpoint

performance model. sales revitalization year of first the our resilient Hut is strong demonstrate Pizza of business First, half growth, track. strong KFC our delivered in consistently the has the same-store and on clearly

innovations we these sustainable data our driving growing that with formats, drive delivery the capabilities our and I'm Second, are a growth options, and and of and digital exciting of will store new variety new business. business. innovations menu profitable confident throughout And

all repurchases. untapped course, of opportunities focused share capital it's China. clear openings, portfolio there a that is both city significant program with to across us return all enabling continue these tiers combines our expand of to to in shareholder accelerated many return are and And restaurants dividends with store deliver Third, that

China details brands. our let Now macro as before two sales diving few and the XXth quarter In since Yum consecutive highlights we growth QX, despite revenue of delivered quarter Brands. system and we with delivered spun chicken Yum! in share prices. the QX uncertainty elevated another into growth such about notable several our solid off a me strong from challenges core of profit quarter

driven Strong growth sales quarters core the two of consecutive attractive sales Hut, system markets KFC China. XX% as at of was well ongoing positive our and by of same-store as of store Pizza brands, our expansion to network in serve both

new second this which year-to-date cover increasing our We stores stores. original exceed opened the At full to pace, we quarter, year expect in shortly. our XXX to target, XXX total will Jacky

cost ongoing increases, Sales margin a And increase world-leading continue restaurant us operating leverage promotional rising despite pressure and X% to With in members strides program. we over XXX make to profit membership digital. currency chicken diligent million digital due we activities by to prices, and control allows already, headwinds. wage have

and more the offering Now of with and with driving our and digital delivery reported exciting through ecosystem. effectively I starting color customers brands, quarter engaging of products great key growth our provide strong another more will KFC growth strategy on KFC. value, by our performance

the KFC of XXX achieved new aggressive grew see on. and second result elaborate by will increased XX%. continue With pressures new growth robust build-outs, which city considering China. system XX% excellent will the store constant KFC same-store cost across tiers we the opportunities to an in X% to profit we in currency, expand in capture Operating Jacky stores sales QX. sales our opened in quarter,

We time launched such offers, LTOs, or chicken. exciting limited double and as chicken crayfish and chili new tacos

are capture for imported a premium beef, and nationwide, to line aims which ticket our launched who average. consumers drive products higher also including more We burger willing and to new pay premium shrimp

better to with aligned are and options as well commodity exciting manage options non-chicken of protein our providing initiatives for These customers. causes our as new strategy increasing

third over all growth for drove Our growth These coffee, in already the strong of sales delivery, by engagement, formats, namely, categories, quarter. and accounted dessert breakfast, key initiatives, sales. offerings store customer led menu one and improved

over rapidly cross-selling in half to is particular, the gain which K-Coffee, traction, an of continued memberships. due and has cups we digital part to million XX year-over-year, percentage XX increase our over sold XXXX, of in first effective in via

consumer notably quarter, Throughout value, smart Crazy most gained our very the also which with focus on strong we has awareness. Thursday, maintained

and building We our sharing festival also for partnership and occasions with discounts bucket YUMC in on bucket promotion platform offering attractive launched chicken continued Pay UnionPay. wing by

digital. to Turning

market continue which ecosystem, the leader significant and customer with leverage functionality. In our a business. positive second quarter, App entire a we our are our updated space, in across to KFC is for improved having digital build Super we and and interface this We powerful impact

and XX digital to to are The mobile continues Members user. XX% X having points; spending experience various per power digital of sales on to growth and a expand. our our digital of the for up accounted ecosystem up capabilities year-over-year, largely percentage orders in accounted Combined, improve initiatives due customer XX%, percentage drive and sales, impact total now pre-orders. points for positive

Privilege quarter, as first with quarter. the particular, our in is increased program, subscription times essentially the In popularity over many three X membership, sold second million which in in paid as

we of uptick roll significant will frequency continue that members, these and the new year. in from the and out We offers creating second see are in to spending a half

second and continue up channels percentage Delivery growth represent business rates our through quarter, KFC points in via own aggregators. X exceed the growth year-over-year, to XX% of

profitable and a digital in platform manual KFC's ability daypart for have robust sustainable through offering growth. customer to preferences created continuous and address in and delivery value, smart leadership innovations and

remainder We KFC's and aggressive long of excited ‘XX for in very will about store-building China. remain for an pursue program the runway growth

to increase achieved on will in in consecutive I on We make Pizza significant a performance. Next, continues both path of growth dining good second Hut provide progress delivery. sales the revitalization. on Pizza traffic back of the same-store some Hut a towards quarter color and

stores, ongoing first dine-in we in the dining traffic achieved the time particularly XXXX. growth Hut traffic which quarters Pizza growth pleased successive at since have is of We were by

to the program delivery focus four on and digital, fundamentals, continue revitalization Pizza The asset enhancing portfolio. fixing pillars: driving optimizing Hut

ease look at menu launching full around streamlined This new menu menu, was customers, menu our compared our of March. let's quarter and The permanent trendy improved been ordering prerevitalization the the percentage We items less upgraded. well since innovators our First, menu and XX and particularly abundant in received either approximately XX% choices with has the fundamentals. new first with items or of products, are steak. and by new of the

pizza, salted pizza. Language] pizza, [Foreign exciting is pizza; is shrimp egg time as We and cheese-filled, such the [Foreign offers limited Language] crispy salty introduced as as thin double well crispy which which best; a and pizza, - yolk our

specials drive as holidays We Labor to such also Day strong over and Children's Day, among sales launched others.

with remain We value particular, to offers. focused in on traffic, attractive drive increased continuing

steak, incremental Wednesday offers special dessert sales at on quarter. XX promotion during Scream the drinks signature with CNY XX Our drive CNY pizza, or and to strong continue

leveraging of Like on and continue increased building to KFC, XX% are members our progress. account drive ecosystem digital to for traffic now Digital sales. and we make and sales

increased frequency privilege refine in QX. program subscription to expand sold in member spending. offer enhanced family X and has million resulted We our With remains offer, Privilege continue popular and with our and

the year. We build the will second on progress half in further member of the

points accounts improved up growth. faster Delivery from our with percentage again continue aggregators. channels for XX% growing much via significant promotions to and Turning to operations than sales, of X Effective now sales year-over-year, own delivery. drive

efficiency optimize operational are to last-mile customer and continue seeing in delivery control back We and year, operations continuous taking improvement we after of late last satisfaction.

since the example, For average have fulfillment the month of on beginning the year. and complaint rates time been month improving

continue are second remodels To through in XX complete XXXX a our targeting will by accelerate the we around XXXX. dining XXX stores we rest accelerated our in We to and store more multiple to through we Lastly, create and refresh remodeled of and and comfortable asset environment, stylish enhance quarter, pace the the the portfolio the of year. remodels portfolio formats.

in XX the same similar opened second quarter, to also We in stores XXXX. new period the

coverage. to store increase are and the to smaller model, continuing including We spoke efficiently test our more formats, service hub

result plan encouraged to more the the smaller the are initial format in by We year. open in and second of half stores

brand, a long-term in on the initiatives revitalization are in the confident I'm these for China. Hut Together, having Pizza and opportunity positive impact

consecutive We same-store positive encouraged growth to profitability. the improving quarter of and sales are see second

areas is of relentless result will are they a always operational on as our attention This core that have focus ongoing support important business. our the pillars. They to are four crucial

we to make the Given Hut maintain the improvements brand. business on to positive areas momentum additional scale the of order of focus in important cement competitive and these the Pizza the environment, will

to the Lastly, stores standalone turning second to our eight at up cities. XX X COFFii - now concept, quarter, & taking across JOY, coffee in taking stores up to new us

out rolled to been coffee in have and WeWork Our Beijing. Shanghai also machines XX offices

market supply have to said, many and a learning us, primary different not and in confident trade this category about that's our an dayparts product is reasons be we to zones chain. taking density the important China. formats, building we opportunity in mix, explore time are in to Coffee store fine-tuning That new and as more the

the our detail. performance will in cover financial I that, With Jacky more our call will hand to over CFO, who Lo,

Jacky Lo

for Good thank and you, us. everyone, you Thank joining day, Joey.

as store sales Total accelerated year-over-year, strong revenues at sales improving due translation. KFC $X.X exchange up Pizza openings year-over-year, ex system XX% as billion primarily XX% second reached FX, sales same-store XXXX, in quarter well grew of foreign at and the Total excluding Hut. new to growth

new opened end We X,XXX portfolio as quarter, increasing total of restaurants the of the during June. stores XXX our to

mentioned, which throughout full opportunities the large schedule are we this on the For highlights year, as untapped ahead of volume of market China. front, Joey

& inclusion XXX majority the the across in are anticipate stores opening. The multiple XXX with COFFii We new stores from now these in and coming of KFC brands. incremental to new target. planned of JOY XXXX,

increased KFC achieved sales sales while sales X%, KFC Pizza Yum China both quarter consecutive and second During growth of quarter, Hut X%. sales grew system grew year-over-year excluding same-store its Pizza X%, Hut system X%, increased same-store while of sales XX%, FX. the same-store

lower due the our Pizza increased average by due and both increased remains During with year-over-year, to traffic year-over-year successful decreased increased drive ticket of KFC year-over-year X% pricing has Hut increased dine-in value promotions. overall year-over-year. and a traffic offset including increased share promotions. Combined average efforts average, ongoing ticket to traffic, delivery, increasing of for which share delivery, delivery the ticket and X% and X% to positive X% quarter, increased

in continued to chicken The restaurant XX.X% flagged positive value pressure sales remained campaigns compared inflation, at last period KFC XX.X% margin the of and wage same second offset in inflation quarter the to under previously year. XXXX leverage.

Average mid-single And was in higher due of benefit, quarter digit. to the to more compared was the margin the slightly the inventory than inflation impact lack quarter. at first commodity first

Yum Overall, XX.X% margin was slightly offset activities. savings Commodity from improved X.X the restaurant China and points the XX.X%, margin deflation from to year-over-year period restaurant from its percentage margin down Pizza last pressure cost store XX.X%. other same Hut promotional year.

commodity Wage price inflation year, X% X%, last chicken leverage same major was of inflation Cost sales store to while increase cost was the offset inflation compared partly effective management. and driver commodity inflation. by was the period with

increase remainder second second of we the the half. expect anticipate chicken we XXXX, although pressure to see impact of year-over-year that continue For in in quarter, peaked the the price to has

single continue low for to be We expect full to the year. overall inflation commodity digit

expense or both one-off year-over-year, higher to XX% in G&A up due was mainly and XX% periods, ex-FX, performance-related salary compensation. benefits increases excluding

remains revenue than maintain lower the rate. goal growth a to long-term rate G&A Our growth

additional the XXXX, charge and mainly down quarter last of On the the lease from million during same impairment in second the review due the year. adoption was quarter a $X million, the closure basis, the in second Our the charge $XX year-to-date in completed new is to with period in and standard. accounting first following closure line quarter impairment impairment

profit Operating Due negatively profit of U.S. total increased second against or quarter. for our the X% by renminbi million foreign XXXX during dollar, impact exchange the X% operating depreciation $XX year-over-year. the of quarter the to translation

FX, Excluding year-over-year. increased profit operating XX%

FX, improved Pizza the ex year-over-year, to profit profit XX%, lower quarter second mainly growth growth. Hut operating charge. due and by XX% unit For largely impairment FX, XXXX, driven sales increased of KFC operating net ex same-store

investment compared last EPS a in second $X.XX year. in quarter million was $X.XX Meituan. period EPS same diluted from share Diluted to of per or $X.XX Finally, mark-to-market of in XXXX equity the the our $XX positive includes

primarily rate foreign last second tax; tax second earnings on of from the benefit was mark-to-market the accrued gain, year, the XX%, tax and U.S. approved lower Meituan effective is estimated of percentage non-taxable, to lower outside points China. which than quarter Our during quarter residual lower due X repatriation withholding

Meituan. or estimate loss from best in effective Our investment rate gain be the excluding to XXXX from of below equity tax continues in mark-to-market our any the XX%, impact

me let capital strategy. our cover Next, allocation

million Our of capital cash cash XXXX million strong and of of subtracting $XXX in expenditures. free cash flow million the $XXX first operations after generation flow $XXX net free half continue from with in

We have in over short-term and cash investment. $X.XX billion

capital million and share to of There's repurchases cash with $XXX approximately the remain the We a as returning million. committed under including in $XXX of shareholders quarter, excess to million the share total $XX XXXX. second of dividend of returns million June authorization repurchase $XX end remaining

Investor build. least from the billion our already strong next to invest also given $X.X we Day, In growth to We'll at months new we first six for shareholders the return recent XXXX, stated capacity over at we continue three As million. returns have to years. the of returned $XXX have the

in increase $XXX builds. Full up expected year due XXXX CapEx million slightly to is million, our be expectations initial the above from to store $XXX to

will Now our turn I outlook. to

two growth, We'll with and strong we foundation in expand a on focus to capabilities leading that continue good of digital development have business shows leading capabilities to store started XXXX operating We network. which quarters sales place. to our leveraging profit drive and solid have our

However, there to of second need through headwinds specific half year. are some in manage the we do near-term the

to the to second intend of quarter, in believe the in half manage has continue impact be we expect that the chicken weigh in second while margin we KFC, inflation price that year-over-year increases At to selective commodity activities margins We year. the on more pressure. our promotional of peaked will

half We'll successfully also to XXXX. sales value several lap second promotions the our same-store such initiatives key of sales that since begin drove as

same-store expect moderate the half we growth of in that will our sales result, second a the As year.

to We'll promotions. brand maintain out our are our driving value expect we Pizza fluctuations strategy Hut, continue at initiatives traffic encouraged revitalization by our while we quarterly we progress At as roll through scale, of very of program. the

pressure ramp is an quarters. remodels sales approximately margin our two important and XXX This component on the the but of short next In remodeling revitalization plant put program up addition, will in with of brand. the the restaurant long-term over will term

and this With in of over we deliver we and are all are said, term. profitable are where shareholder and business, the a growth with value pleased long we confident ability to as sustainable our

Q&A. With to the to pass back that, Florence you start I'll

Florence Lip

Jacky. Thanks,

Instructions] We Operator, now the will the call open [Operator start for please questions. Q&A.

Operator

open. Sachs. Thank the And so from our first line your you of question [Operator from Cheng Michelle, much. comes Goldman line is Instructions] Michelle

Michelle Cheng

you like more Hi. above give KFC's would the for again. the cost good mid-single digit. first on for Thank that results costs? you, just management. I details you Congratulations can into And to us commodity Jacky, mentioned about the details side. look chicken slightly quarter, inflation more And is

cetera, also, And how we benefit like commodity in you we also material, so commodity et the half? down, first are understand can any costs you. been items share major and this packaging have actually Thank seeing much other

Jacky Lo

Michelle. Yes,

inventory But in the QX mid-single from XXXX. On the inflation you commodity and bit actually was stock we QX chicken benefit if the a both for in the QX. commodity KFC, -- recall, QX, we inflation for little digit up

slightly so only I digit, both commodities terms many this missing was though quarters one mean also, quarter. it higher KFC. of chicken, it's even of in And And a are for

represents of of it sales. about cost XX% So our

so gone already And quarter. to the chicken and year-over-year, overall, up, impact about, we talked peak price the we this has expect

So it on it in pressure little second will margin. the a put bit the but will half, moderate

it managed really of in KFC so well. terms inflation so has the rate, And

because digit So partnership have low our it QX strong with and double has been we for QX about both suppliers. very

we actually work the with inflation rate. closely to So manage them

has commodities but to through. continue margin So on down, that you work will out, I initiatives yes, as gone are our price - point other and actually there the just

second protein. put parts or I maybe we'll half, talk we'll other explore to chicken continue activities of like in and non-chicken the the on promotional down back about

can pressure. So mitigate inflation all ways these the that are we use to the commodity

Joey Wat

an And other example. mentioned about give the you Yes. Michelle, commodity. I'll

The is our because there? Hut. sales XX% bit to a for of other forget Pizza versus actually And price commodity imported. did Pizza get mean in of Hut, We more so steak has Hut, how actually steak, were I steak. explore we deflation Pizza for choices from not

different countries the of sourced different went steaks and served cooked part and it for and well to we customer. steaks then So in

wing, can see, half, the manage, the Michelle. tip parts chicken look Thank chicken first the [Foreign the such price outside of also as price pressure for increase, opportunities as as we of the increase. to significant we or of breast So chicken Language] but manage the chicken course, other you, not only you was we even explore which at chicken to other balance in commodity the

Michelle Cheng

Thank you.

Operator

of Thank our from question much. Wei And Xiaopo comes you so the Citigroup. from line next

line Your now open. is

Xiaopo Wei

And congratulations my half growth. the on to strong and is commentary your another sales Jacky, question on quarter. second Hi, Joey related

indicated release, As shall moderated to top second understandable, mentioned which - the be growth to lapping, chicken quarter control be say the that press cost half the of but we second peak-out margin will cost? line the in that will much is high half, some the second management more of the than the in also and due half just the less pressure will the promotion be the due restaurant first

Jacky Lo

do to take Joey, want and it then elaborate? me you you can

Joey Wat

Yes, please.

Jacky Lo

Yes. Xiaopo, the thanks for questions.

first on sales. the So

several we we will So growth same-store for we also Thursday out, point and yes, expect KFC. to moderate for the the program sales example, Privilege as as Crazy key begin lap initiative, sales

the have second initiatives driven half these our So sales same-store of in growth XXXX.

So lapping these. we'll be

in And half. leverage second way, sales impact so the in the will a we reduce expect

grows, rider in will the of we put believe we also we also, price In chicken year-over-year inflation. have on additional price, so has to margin, chicken increase business mentioned, as wage pressure of And I cost. QX, And it the peaked continue margin. terms the yes, impact as delivery incur also, but

on all costs pressure are the these additional So margin.

continue builds we share. will new also, capture to to accelerate KFC, And market unit for

takes the usually nurture to dilutive because sales until unit margin it new the store and are time - So maturity.

also on some will that margin. KFC So put restaurant pressure

in also, second the we And about Pizza year. we XXX have that half remodels for Hut, do are to of there mentioned the

also restaurant will pressure as as cause margin on Yum well that So also China. line the the for Pizza and top Hut

so inflation we address our we'll work of also, downward volatility mix And of I also with to Yes. look we downward continue suppliers identify price before, and our product we But cost cost to have labor. our have productivity labor at mean, improve just and to like sales. will

Joey Wat

Thank you, Jacky.

the of on very cost business, the one point the maybe because it. small growth part about - For that's a in just of pressure the the delivery exciting

zone is other we year, prices. rider the - second we the rider we the the out the brand multiple it's of Delivery for next - one detailed to half the to the moving are this year, of earlier remember delivery at having trade trade basis. the it are about our look X.X very The is zone. do part growing then standalone time, cost, Delivery from brand a year. And in plan zone probably we time, talk a zone a at trade We'll because work. in one on year, at And

short we the quality, productivity delivery emphasizing and of sales on to how at while long-term delivery, delivery rider look delivery also on-time the business. have and the growth the very clear for trends term So complaint the rate the

So it's than consideration Thank cost Xiaopo. pressure. other just you, a holistic

Operator

of next the line Brian, Brian question so you is comes And from much. open. line Bittner Oppenheimer. your Thank now our from

Mike Tamas

the could and margins about Hi. changed second sort Pizza if of there This quarter. the the I just Tamas was quarter actually first and kind Great, is you talk what for Mike wondering thanks. Brian. between Hut on of

much guys performance similar You was trends, but the had sales margin different.

going address if you some talking to there the does so remodels those. and just like core what you can of out from that just what excluding of kind margins just So pressure happened the that Thanks. trying the and were about, forward, look figure

Jacky Lo

your Yes, Mike, take I'll question.

first and so between QX, question, if we So like QX the the mentioned QX, you remember, actually difference this.

in We the base have before. very low year

So Chinese XXXX, particularly some inefficiency. New during Year we labor have

really was base the why that's So low.

quite And improvement was year-over-year so the significant.

in over lot of half quarter. this last QX percentage-point it a initiatives versus year. in about only recall actually X.X X.X initiate of increase the points labor percentage I improvement And So we also, productivity was second

initiatives these all lapping start in quarter. actually we'll second so the And

continuing activities traffic. to if drive invest to also, you in promotional lot are And a recall, also we

So by such in paper, the value that's drive terms the terms yes, build Pizza discount offset food activities on because campaigns there of and - of continue deflation and the we traffic of Spring as Hut, all impacts and value but promotional propositions. to want in was Wednesday like activities, the of to actually

and as terms labor depreciation in [indiscernible] at but savings impairment. of costs, -- also growing, because inflation we well. also delivery is labor the Pizza And that's I store occupancy less mean so have cost And some Hut rider like increased

in savings have We utilities.

offset the margin of kind pressure this from So inflation.

mind ahead a in lower And in the I very margin speaking, is half typically But through for also, the deliberate traffic the strategy second to half, we think looking first promotional to that keep and I the second continue drive generally have clear activities. think than half.

but will part to our of continue we stabilize sales is we'll cost this and our invest and So and sales, then in of strategy traffic work restore on to profit. revitalization

our operating we - So to for will look continue optimize our menu costs. reduce and and opportunities cost to

Joey on new so menu earlier. So I our of actually well. We touched in will launched March, as optimize some costs menu that a late think this

will impact impact -- value the promotion. So offset of some from the that

in the last to will a year, of so were have for initiatives half. the I impact in Yes. of mentioned, but lot the initiated sure as we that productivity, half diminish But we'll the second second continue because have -

Yes.

also, talked earlier. So this - I about and

in in QX are coming QX. and and We mind, going And keep second actually -- peak half, mostly XXX is season. to -- stores QX in about so our the remodel

So some restaurant also our put and top the would margin. pressure that line on

the Yes. long we in overall, in moving right are is brand direction. term, the confident, like very But the

the back level. the prerevitalization to able restaurant to be restore We are -- we'll margin

Operator

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

Lillian Lou

increased to the to I new XXX XXX. expansion, Jacky. the on store expansion plan and a actually think significantly question I have because you guidance we mentioned Joey unit are Thanks, and quite Hey, accelerating the earlier,

that less increase to compared the but expansion. much CapEx note during -- store the also [indiscernible] was So guidance, I

the smaller of the And where in rationale opening? because to markets? just So new going to majority plan, in understand here the be expansion store lower the are we that's of going tier to actual the store So the formats new the trying see are question. in units terms

then growth same-store And see remodeling. the half may first a also Q sales second mentioned pace in Joey I that's not similar related because growth also, think primarily the to rate rate, And as and Q. also, the and that, second

expansion, format, my for the if new So going sales the it's it's a it store in Thanks. growth smaller as that's Does to well? add the in impact same-store portfolio. question. more also So

Jacky Lo

is this and Joey answer Maybe on can answer sales. on I'll same-store your Jacky. builds question Lillian, question CapEx, your new and then

Yes.

sustainably into I before yes, not openings first mean specific number, strategy. in guidance, reiterate to So store business grow change or store - opportunities to new disciplined respond to agile we development after try I our but me meeting remain driven let just we our return to changing will go our do the chase the is new while And opportunities by requirement. our circumstances.

When those definitely new see opportunities, new our on store by performance. depend store we our business digital And availability openings. also and we'll site opportunities asserting capitalize openings on

more lot we year, until half the So in full earnings the last second finalized the call, and quarter. year of site of have of typically on will not the the second the availability pipeline half after as mentioned a be visibility our I second

and the previously the new to on from for performance anticipate visibility right now, our have guide. year, up we brand to stores pipeline XXX XXX the XXX on also we we based XXX So

keep not & was that mind original guidance. the But in JOY included COFFii in

our including store are in brands coffee we the so target. And openings revised

expect this JOY, So XX least for & COFFii at year. we

will coming team, development open they did stores. sacrificing they to and the will but capability And majority stores, over strong I shown our that standards. KFC. practical last multiple will discipline We but year, be our have very profitability also, without remain incremental from And brands, be actually XXX

of And give in so breakdown. CapEx the let a terms me you questions,

so $XXX first we So and have $XXX for million million we year, expect the $XXX spent to the far full in million about half.

and the store for of XXX XXX also in logistics sites talked including and store technology purchases, refurbishment, new terms XXX breakdown, Hut we investment So the real restaurant selected that the also estate including builds, our example, center, offices. stores Pizza about, to also

the CapEx improved out, more I the as new over store store opened and remodel we think well. lot also And a and of the in we process, successfully opening remodel years, also I And should smaller store have point like we store So efficiency. format. per lowered

also, there a And or factors and timing a lot remodel are lot technology other - for of CapEx real the like numbers all estate. like and projects of

all CapEx that after why guidance move into expect So providing to this, considering we are final that's total now. the we the right

Joey Wat

Thank Lillian, thank you, you. Jacky.

simply to well market will For is we -- KFC, stores, for tier have have huge although the the it's is lower just the stores majority as X in store such more everywhere. But pushing open particularly of the the new Tier that that and from China are the because we still, fact an new lower now cities. city, growth already X, continue so we exciting tier city Tier Tier because to new cities be story in X, X Tier

well. comes and also store costs, also, hand-in-hand, it, And lower in the of quite helps open as smaller opening new well. you're we that are to It's well. not smaller only as for the right think store the operating rate point store top the has the or as idea city out that now to which CapEx lower tier smaller about stores Smaller tier that success city,

sake has what have than for opening, store our other don't sales, mentioned, store we the opening. of of function a new the our also is Because opening Jacky the luxury of

to profitable want we open store. So

success more rate become controlled with aggressive our better a So openings. and sales new CapEx, predictable, store improved more a we with and also bit with then bit is

positive going it's now. right the cycle all So on very

a different to when Hut. Pizza bit KFC Now it between sales the comes question, it's same-store and

The Hut. lost have sales. or as is CapEx Pizza Pizza remodeling, lost of other going than cost to Hut, with the start Jacky the we're me mentioned, same-store actually Let store XXX remodeling, sales the the biggest and

it's But the do. equation. we it right So into have absolutely to thing to put

always the theme the business, of a it's years, the the or painful -- right for two now a bit the doing but very important is about And of fundamental, being. last quite in always Hut something growth bit very Pizza painful for time long-term

So example. the one is remodeling

will the pressure on that sales. So some same-store put

then we our fortunately, way the challenge of few get have we that stores long because a have to last - And - XX% in remodel way. we gone than KFC, more out years, the of have

That's even fantastic. moving or Now we are store to new opening. store more opening new

be But sales then there a simply because, - than the sales more there tier the in is some tier transfer maturing, so will sales transfer. city market higher store lower bit but the is still And be is in city transfer. when again, the lower less. indeed city we will new open And is base the the store, tier

you much, that the Thank is dynamic on the same-store So slightly sales. very Lillian.

Operator

Thank from comes question your next open. of Luo line from Bank Chen, Chen you Lynch. the of so much. And line now Merrill America our is

Chen Luo

we have any is at but look same-store that you doesn't and Hi. growth growth. for year, last there it such because question moderate. as Thank KFC But lap sales of not QX the the trend, to we [indiscernible] you, the in I've high, same-store still readers expansion, understand moderate sales same-store second be QX think on in half. expect fact, high growth, Joey the other reason? if a got Is and Jacky. to We or sales other follow-up that

that are mentioned be half. we productive in going to with the last second Just now year, more and promotions Jacky

balanced half, approach from sales we suggest to margin the take that business? same-store more does growth KFC going between and for are So that second a

but have quarter-to-date is know which social offering the a recently, notice of sales new product, [ph] [indiscernible] on have we trend? on the and we reaped QX of product among And more the lot on impact guidance trend, do trend. not a the the the including attention new pipeline already give of also that the actually in I products the color actually introduced a that are Can company topic lot related the local up you media. quarter-to-date

Joey Wat

want the got Luo just fantastic, I to question. make I Okay. sure line is Chen, so your that not

in same-store the KFC The QX. sales first for question about is

was year sales is And new last we many of -- so of question base Your of the the the product say are growth. media because second not guide why the part question high, is we comments the the attention. the moderate

two I the these are get So Did right? it questions.

Chen Luo

Yes, yes, yes. That's right.

Joey Wat

okay? growth, at we you, a Thank sales at years. the at same-store we One two When sales growth, Chen. look Okay. look time, Luo

is So but it the XXXX, -- XX%. XXXX same-store QX, sales was X%, was

very if base. So it's at last years, high we two the look

that's years the So the number, number. two

bit more half on the that last of us -- we these more kind high further of our marketing that, of innovations. And to push team for and our the growth works because team -- days. to push second that from challenges the that's X% give the of year, a base, top well, way And

and et cross-sell, and with to the amount result the cetera, good as and extra of -- customer and Crazy cetera, one to -- the this and push, the thus, innovative et on came then we and can for the that value such with sell challenges Thursday And Crazy we fantastic, out or Scream for food focused to year. programs day Wednesday bringing food really QX all of So some value the amazing was Hut, Thursday Pizza amount the KFC.

very is shareholders. the QX and lap to we sharing with actually challenging, years this for are last thus, year particular So our two

QSR, it about restaurant food, very good KFC to not good the a just good not to fusion When get very you coffee, good sell it's platform wrong wonderful It's food. fantastic new it's well. as only drink, good comes delivery. nothing breakfast, good that exciting. is products, only There's food about

products about that Language] very talked that's famous Language] dish very is double called in For the I a Chinese, same head. as comes that, such bit It's QX, familiar fish chicken, popular, chicken, chili chili really which that fantastic the was [Foreign flavor into we the but [indiscernible]. [Foreign double course, very, a from of little and put

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give can But of can't. little I So unfortunately, a example. I bit

chicken, example, second chicken, very the bit For cream, specific. the new of other exciting we right? the always just for peach is ice have than half we flavor year, a launched the theme. exciting That Okayama But that's

So chicken. the for the and next -- second half, exciting then similar ice cream

And the line well. then burger, as burger continue we'll

we'll customer the LTO a you a consolidate track customer is learning. make because what the quite different. once of sure theme, -- we the along you've do what we exciting And predictable, variation. something it's quite theme, year, is and the and the this successful for yet then the half this So know good offer more we first that have pursue And got we lot similar of of is to very and can for this wants, sort predictable and

basically, underlying. an egg the beef burger salted the yolk is premium burger So shrimp and launched burger, We burger. import

we XX. high are We never very have get permanent might burger sold high continue popular, we're price continue. it then what, RMB to such menu. it continue, guess they So a XX going And that and are sold on the price. LTO, these RMB our at price, will burger to very chance but is at

Similar doing for already the product the amazing job. of coming. if have we pipeline And idea our -- plan months plan, Hut for lot don't coming. Pizza given have Hut, are we have because the is pipeline the of a typically scale XX but a good business, in not Pizza So we

this Hut we selling advertise, Pizza are snow Just crab fantastic. week, to Canadian pizza,

very So when excited. product, talk I I get got about to

Chen. thanks, So Luo

Operator

Sara from And from your is next much. line our comes the now of Bernstein. line question Thank Senatore you open. so Sara,

Sara Senatore

delivery question sales. you. Thank got about a I

delivery I KFC, be a I you your for pointed quarters, but quarters as in now. couple been a mid-XX% six of headwind [indiscernible] teens. last margins, times Pizza stabilizing it of sales for for it just the at look the at seems high and think a couple in stable to Hut the if to mix, pretty they've

mix So there seeing I in that guess is seen be Because I'm perhaps conversely, trying quarters. a to is Thanks. understand you we margin quite what aren't a gives your recent you that towards shift confidence guidance that driver. conservative? it will potential delivery rapid and the had continue And then sales to grow

Joey Wat

Okay.

Jacky is the me Let very about talk exciting talk about the business. sales can margins. part and delivery of sales the The

and KFC Pizza first So then Hut.

a US$X have is be year. So the standalone very if we learning standalone KFC exciting And now, probably right growing likely is let's KFC more actually, revenue, business. by It's say business, year, delivery very, billion of business half delivery the $X if a billion end about for a nicely. first to the revenue, of it's with the deliveries

Not the channel growth only is own the than growing faster aggregator.

our driving the channel traffic channel own -- over very actually is our own because XX%, the exciting business through et we cetera. ATT, own our and that's from KFC, already the So are self

the of database the On dessert, powerful coffee top that, particular night or when very digital the it late with we combine delivery. we these when about knowledge of breakfast, growth even look at becomes category

emerging, So to daypart. we new growing or of drive daypart. can use new growth like these the category new, Not delivery

coffee the we delivery. breakfast when at business the we and this we the membership, we combine and of subscription digital combine delivery, bit our look NPL business, when So year, sell

really Therefore, also as -- nicely, our delivery only it's foreseeable in not to is KFC, other fantastic, continue well. part it daypart will the growing of a business. be it growing and for a sales important very be the but it's future, So will very

building trade our something this building fundamental underneath of blocks, of et growth, management, the blocks all our cetera. with with cetera, et have zones, our called And course, fundamental that's riders, the

explains the business. also the blocks by building now, of Pizza year, that delivery. last still growth are Hut, difference because the on only of Pizza And late right of Pizza back delivery last-mile we we took So Hut, working the Hut

but KFC capability. bit core capability, delivery the a core bit late, -- behind it's not So it's a the

on Pizza Hut, but absolutely nicely. the we're short painful term, very we to it's understand it's right fundamentals, do. the in thing it's But So working and growing the still

growth And X% the Pizza much the X% now is like to again, growing our but Hut before. the was The of XX% from still growth to XX%. the before, it's than faster more from own quarter percentage own aggregators. It's channel sales channel compared

Hut Pizza of margins. So terms both we're in happy the well the on as with delivery progress

Jacky Lo

well, Okay. Thank revenue fast, you, it's profit mentioned, driver generates for first of because on growing delivery at this incremental it's as growth Joey. your impacts all, on business, actually Joey and Sara, question on our it and a key so margin, point.

be about long-term a business, delivery assets will future look of perspective, And And the the from for offline a the of so talk at we trend always online our combination like and growth as industry. we it system. restaurant

they a a if are you inseparable business. separately, dining so in way, the and But cost the of at from there perspective, dining, business segments So delivery look delivery same so X and fee -- margins costs, for additional offset overall, that. costs, dine-in. are But rider versus like also delivery. are a But packaging slightly incremental these receive the it's delivery we dilutive to to still

look rider -- we efficiency the but to at So costs. lower and initiatives improve

Dispatch we X.X system. example, out for roll So the

also test are delivery towards brands. maybe right zone-based year, testing we of the in certain cities. the across end we'll So now sharing trade the multiple And the delivery

and this margin dilutive to cost But the the still business. on slightly naturally delivery to are way margin. all lower point, at So efficiency improve these the is

Operator

line Thank your from line open. from Christine, of UBS. you so Christine comes much. And is the our Peng now last question

Christine Peng

question very quick have regarding Hut. just I management. Hi, Pizza

Pizza mentioned go to So you profitability expecting that are Jacky Hut prerevitalization earlier the level. back to

So just XXXX? been get Hut previous table back of the profitability. clear given should expect year idea the for this Thank to two turnaround XXXX a has you, for happening of so Pizza we or for got to management. profitability to we quarters, for go Pizza as Hut time the kind the to want I

Jacky Lo

I time well. step-by-step for really actually never Investor a we as it. we put a on on We it's touched Christine, the this Pizza revitalization during Yes, about mean process talk the table Hut. Day of

sales, then the last step drive So traffic profit. we'll and the is stabilizing and will be step first

year, the margin, the some that's earlier. year-over-year of a increase half headwinds first in the already of about in the talked So I but

remodeling. we have this all So

we of lapping the second So half. initiatives are labor in lot a

focus, the at still this year invest drive least So traffic for right year, value to in and now, will and propositions next sales.

for focus immediate the brand. the that's So

Florence Lip

forward look today. right. We Thank you and for very very with to joining today's a call everyone, Have that the call. day. you speaking All Thank great Thank you you, concludes much. thank you. again, much. Operator,

Joey Wat

all. you, Thank

Jacky Lo

you. Thank

Operator

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

disconnect. all Speakers, stand please may You by.

Yum China (YUMC) 31 Jul 192019 Q2 Earnings call transcript