YUMC - Earnings call transcript Q3 2019 | Yum China Holdings, Inc.

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to Yum China 2019 Third Quarter Earnings Conference Call. [Operator Instructions]. I must advise you that this conference is being recorded.

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

Florence Lip

Hello, China's Raq. thank for you Thank Quarter everyone, XXXX Yum Third Earnings joining you, and Conference Call.

today's and CFO Joining of on call Joey Ms. us Wat, Yum China; the Mr. of Yeung, Andy 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 forward-looking filings in statements may cautionary forward-looking with conjunction differ our from release risk be actual the in Our All considered in and factors earnings statement statements. included the with

This non-GAAP will measures. call include certain financial

Andy should call cover before results provides comparable includes You cover the GAAP an Today's First, Joey our strategic update sections: reconciliation and Joey will thereto. quarter the priorities. will consider four third Yum financial measures carefully China's on and highlights, XXXX

call open We the will to questions. then

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

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

Joey Wat

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

Let's overview. start the with

with performance operating growth and the continued are profit our third robust quarter. We in pleased strong

and business. build market-leading to whole and digital on the We continue area innovation, our our position further in our competitive China strengthen of in the advantages delivery of across

quarter. the from highlights some share me Let

positive same-store at delivered quarter growth growth consecutive of spinoff XXth sales First, with our KFC sales Hut. we and system both Pizza since

of by attractive expand hit XXX performance our XXXX. KFC, portfolio new opportunities target to store track good for in many Second, across our our the particular we driven of is are the China. to high brands, to of end and on This XXX the

sales on innovate operational launching fronts. and technology to efficiency. drive to exciting new continue includes products and leveraging we This Third, multiple

sales, members' delivery We our see KPIs, sales. continue Privilege contribution including total growth and strong orders, digital digital to members, in subscriptions

our at companies, new like joined CFO. Yeung, experience, formally York his CFO wealth New also of finance a who Hong given his last Store would Andy welcome specifically to best him other to relocates I to he family. to has back a wish closer several including Andy Exchange-listed as as be want brings all technology thank over company. as recently Kong I leadership the serving tenure Jacky years the to and for

that, third quarter With you the to like I would through walk performance.

start delivery key our success. a we me are our be have digital component on a delivery of crucial in most progress with the our capabilities made market is the vision: world's of Maintaining and as front restaurant driver and digital to leadership Let our company. they innovative the

leverage drive continue to our digital customer operational sales, experience improve and powerful ecosystem to increase We the efficiency.

success have over of and in offered. to half account our the last by embrace as of for our is customers year million XXX memberships. our the The Hut grown large Digital growing bedrock digital to grow convenience KFC together our orders members, continue Pizza materially and digital X/X they sales. and

encouraging the Delivery several aiming and Our and at results. categories. we of steak with very you these drive offers, are membership quarter. program sold with, than including coffee Privilege updated million the popular subscriptions KFC X Privilege Privilege launched during at be stickiness Other adoption All that attractive Pizza to an familiar are Hut, program Privilege over continued new to showing

of by channels own via accounts that with sales, Delivery than growing our grow sales and for continues faster XX% to aggregators. now

recently dispatch rebuild our drive efficiency upgraded performance ongoing We and in-house a of and the continue of our optimization capabilities. system delivery Pizza to improved with Hut

example, our supply improving leveraged of monitoring also labor chain operational for the initiatives, to delivery addition technology our productivity. efficiency, and and digital and improve In real-time have our we to management

currency another reported our profit growth of me KFC. operating constant delivered XX% KFC let system and growth and expansion the activities, despite the we through same-store of strong sales sales the the performance of in a slightly intensity We cost of with Now productivity. moderated is result in chicken XXXX. margin growth sales quarter; walk promotional which brands, and of the X%. highlighted lowering strong XX% last of compared management labor key quarter with of improvement first to half starting of increase; This

about innovation. menu detail with some provide our me starting Let these initiatives,

Down we products launched For always menu, for and To this chicken in new customer our our China. innovation Yum! focus. of burger We we The example price protein internationally wishes leverage a exceeding a during an vegetarian is Brands product point first capabilities. popular our the to launch offered KFC LTOs has by that boneless quarter. several improved were meeting portobello and exciting showcasing burger, burger premium and burger, been able Double mushroom end, launched

a late-night we for from Skewers XX Spicy of in Sichuan-flavored expanding particularly food [Foreign Language], we Aside cities, gradually burgers, stew launched pots, new is dining. exciting the coverage. trial popular an street Spicy and are Skewers and

Lastly, we exciting key our categories with memberships. cross-selling enabled our breakfast, products captured coffee by dessert growth and drove sales of opportunities digital strong and in new

our driving during incremental than subscription profit. We members the more have operating period, witnessed Privilege double spending their

coffee our example, digital months of full for exceeding sold in year, the the million have marketing driven been sold XX For and cups coffee by has the first initiatives, primarily XXXX. we year total of nine

to continue promotions, smart to respect focus we on value. With

continued to successful promotion, year's Thursday, Our grow campaign. value sales signature results above the last Crazy from

to average and we adjust we increase offer, improve were ticket able margin. As our

peak management recent of with in cost some due to products an to demand impact particular, in planning was optimizing me in chicken spend labor job the This This management. capabilities strong to particularly approach non-chicken one, and mix on and the labor, focusing excellent year-on-year team scale options. allow seasonal during describing The the through commodity of managing done the used has our new from and a season. prices. the the two, labor On relationships leveraging tools summer of: introduction our increase we of Next, diversifying time peak our from on for has the inflation, menu negotiate long-term careful and suppliers a gains chicken away innovation increases; automated were summer combination lower-than-market chicken achieved menu tools. of optimizing quarter. through during real-time effective drove new These starting to productivity management been

to control, strategically elevated store the menu lowered promotion during sales and quarter, by drove conclude, delivery our from pressure our ongoing Despite chicken To and diligent digital intensity we innovation, new the our through our double-digit initiatives system and prices, cost growth. enabled model growth openings. adapt and This effectively The to quarter. to we labor resilient profit improved and productivity, of outlined short-term highlight our market allowed ability changing in business China. the last excellent scale strategy drive us execution a successful conditions operating was results

unchanged. strategy KFC long-term Our remains for

serve We continue focus our innovate evolving maintaining to across a strict business customers' the and open efficiency. stores to demands on while across China

Next, progress I'll and the provide driving near-term being quarter with growth color program We fourth to same-store and some traffic quarter sales. dine-in sales significant traffic consecutive cement in in Hut's a led of consecutive growth its of on traffic. priorities third achieved revitalization Pizza Pizza Hut made performance. continues increase on our by

quarter. impacted brand in in Our our third the the profit revitalizing operating has crucial investment

for and However, the we is achieve are believe we our things the on objectives. are right required flexibility the term Short-term long the to long-term successful brand. focused revitalization of doing

menu, fixing Let's fundamentals, the talk promotions, about starting pillars service our our right. and which the four getting is operations about of program, with really revitalization

offers via introduced promotions, appetizer promotions like Wednesday directly additional customers to Scream signature desserts. we were our items digital memberships. Various For new on targeted and our our

results. We consumer good and response, survey consumer have seen both sales in

was Chinese-style this platter during various chili We of about of and steak over such you million double products new of to growth seafood past XX% Steak scale, pizza. year-over-year also give XX as to launched account XX servings strong sales. important up months. To amounts of double-digit idea remains an category. steak the Sales an for chicken

our Turning to digital. pillar, second

we In of at addition Super see opportunity. the this carryout test I beginning efficient, great our from our the of call, function mentioned dining the on and national promoting launched App to off-premise achievements potential the

strengthened delivery of been and delivery our growth powered This as successful our third we -- digital our by Delivery, to has has to dedicated CRM promotions. rebuild driven sales. channels, grew pillar, XX% in-house thanks been Overall, our own infrastructure. our by channel operations program

and our are we store portfolio, through pillar, accelerated our formats. multiple asset remodels Lastly, enhancing fourth

XXX the first to You beautiful Slide of presentation. remodeled XX We compared third the on the in quarter, pace can stores stores see half. our in increase significant a

will We XXX the above the pace accelerate aggressively the for fourth in continue to target to quarter complete year. full and

Together, a pillars four on business. positive having impact these the very are

focus these the maintain drive of pillars traffic, on four Moving profitability. we and sales to then will then long-term forward, restoration

continue our while to We along revitalization as quarterly the invest anticipating and appropriately adjust way as continue the fluctuations cementing changes matures. will we positive

restaurant which chain a franchise-operated. hotpot. on Huang XXX August controlling in announced has interest Huang pot, in Ji a Ji acquire are [Foreign agreement subcategory Finally, to we almost Huang, restaurants, simmer an of all of Huang over Language], focusing

We once conditions. currently will of the deal subject satisfaction completed, closing provide to details expected in additional early is the XXXX,

hand the Andy. that, CFO, With over the first to our call I'll new for time,

Andy Yeung

Thank have coming day, I Yum you excited us joining very China forward today. months. you, joined everyone for everyone. the Good with to in Joey. look Thank to recently. I'm meeting

to total system revenues attention X% new results. year-over-year, financial We and stores the excluding driven up was the FX, openings. sales growth of increasing excluding our restaurants quarter quarter of exchange year-over-year, X% translation. during XXX portfolio to third X,XXX sales our Total the grew billion the of September. quarter, by turn Total of XXXX, as third us end foreign let same-store new $X.X opened store Now X% in

track target, for to XXX and is to our have XXX end We which the store on opened year-to-date XXX high are XXXX. of new restaurants hit openings

and average. lower KFC increase year-over-year of promotion. X% a primarily pricing. was to few year-over-year value promotional ticket share increased X% Traffic due driven due by same-store This grew to sales X% activity delivery, in decreased increased

slightly was Traffic which driven Pizza same-store and quarter dine-in for remaining while year. third same to to year-over-year, increased Hut period margin both the Wage year-over-year in compared ticket its up sales increased of average. promotional the delivery. commodity also was year-over-year, X% drove inflation X%, activity XX.X%, This inflation X%. achieved last period consecutive China year. decrease X% by largely Yum compared restaurant growth last X% same Overall, positive a was was of

low We inflation commodity for be XXXX. digits to to continue single overall expect

sales and year-over-year increased more this promotions X.X% than was XX.X%. management sales than margin inflation labor driven the peak productivity commodity of critical excellent from margin to inflation. core It intensity Combined, leverage, pressure season. lower during of offset by wage summer and restaurant KFC

commodity during also benefited adjustment margin margins quarter the from added Hut pressure that Pizza XX.X%, down to The in approximately primarily higher inflation. during the leverage to remodels; savings ongoing Partially traffic; third two, margin. acceleration and quarter. was costs due the onetime Finally, drive product the these is our year-over-year. we promotional margin offerings. to: activities as to one, in related was This optimize scale three, our a X.X% wage factors rebate offsetting of investment X.X% and tariff were

lap that seen to XXXX. some labor year-over-year half of initiatives the began productivity, during first the half we implemented were second savings successful However, XXXX, as The of in very significant in are year-to-date, to not net-net, But in the above the strong Pizza being given a investments quarter. revitalize Hut the year's repeated brand. achievement were made levels, third margins slightly last long-term still

year-over-year X% up X% ex expense and G&A FX. year-to-date, was

the quarter Yum benefited for in them increased this quarter we in from year. third the due XX% year-over-year. received in to profit incentive, operating third China XXXX quarter some third last higher fourth year the The part but of incentives government received quarter

our foreign dollar, Now total U.S. during million due RMB the to of exchange impacted operating translation profit the quarter. by depreciation X% $X negatively or against

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

tax higher Our period X.X% XX.X%, due was higher accrued residual same the primarily during to quarter rate U.S. the last year, tax. third effective than

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

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

Next, let me cover capital allocation.

of returned repurchase we million quarter, was free third end flow In to we under subtracting than million operating first the generated cash a there cash the shareholders, of In billion months and of $XXX Our the strong $XX XXXX, cash September, nine million. million expenditures. and more remaining the share capital share flow around dividend $XXX generation million $X continued after including quarter. authorization. roughly repurchase the million in $XXX $XXX flow of $XX in At cash net

review to Board Our and with dividend in share, our $X.XX quarterly. continue at remains policy conjunction will per we dividend the

builds. We will for for to the growth strong continue invest given return new

end XXXX of expect CapEx However, range, our translation. to of expected come for the $XXX CapEx, with and million including tremendous optimizing currency year in effort at impact new the in low store we to $XXX remodel now full million

our outlook would turn fourth XXXX. quarter of I for the to Now

all some to sales areas half of sales step continue across some XXXX. brands, our to only this started for brands, various including remodels, we will XXXX. comparisons note drive are is that we quarter also tough focus seasonally very back-end important the the lapping we second sales While but loaded successful fourth is Also, that important to we our in began in lowest It long-term will of for up ensure for biggest of quarter vitality not be as on remodeling facing investments quarter which a in the us store year. the initiative

impact on for investments in operating changes quarter. profit operating small So results or have the significant a can percentage

first the there Thursday. of this are of in our the very strategic fourth sales result in fourth quarter. are in expected and in promotional decrease successful to quarter protect and margin initiative of lapping sales Turning implemented for specifics quarter KFC, Hut. At a including growth initiatives the some to full XXXX, Crazy of intensity to moderation The successful KFC Pizza

the prices. year-over-year. This from We but manage in continued in elevated success. chicken impact sales expected relentless term increase our margin will an for continue remodels Also, investment will effort long-term are and our it's to investment to important pressure margins short

in productivity tariff benefits forward to not several the in particular, the in Finally, into the increase significant onetime year-over-year expected rebate quarter, quarter. third carry fourth and are labor

we'd brand expect as fluctuation encouraged this initiatives Hut, driving Pizza at scale. roll progress But quarterly revitalization our by At program. via very our are we We'll be out value the of promotions. we

in important long-term Again, remodeling but the these fourth brand. full ramp the our approximately our addition, will completed revitalization of of restaurant the will margins term year initiatives short are and program half In the up with in to our impact quarter. sales components program of be

Joey? me call Joey hand comment the to priorities. let on our Now back to current strategic

Joey Wat

we take Thank at key drive today a growth. that call I Thank short, of overall to to focusing a priorities. the on are wanted Andy. strategic areas of you, long-term the you. our few highlight number our end will In minutes

expanding near have remodels Hut. XXXX. we compared core term, quarter. fourth busy in First, to we the In and brands, Andy will we on in at a the focus of very KFC and both In as XXXX, open investment expect Pizza a to builds terms our pace program mentioned, new stores similar

key we will opportunities, growth in Second, to brands. our continue including smaller invest

increasing We the believe brands. realize in would our investment take fully hard opportunity it China, bright portfolio. expect accelerate additional the in in our but our diversified to presence a store openings coffee of within to investment our smaller category. We In work particular, patience, segment and coffee has we'll this be future expanding

to vigilant our digital increase Fourth, Third, industry-leading driving we and in and our costs capabilities. will leverage efficiencies will and we be investment technology protect controlling on margins.

XXXX year for shortage, will inflation. due we anticipate given being across That another pork be commodity said, the current supply protein the pressures to challenging

these that's for our particularly on prudent passed Pizza Hut. the customers, will of to be We portion costs on

on in our will to build made continue value-for-money recent perception. We gains

release We QX details with provide XXXX. will early on targets additional our in XXXX specific earnings

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

Florence Lip

Joey. Thanks,

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

Operator

from our [Operator question the Instructions]. Goldman line first comes of Cheng Michelle Sachs. And from

Michelle Cheng

we And high-potent and we'll you coffee about deliver can year-to-date? you can you color results, a have increase And us we visibility quarter the on Congrats and at margin with give for can how quarter's probably some the especially cost about still believe trend improvement. given margin product But look strong share next also a the third inflation such for It's we I should competitive efficiency, innovation cost such into have first chicken in cost idea good strong very us? some KFC. the the have some market, trend, or please KFC? year

Andy Yeung

Okay. is Andy. I this take will question. This

quarter X% the the X% for half regarding in year. So it was think price this overall inflation, third and about us I first commodity in

to again, single low year, at digits. expect full we that For be

swine by prices, this year, commodity African to hard China and so it's likely in the continue. to I volatile year. we've going price XX% to in that forward. prices up through almost know, far as as protein increase think driven are year-over-year going all Chicken flu, we this XX% The in significant seen predict is China

have supply below we we year. because strong XX% managed very fact, that that. us, For have And management, and chain probably manage so procurement able that to this significantly are below in we

very I it's because reached predict year-over-year. a prices, XX%-plus almost of hard at September, new prices, commodity in terms if to it example, spot record, you for think In again, up look

guys with monitor the But mitigating want our also to you through innovation and then non-chicken to So our mention creating relationship, done leveraging several have chain team inflation we'll elevated continue of in protein I have initiatives, situation the chickens our long-term job I give product chicken And team that price choices. update. supply amazing again, our also think scale and an and suppliers. impact an partnership our products using tremendous

have to So pretty been able we well that this commodity manage year. price

if all about the so this, impact think the with significant. will effort, be you And more

So cost XX% increased by it of year. of chicken sales, XX% about to is X% and this our have

kind mean to to X.X% just margin. our alone X.X% about normally our impact sales So haven't overall increase. margins commodity chicken and our on that XX% of we Obviously, like and impact from seen inflation that on would X%

be team that pressure to good our well. a So do managing continue in hopefully, will as able to Joey? job

Joey Wat

we of the to becoming to innovative in comments, most vision add One committed two Michelle. Sure. restaurant the just world. company are want is our I excited and

it vision this even we this in be. more the facing serious challenge take in price -- So otherwise than chicken would of hike, certainly

alone, the the meat replaced entire cheese mushroom middle. the portobello mushroom which portobello really like with some So piece for the have products we with burger, of exciting is new we in QX

the have wrap we -- instead have, that duck. duck traditionally than we other wrap the We of chicken have

chicken wings. combo, our to in introduce replace also, to chicken We strips start

although is still Chinese lower. but is strip, the essentially the breast not strip popular chicken, chicken price which customer, So the which meat on very cost among is chicken of

point because is product is innovation to next will we group the for exciting. even a our of rest love lot there not So Language], the very group, tip going the but continue just can [Foreign sell there's a selling We it's which of forward a the last year. get And think for the group, and not that of year wing, still chicken which could are of people who something small it. we you a huge of but

point one. that's So

in two can Point we let's good line, but drive of push the to commitment with food. our is our at structure, almost see the leave to we cost Because say If our to and cost improvement of look We effectiveness we sales. Why? commitment. everything. it's in Hut, management flexibility Pizza efficiency ourselves every cost would

all our However, commitment serve we have better customers. the these to to pass food, savings,

to are but us Even always there in of though and you, sales. drive business, but product customer. have that food good terms we a we traffic is flexibility sincerity, And the increase big have to we a the we must sincerity good And thus, and commitment. we good have Thank Michelle. have need the of investment, to

Andy Yeung

Yes.

answer the -- for KFC. I of question, I think think same answer the question, which the margin is part trend I'll the about sorry, some I'll

some store for in a in KFC, rebate, gained I we And that Joey our before, our things, may some at as tariff a successful we of our quarter, traditionally We also as of us. an X.X%. not as margin will you the summer margins. productivity accelerate to benefit onetime prominent the lot if in couple then which on benefited And quarter, from quarter that to peak remodeling, look a and which smaller productivity, very One -- also of of going especially mentioned, a think season think, and also, the mentioned sales season. rollout and be is fourth not improvement, including items, by the also, so it peak our a have that is impact benefited, I right? fourth impacted we're

also in So full have think if Thursday successful look right? I you overall, initiative, rolled out quarter be we'll some that lapping sales, XXXX. at KFC, for also the first of very the We Crazy

a be will that. that lapping comparison tough So

quarter, and So expected we all think it the I and will the in the all, think great margin I more fourth I have better done a quarter. job have normalize probably trend, we than in think in third

Operator

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

Chen Luo

I've got a question on the sales.

we also intensity fourth a that we we highlight growth expect going slowdown of up balanced Just again back same-store QX? between margins that going see sales we growth. the have growth? sales to to we compared we of front if will are or, to to and Are sales now, QX, quarter. Andy continue Any about same-store with on in sales going we talking balance growth. of growth promotional that And Are achieve tough moderation promotion this mentioned But necessary, actually a purposely scaled with the to in be forward, strategy sales going very step are color helpful. same-store same-store laps sustain

Andy Yeung

Chen. you, Thank

So if to third yes, strategic so margin quarter, management partially right. activities. the of due the Like improved at promotional look the you KFC at you're

versus the market between our margins So balancing to look will and protecting to again, respond I appropriately. continue think promotional team at activity

do some so that quarter in likely expect KFC. in but the we active And fourth for activities -- promotional is

answers that So hope your question.

Chen Luo

Yes.

Okay.

Joey Wat

first mentioned a the Crazy given pressure protect well. just as quarter challenge now. remind of the our at Andy the and year lapping just was best that have ways result, looking But bit And look last also in is for very for time, cost as will QX. four think of KFC we that ourselves full QX, earlier have Thursday, of strong. to That's the strong QX that our few at times which with this quarter mentioned we same we a margin particularly the I already, one to for naturally, we year promotions

market our and Yum very is is still not growing still scale only of we The is the for the opportunity business, exciting third the there. point fast, criteria Despite same-store very are China. really

good we have balance be same-store sales doing not for growth. not our fair will good of shareholders We something system and and a do if sales

QX, KFC, at the business which look sales scale system is sales fantastic the X%, for but is we if same-store of is the our So XX%, given already.

sales, as is very quarter in while mentioned, Andy So build to this stores. for leadership a we must QX, us also are big to this same-store our we going -- the business. And driving dominant our maintain pace we new keep market

management balanced So therefore, see can you consideration view team's point of QX. towards from the a Thank you, Chen.

Operator

And from your the of Xiaopo next line comes Citigroup. question Wei from

Xiaopo Wei

the are by forward looking previous a stores that than that KFC margin store new Andy, you question restaurant we regarding we say very will have that the basis seeing is I'm one the the Because you I Because mentioned, year? you actually line less looking basis in of on than be improvement actually, say margin. are looking new release quarter. new on driven drag the on seeing top as store same are store. opening is your opening better opening last a years? opening like-for-like impressive rather we the that welcome to the like-for-like shall more company. more in actually for the Shall trend and, seeing a restaurant new third we than accelerate much the Interestingly, forward,

much we operation? as the than of by margin new normal will say feared be is better as it shall pressure we that previous your the years, store, If not margin restaurant

Joey Wat

Thank you, Xiaopo.

this Let me question. take

I is reasons QX. some a labor Andy that not and earlier, margin, is aggressive we For rebate, few more there last go there are have that as One, during work some stores. of from the year, in QX. there tariff impressive importantly, it This the the a one-offs, mentioned the productivity big, contributing actually, to are and a factors. like Usually, the by year. moved result are very And very QX But hard it's number And QX behind. down government does incentive management happening like all cost was number it. that restaurant itself. gain mean behind

work So automated system restaurant labor our scheduling place. productivity and the hard thus behind all-store the margin real-time the new is labor in

of now, pocket. real managers manager KFC, in particularly time, right it's in labor my their is for detail, So in it operational the [Foreign scheduling, the all the call phone, store your we Language], data for

then so the the our immediately. and very, So was transparency quarter. managers is QX, a store benefit that the is this a very, of gives it of react and very tool to also particular our very they mentioned important. significant. And labor it's automation can very trading thus, data that the And And is QX scheduling, good which less is Andy the in peak proven replicate for our QX because likely season benefit in very such right, summer, earlier small respond

impressive. cost, a spend we there lot more slightly saving labor So of money the on and is

we do a Each the openings. all So new is approve stores, -- single new process have very robust to really China, only a But margin bottom-up approach. decision a store, any we open all store our restaurant is improvement the opening have to store, Yum the one result of the store margin in not it.

Xiaopo. store mature, well. bit new then you, when expecting as it However, from benefit Thank more we a the are

Operator

question from line Li Jefferies. Anne next comes your of from And the

Anne Li

I question. have a

always and promotion. Regarding Wednesday is Scream only but Pizza noticed have it quarter. We Wednesday Pizza Scream not third Hut of Hut, Monday, also in that the for the weeks Tuesday some

see margin bit So like expectation? X% up like that more also And sales a is little we to same-store volatile. management's

will -- the missing? four we what pillars, restructuring still like trends? with is like for ASP more can it think in Hut? little in be the want your you one which to one Pizza If current a bit not, the highlight you what happy that more Hut, understand -- But terms of do Pizza Are what you about? that. that are Is think I

from maybe -- sales a question. And follow-up just question one

although it quarter, Regarding quarter year -- that might quarter in labor it's the third the efficiency. that again come regarding in gains not happens next and it this a you to -- first the third and about the one-off impressive costs high Is it say one-off be because one fair mentioned season? will in back efficiency XQ

Joey Wat

a quite questions are here. There you, few Thank Anne.

Let me big picture. try with start to the

happy consecutive sales the since time also For growth traffic year, Pizza third XXXX. then fourth and is then growth, achieved with Hut, are margin the XX.X%. And we of same-store we quarter the first the of year-to-date quarter last versus very XX.X% actually which is

So in efforts -- quarterly with going we all the happy are seasonal the trend. fluctuation, the very with good despite overall the despite

sales. as the line the pillars the ASP with are comes it four growth, sales and happy bit expectation? all could. all And my that when with, in same-store But So our always we more want familiar same-store it are to thoughts mean? We of if business good a positive we when is in with for are we terms term does that down. One It are rebuilding or What are value ASP which our ticket it's business. critical for long is going for that absolutely when money, is the means average we even very the the we traffic, driving in is follows.

for trade-off dine-in impressive. our business, and So is is the result obvious, the very

XX% increasing good. and down then X%. wanted. That's TC are We go what TA That's we

else four answer But continue along we do. the pillars, terms focus will is all pillars as pillars. The four question what well. to guess drive the In can slightly of we is I four shift

focus on move we'll we that belt, the on. under something to the can get we thing next As

fundamentals. Let the me give you an example,

about talking the We the cetera. for the menu, layout, money, et value product, are

this are The versus us XX good, for effort. What's -- year. in we was we in that's the of and March, fundamentals rest good. it very changes used And one because managed year, new Hut's two That these very menu before. items is have And a massive there all different? are the menus carried back new in difference that menu, history, So menu are to is happy the the XXX Pizza and introduced continues amount the different we we through that only and past, whole through year. of to menu that this that do

Now What will menu cake do? to else cake, video what the It pleasing focus control requirements So any very -- can menu? needs move down. we're be Well, something happy under delivery work we lava the very for online, flow are for need do to menu the menu now nice, put we're that we about on different. and The dine-in to delivery going the fixing because delivery. dine-in the doesn't you our to very, got the about. the

to some business. help us that the come out the faster the kitchen keep from better, much So can that we drive move much heat, need items delivery can menu to temperature the

let continue So XXXX, digital. also then the out still ordering, we cetera, it. App virtual trying -- and launched we're highlight Digital, we and style Super the me et roll to taste

early stage, So as on it's rolled Super because does what in is ordering not this delivery the just The store, carryout it fantastic cost space we digit, carryout now, either. Well, is App take our out require right but is it ordering, single does still year? still well. the new not and

to push, delivery. the need we we now and push need right it, we started and then to So and it get

rebuilt. and of took menu, The about massive and delivery I work amount infrastructure to of talked and okay? the last-mile the back end we infrastructure, the at year, last effort we spent is the rebuild have

detailed management very have to to go a of trade Now the we zone.

one zone customer complaints. to make and trade going through the delivery we try country to it reduce the at in better the where entire business have time are a We

is the It we No, only business are business And are at does from of XX%. XX% scale. because now coverage offer make that business make right there realized stores of delivery why? Why? XX% suboptimal that quality. reduced see our it So So stores that the you delivery even sense instead to doesn't some And XX%. can doing delivery sense. actually

still them. we combine few we sales, enough, So the quality but the a customer. the to stores the and cost close improve are keep improve we that We

said, because months, the the for of these done remodels half it's for low Andy mentioned. rest QX, do still in few as have XXX have to we season. of as year We remodeling So

can to roll of next Investor model. to And So hub-and-spoke, bigger work we them, to we're the out have now it the harder in year. Day test, year. hub-and-spoke going course, we we it and fine-tune in we mentioned XX continue of year, prepare for and next this then then And hopefully, to scale the

the to changes. all So which the fantastic, same-store achieving we the as is business X positive year, mentioned when that at we years X mentioned turned take to to sales, going of corner the another I beginning cement this is also of but

seen we is of have the your question productivity in in so for labor The particular, result last year. the bit this KFC for good QX

the New season our is earlier, we year Year our another lesson through Year trial real-time every dynamic first Chinese single where would different will QX going the battle with to a scheduling. a go season, trading It's be be -- providing learned our We're Next is Chinese the fast. And QX, because different Year peak and we And will big Chinese with you to try the -- actually New the completely starting automated is peak this New a because it's like the is certainly experience, for very is QX dynamic. QX best. us. although

Andy Yeung

would more add little bit I to a that. Well,

like automated, normally, the improvement the is during the we crew. that's look this temporary lower. to peak labor improvement a at labor larger think productivity see in you So in I scheduling you productivities. because But have almost near-time, book, labor able And significant labor see summer season, tool, generally, if that summer season, the we're because with of

Now we different. season to for year. the summer continue But be productivities throughout the labor, this supply expect peak the to in is lowest-hanging improving in more are demand obviously, fruit that and helpful where labor tool

So addressed question. your hopefully, that

Operator

Stanley. And line your from the next from comes of Lillian question Lou Morgan

Lillian Lou

I a think I a follow-up lot of questions question. were have answered.

a Pizza so on good very far, think trend. I Hut is

a need metric this is very at positive we traffic important mentioned, Joey to As follow stage. that

focus, terms challenge to KFC of between most XXXX, biggest over balancing and terms give in the guidance, know Pizza I of it's and Hut strategic but in still So those what's two, early rolling Pizza KFC XXXX exact for Hut? in to

Joey Wat

thank Lillian, thoughts, you. my share me Let

And now a guidance look XXXX, right very, more was we QX. the was it price give productivity. I strong, as in very, will labor store QX, target for chicken opening, think like the -- year because continue at the very price, X% plus it it phenomenal, bit that For But the chicken we'll And new this sales QX can specific the then to KFC, same-store obviously, is then same-store sales lap. very tough third the pressure, it is continue. will

how improvement, to the government minimum for year, because continue scheduling While we fundamental learn are next QX challenge challenge of our our business -- a QX wage to every with we use year nature automated to new going and for happy the to are very is the tool.

So these are the challenges sort a we to. paying of of X the are that lot attention Top

aware huge the not have sales are sales, ourselves there's China while cities, because in KFC, but we don't are pushing and only a positive market to that same-store opportunity and the last that and least, still store openings, targeting same-store still XXX, -- XXX we want pace. new for And are for keep we acutely we're we X,XXX there in obviously, cities

multiple focus a business for game. sort So the the to always tough balance of is

the is for require of because Hut For continue, along as still the but key mentioned key on mention. focus not business, others does changes -- times cement and also dimension turnaround very else. will the Because the is Pizza two years' revitalization that tweaking turning pillars four I still the process, it did Pizza just after three a time revitalization profitable, to Hut, the a the everything to take mentioned I fundamentals. And four sales for around many I before, same-store all it

difference we we here? traffic two our For the priority very a want still making first. are the decisions, sales, We want of are and we However, fundamental differences between clear, the then there's What profit. the to businesses. want

Hut, sales, is, profit and certainly where business give where because we that's a and is. Pizza the because focus the bit flexibility to the on more of we it traffic So

Not wanted the we However, want the KFC, only traffic, also return we is profit. but higher. we sell for wanted

as we certainly sales bit of and both And this both. a of And profit is Hut. for are something we okay want someone KFC, clever is bit for probably Pizza people, a So want vanity. described a that we vanity, is good business

a than have time more bit sanity for We being. vanity the

Lillian. So Andy, thank you, any...

Andy Yeung

Yes.

So bit. I'll add a little

the commodity to the mentioned, think because going delivery there in it's are also we're headwinds invest invest platform. a as a continue also We'll us of have, is through specific is some prices. for little going to for XXXX. a invest early in that bit I so year we'll we're innovation, for sales So to product to continue And in that next second also store right, well. then going guidance right? Joey in important technology, our that's outlook One provide we again number face to as But very too that part couple areas, think will we're remodeling, own focus to drive I

likely investment will XXXX us it as well. year so an And for be in

Pizza would for will we tough think Hut XXXX very tough think So comparisons, overall, I be have both because it comparison. a -- half some I KFC see first and so example, strong

so same-store almost you would pretty be we If a like remember, first X% growth for in achieved of sales half tough KFC, the that comparison.

between sales we mentioned, expect protecting So both also of vanity forward. sanity, also to and component so to and a for margins growth going as balance be Joey then have maintaining, continuing them will that

So you, thank Lillian.

Operator

CLSA. And Chu question of the from line from Dylan last your comes

Dylan Chu

have I large ask been but coffee still is Joey, still could about mentioned details. guess, potential this you Because questions my please patience. recall, so I strategy? of most Actually, cleared, maybe need a of your I thanks for a lot you area

elaborate wondering a could bit if So that. you I'm on just

the think way which has the of a drive kind to of food Just in Coffee signs, will currently, you in of coffee would to do least need a that? category. metrics what bit In that scale? But term, coffee. the other see some sort you be around, dayparts? of a longer potential do on coffee what of see certainly food to larger drive kind it what invest at any is want before And Sort of the you big do initiatives future, or seems slightly mostly you need to kind coffee really to is categories. other color food, our Just potential helpful. drives to supplement

Joey Wat

as the we and introducing Thank our We coffee model product grow a And great two coffee focusing there or is the coffee Dylan. resilient committed is now. K-Coffee. a on right you, are we already, we growing business and believe of One business, coffee the areas very, Because inside very to are potential business. in are category. that are the

mentioned, XX year, XX% it million Well, sold increase. of let's as and total that's already, is full which it, about So year-to-date, XX%. round than call I more we the up, XXXX cups

number this impressive So coffee coffee growth the players growth. significant cups some comparable of to market. in that's is very, very other pretty And other

but the coffee of X% base of XXX business, challenge just and thus gives the we you the cups our given of the the sold, the business overall China almost it's there are sense it scale Yum of happy the growth, business only business, business. X%, And growing. KFC million with even very in of However, with and our

member When base, COFFii brand, of the because JOY, bit C&J, we density supply food, of is pool a testing this building And offering, a the new rolling out. given we the that in & the brand. is to it are build coffee as brand. but The we already, and our other store comes strategy the building which prototype, the China and the scale a to product it zone. are the Pizza new as brand, only time takes up great KFC, like right? build testing Whatever time, have and it brand effect know does right and build the network the take talent take a not Hut in does trade customers build And to store complementary it we're the in such chain, successful we also now, that order others, build increase build

to are we XX is and the always have the commit are process, year, opened in But decision QX a our It's we'll get -- So QX, now, dynamic. next increase year. end by stores by XX, where of the And we all and XX right But new we of can committed stores to dynamic it a -- grow process. we targeting to are comes investment. when network bottom-up a the scale effect. blocks store Pizza a to coffee are learn we including these committed dynamic process. the Hut openings. It's as same brand, we It's that new building scale the is continue so and the to which to KFC

you we Thank coffee are the terms in of very where that's Dylan. strategy, much. So

Florence Lip

next call. have forward All you call and the the great a on to speaking day. look we today, you joining That call, with Thank earnings for right. today's concludes

Joey Wat

Thank you, Florence. you. Thank

Andy Yeung

Thank you.

Operator

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

disconnect. stand by. please now all may You Speakers,

Yum China (YUMC) 30 Oct 192019 Q3 Earnings call transcript