YUMC - Earnings call transcript Q1 2020 | Yum China Holdings, Inc.

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Yum China 2020 First Quarter Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, to Ms. Debbie Ding. you. Thank ahead. go Please

Debbie Ding

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

today's CFO, on Wat; us call CEO, our Joining Ms. and our Mr. Yeung. Andy are Joey

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

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

measures. This call also includes certain non-GAAP financial

should measures. release. and is non-GAAP You the consider be in included carefully comparable Reconciliations of -- should measures GAAP the earnings our GAAP

includes Today's three sections. call

then results. she first update offer around will our will provide results year highlights Andy outlook. will Joey an recent provide developments situation, First, some quarter cover regarding our full an and update the then on financial in coronavirus the

call we'll to questions. the Finally, open

PowerPoint of IR You contains website. can our webcast financial the on operational find and this presentation, for quarter and which information the a call

I'd call Ms. of Wat, CEO over China. to the Joey? Now Joey Yum to turn like

Joey Wat

near you. healthy. far, Debbie. Thank all you, you joining remain today. Thank I of all safe Thank us and hope for you, and

the Before and on this customers. the was to COVID-XX our safety quarterly crisis, that and I situation. of employees we update covering health our our would priority like top Throughout performance, our you actions regarding make sure

the in to of employees delivery served store to throughout vital to were local we to to in and wanted brands accelerating, our Pizza customers, riders commitment this fighting meals authorities when commitment measures. quick our in with show to our up. KFC, there of ensure make a We stores provide XX% our things: need. commitment period. of masks, especially be outbreak. sure time line and closed, observed wanted this closures cases providing quality. and rising of were and remain X crisis, our customers, reliable, and time hygiene We open quality work our They this supply; wore About stores those will Even Hut ensure As health to front to infection a other implementation service to continue strict that a value;

as to Employees closed. and holiday restaurant insurance importantly, staff We them medical We are look their of backbone simply our gave XX. the to and stores up for work the support the right a providing extended their We age our managers other. our Providing were our after peace do. for on is mind employees the and This of our managers by more this to even coverage is business. families. support parents encouraged key to families if pay focus of the This to in long-term us China. extending is each of important success. to duty thing contribute strengthened coverage for cultural We parents

contributions agreed to of and pandemic, Also, by families myself, for the as assistance our employees this of forgo frontline senior to rest and salaries to their fund have the Board members in response XX% year COVID-XX. executives additional for Andy, impacted

all dedication, the of by creativity humbled our Since have started, and employees. and I this resilience been impressed

at of that stores China all to decision Wuhan. medical staff. serving all hospitals a dedicated our people to in made support over over and we from Even meals sales, close the have meals that We instead in no March, reopened. XX that to We in stores medical a centers lockdown as to and Women's Wuhan on health our the of over X,XXX Xth holiday to drive day cost provided was free stores just workers On opened usually Wuhan to thousands had we day closed, frontline delivery provinces. helped of meals Day with or XXX,XXX come these

With our and consumers. to a brands with trust years XX resonate reputation this during key China, is our over takeaway quality, programs and well pivot built of This delivery our in quarter. value enabler safety for of success

our in pioneered the on solid in pioneer takeaway digital quickly be delivery capabilities. needs, Importantly, offerings market-leading to industry. and the changes We and steak. world's its mission delivery our Pizza most live contactless and increased ready-to-cook execution we of innovative We to Hut consumer started takeaway. restaurant relying adapt

are stores stores or operating appears delivery some Recently, and offering the takeaway shortened the XX% of corner. to with hours. situation Approximately have open, turned our only with

they to, the Our value, Wuhan convenience Yum what China, value experience. our our stores again, good are mostly customers business. food, of We forward and from giving look great dining, expect back in digital pleasant

Volume recovery is remain linear. the levels. nor has not There the gets as yet pre-outbreak to back and guaranteed differences brands work. not across returned country regions to Nevertheless,

XXXX the and could services telecommunicating work will year. very distancing, a in the Social fundamentally we This normal. new reductions provide. and the may travel be become way challenging we impact

lead team to Yum China. the grateful dedicated I'm at

This create innovation, Our leadership excellence a Yum China. stronger us and offer strong build industry and in delivery our to to culture of also position us digital crisis thrive. our to opportunity and in operational our grow, to

XXX sales was at Now and our in March. declines take completed during were declined to menu down with Mostly of delivery sales Sales the -- tier openings opened in declines transportation resuming that let's Stores and XX%. shift late in at pronounced with builds performance. locations new particularly with operated We move away. Same-store all and to were new regional System tourists store outbreak-related a January, and were innovation gradually our our stores, store mitigate declines KFC. quarter XX%. the differences. Approximately of first base outbreak. XX% closed mostly We almost our sales. sales suffer peak of

Our business model proved resilient.

achieved platform, rental in From and inventory tackle and the were and to help across of management With quick while issues suppliers we to from authorities, opportunity. digital With we strict $XX our as protocols. employees our maintaining landlords million adapt. we operating dedication dine-in, We food diligent delivery well QX. and in a government inventory relief, in strong managing every takeaway flexible support from safety profit as were the

premium ice we used high-quality raw cream our milk egg a for unnecessary created example, for the tarts For Hokkaido and customers from waste. material as product and tea. inventory This excess prevent

sales year. takeaway as over Delivery last to Super XX% safety important Contactless channel contribution of the Delivery both Pizza operations takeaway during adoption Hut grew the Hut. and was selected were compared popular XX%, KFC make offered driving responsible. services our an In sales to while and crisis. rolled to alternative XX% stores, Delivery crucial at or to and orders limited a our to Over both and safe online XX% contactless grew own contactless on at mix delivery delivery KFC and mix closed. late peaking emphasis App on XX%. orders all January, we with at is out Pizza option delivery's dine-in

this was our business during in crucial dedicated Having supporting riders time.

commitments not supply and quality channel our around the growth Our above emphasis that value, own during have supply safety aggregators without and of possible been rider will This amazing drove on riders. quarter.

digital brand, of clear menu and very in proposition. strong the this contribution requires takeaway pre value capability, a proud option delivery as all Pizza resilience a packaging, which brand. things. most has quarter, and the and of Pizza of importantly, I'm dine-in and takeaway Successful Hut KFC our establishing to a than third these Hut more on suitable doubled order top

quickly platform was and our engagement and to the leveraged digital. member operations. our our Turning customers to with transparently protocols building Communicating provide information important outbreak. during store on and We trust vast to safety

the members Hut. XXX takeaway over program continued over account due to the rose grow sales consumers million of exceed use sales. to for membership at Pizza sales online KFC as with preorders Our quarter. increased Digital XX% shift increased of Mobile at to XX% Member the XX% of services. KFC and orders end

continue during and drive innovation We value crisis. to menu the even

emphasized was the safety our core new and and safety some During deferred We innovations. primary quarter, products our providing focus food.

We And the festival and Language]. a traditional Language] continue of the At we crayfish delight tea-infused as surprise of [Foreign [Foreign which side to have festival. [Foreign popular, launched mozzarella egg; also well, Chinese just which part Pizza we item southern -- in food a during east as Qingming very in KFC pasta, and kind for such with is the particularly Qingming hard is several Hut, new products, which and China. Language], is and boiled

economic also of continue an We provide to in stress. smart abundant environment which was value, important

just Our it signature call X at meal RMBXX campaign some set Thursday Language]. [Foreign for campaigns nugget we in of test plant-based we were and Tier our Crazy value launched at KFC In X-person April, our stores. In Chinese, late these Pizza well received. chicken All Hut.

coupons We Shanghai new for in are innovation about excited X in this alternatives. just meat hour. presell test sold out this

observations. brand-specific few a make me let Now

KFC its again. First, showed resilience

the for and delivery basis a the digital business during provide support takeaway crisis. offerings even of strong Our

us and family rent to practiced casual flexible our Pizza across Our sales most consumers outbreak on of and social congregated variable quickly allow to adjust With fluctuations. as workforce impacted structure distancing. and more less this stores focus by was the Hut dining,

while a to for individuals dining our family-friendly environment, We strengthening will continue takeaway. on focus offerings building and Yum

our to flagship first in the Lavazza Lavazza and the a Throughout We develop new Asia opened and Shanghai. crisis, continued brands. formed joint store we with emerging venture

this with knowledge program, China operational experience its and Lavazza XXX-year in-depth store Yum pilot coffee We premium scale, combined this developed of China's part the authentic has this the Italian As history. market. over showcases capabilities and of

simmer Chinese acquisition casual of China Huang, Ji [Foreign internationally. pot has the XXX Language]. completed we X, and over dining stores, April mostly pioneer of Huang It a both in franchised On

Little addition Huang. business the and our synergize Ji customer consumers X brands, in dine-in our will delight a established portfolio and brands this to Sheep, acquisition, delicious confident core that and experience. of comprised we food with Chinese Dawning the East In Chinese unit, Huang digital to Western I'm dine-in Chinese

will call Andy? hand I our With to that, the CFO, over Andy.

Andy Yeung

good are all developments on the first figures full figures perspective year rate are you, I otherwise, provide and mentioned to morning, year-over-year. before Unless effects, our refer financials will quarter of and key All Joey, first quarter, XXXX. address in Thank exchange noted first comparisons and then outlook. foreign everyone. the

declines quarter declined outbreak. the revenues and customer efforts to Public same-store to XX% reduced combat both due temporary health The from financial store COVID-XX resulted Total first closure and in outbreak results. closure store significant sales arising traffic.

sales included delivery was and of average Ticket driven store were benefited same-store closure of taken sales driven increased Temporary takeaway. was decline and by they XX% to reduced takeaway and sales reopened. calculation delivery dine-in from by partly reduced out growth. same-store the Same-store KFC traffic. dine-in mix offset decline by once sales,

also was sales was Pizza Hut's the dine-in XX%. same-store primary driver. traffic Reduced decline

increase However, from takeaway contributed the KFC, different in average. to mix lower ticket and delivery

both as and distancing social but leading other was strong the into severely for month January later of reported were impacted brands restrictions were New news and in widely outbreak sales Chinese the Year became implemented.

preoutbreak below levels. reopened, declined store infection As recovery, although our we still and rate showed same sales are

were New in at in X.X% openings Chinese the at Outbreak-related construction worker our restrictions to by Hut. Pizza and opening. leveraging, Declines store Pizza traffic by Year partly primarily were KFC before our restaurant Hut offset the thereafter store period. were and of robust supply across Restaurant January control KFC driven margins both and sales impacted New XX.X% efforts pace costs. margin

sales closure and supplier, working proactively a increase. Through and inflation of the associated store year-over-year normally fluctuation. to write-offs inventory X%. cost X.X% able the waste, decisive with and actions with was level our store Commodity were was level Specifically, quarter we at manage XX% sales down and for store

percentages. -- at labor pay cost adjusting portion cost We our Employees of additional hours Cost holiday higher labor XX.X%, protocols our for safety stores. of wage was year-over-year by sales with contributed to schedules. XX% increased X%. inflation labor manage Increased and Year-on-year quickly extra have a delivery was labor X% increase. of

sustaining across level and scheduling in Our high a app, real-time productivity both tools manager, pocket of were digital brands. instrumental

the temporary approximately payments provided Lastly, million. from social relief insurance $XX by government was

expenses. Rental

fixed past rental the lower our few to to in general, flexibility XX% variable proportionally of concerted resiliency our to tied declined expenses the the to and quarter. of revenues, and components lower improve have made which the approximately are In we Over effort our a the rental operations. components sales years, of increase expenses

$XX we in negotiated approximately addition, rental In million reduction.

as would usually third we programs, reductions social in XX% benefiting by received including we of from million. million. payments second lower Bottom operating certain relief the were government charge costs that We incentives $X line, temporary well cost impairment government recorded or achieved of as G&A payments and profit certain first control onetime quarter, which received of $XX in been have quarter. year-over-year, accelerated insurance the in

We achieved circumstances. in are profitability have incredibly proud to difficult such

our tax the EPS rate and pretax the mentioned Meituan. not both Meituan just Diluted Net $X.XX was was profit operating diluted first quarter. income. loss the The reduced our investment million primarily the $X from than were XX.X%, income due higher by effective equity mark-to-market our investment driven million, mark-to-market $XX in and usual, but that from taxable in to is EPS loss adjusted in

balance Cash outbreak sheet The the has capital Next, remained let billion. first a our COVID-XX $X.XX quarter. investments on allocation. results and in impact at and significant me cover and strong our short-term operations

While stabilizing, as restaurant preoutbreak the discretionally we our situation was is traffic below levels. remain China in cautious still

the recovery day We and and across period, pace expect an regions, extended parts segments. be will uneven

will implement We control our continue to to measure costs. aggressive

a On having the the take having importance economy proactively other pandemic advantage strong our continues prudent quarter difficult behavior share the need The hand, sheet, full ahead, may growth year the profit. impact we balance purchases we of to remains dividends. suspend ourselves infection Therefore, and highlighted temporarily next consumer the rise. and X challenging will to It balance how outbreak to opportunities. of while With maintain sheet broader despite change. strong of to on financial a has a global the for a predict positioning

have through out times. these abundance We challenging an taken navigate we this of cautions action as of

flexibility continue investments structure We sheet appropriate. will to offer us long-term value-creating needed, of to and believe the contingency, to in our if opportunities strength and respond balance capital where

our to turn will I situation Now to continues The for outlook XXXX. evolve.

helped Our likely added supported operating to quarter. Results in for by that adaptability early terminated if strong XQ. not were and avoid performance and onetime reduce, resilience the relief are losses

from to continue significant our disruption We experience outbreak. business to the

tourist will is also operating The below at have levels of and soft. trend weaker or recovery rate, or outbreak practice regard recovery not social At run with is to sustained avoid have weekdays services. limited deleveraging choppy. pressure margins. traffic extremely volume. closed hub reached hours Traffic and people as the restaurant weekend continue and required been onetime levels sales management. been gradual still out are since locations Sales preoutbreak distancing. cost profitability. The to going decisive We'll and leisure we taking and actions excluding stores Some current volumes has The for than under relief, the transportation be

Our previously interrupted program store restarting. PR is

for revising to new not our XXX XXX of target year. are the We stores

on. the goes However, conditions reevaluate we as will year

be highlights will target of as We outbreak revisiting to the importance The the integration. needed. offline online

Our investment continues. digital, will and in chain technology supply

plan of Together million is with in in investment the XXXX million. range new to unchanged our stores $XXX remodeling, CapEx $XXX and

at Commodity digits remains challenge. to year. a inflation Despite protein We mid- is stay expect most single volatility wage commodities, still in inflation to across high this supply China tight.

is Our to best estimate of mid-single XXXX commodity inflation low for now digits.

new social to We expect categorized by difficult. travel A persist. reduced XXXX may be activity normal and

At As we China, the for in employees, serving focus will we customers our operate. look to forward the our to community run. on recovery, continue Yum here long which and we're we

update the Now Q&A investments before call Debbie I the for will some turn I have session, you we made. to on

approximately have stake KFC entered million. for $XXX of acquisition XX% the Suzhou mentioned, to to additional we an purchase Joey equity addition Huang In into Huang in Ji that agreement

the We Yum will conditions. in this XX% of subject China stake expect year, closing to a entity. Upon half close closing, equity second consolidating the to reveling hold transaction the in

the Debbie? that, with to I pass you Now Debbie start will back Q&A. to

Debbie Ding

Thanks, Andy.

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

Operator

[Operator Instructions].

Our first Xiaopo Citigroup. Wei from from is question

Xiaopo Wei

First of for work all, responsibility you COVID-XX social outbreak. thank the during and hard

especially We are seeing resilient KFC. performance, very

forward? but more the better position we it automation, Hut Hut mentioned your inspiration KFC. changes And Hut? which focused the what's your in recovery for observation of any Is So reinvent is, crisis believe that what's Pizza of on the the be the of innovations, casual new is the impacted business, Pizza behavior dining, looking crisis? Pizza during lot the yourself a especially So will Joey on from and yourself my consumer for than question norm, would thinking

Joey Wat

most Throughout And Xiaopo. customer open positioned possible. is back week last for very change, better. food the money is hygiene this traditional as other has you, But and delivery and the worked then very Thank the on the I new still enhance hard for top area, availability important we to very the or our our in digital customer we take keep well and value are that, that. terms of focus now, -- serve our is to to it's obviously obviously food in because, business very terms team business right of basically, leveraged there. many and desire away importantly as our On which stores to safety, of February protecting while response and But the response, behavioral model employees. to crisis, service. provide long our of think about January, the it's And of in has first

is important innovation the So well. as

And sort medium behavioral of will et distancing cetera? change any little forward, linger a bit. there in going is term, social then the The

during We continue weekend. Particularly, okay see to can Because for challenge see still weekday, are we the sales that. we the now.

much back to of On And still are that, which traffic challenge, because of is business is weekend sales the from is challenged. pattern. But a the still We top traffic are the quite past pretty a last different holiday traveling, level. challenge. year hub reduced hubs,

the transportation weekend, and hub. the dine-in the So

to we about the It's not only for about back the model. the savings. Looking pass forward, and go money a and save Let bit for reinvent is how we for Cost one; the digital innovation, menu business value more. Pizza save innovation, saving that's further on Hut? we customer. cost to X third about do theme, customer talk improve There I'll robust Pizza the every for Hut bit focus: then second, X is can are value me to also savings the particularly ourselves, money;

the and are doing also more innovation, business term, in the we long menu even So money the while robust and building saving, in model. for short we agile cost in long term, term, are the value

mentioned of as in presentation Pizza Hut of to Pizza -- this has business. comes business in earlier, proud I'm I earlier because it percentage my Hut Pizza When very dine-in Hut, higher crisis

because the store, KFC, of sales, it the even worst though if because dine-in was not impacted the slightly it worst managed to operate. we high less. allowed naturally, were business impacted more at during takeaway it's was And time, the the So open has percentage business time -- dine-in to QSR,

However, Chinese It it Pizza business XXXX takeaway started traction. push the strategic try of certain to has the business. always for build takeaway been Hut. for actually We Year, initiative achieved New the to one

we So the to planned we And have Chinese is advantage accelerate XXXX from before Year, get Chinese have the X% we the takeaway. to New roughly business. Year takeaway of and the sales to of take prepared New

then COVID-XX more. accelerate the And takeaway Pizza hit. actually to Hut the It gave even business opportunity

takeaway the roughly it's twice XX%, QX, business But Pizza for for about So QX, average. for before, Hut, XX%. that's so as like on

the requires takeaway To the capability, order right business, worst capability, because flexible was things. a time money then tell very and percentage customers we requires only also takeaway higher. it's crisis, of It value for do a got a Year. not also to New During that customer order digital And different, that's wants. even menu, mobile do the strong require the it requires before Chinese One, takeaway menu. It just business. few simpler more business for what the ready the slightly the

closure to takeaway into of item create that But as then opportunity inventory we During the instead make the crisis, because we we certain menu. with just some have took the the inventory new the of it challenge, have this advantage challenges. facing of of store, and

I fantastic. is Hut innovation meaningful which already. our I believe before. investment We is there. is business And part of So a business Pizza right agility delivery happened with dominant of that, is the the business, which the with something the right part business, this shared community And want takeaway a now

are business to delivery require we business. want strengthen takeaway also trying it We does challenge, not the the dine-in because while

challenges, So Pizza changes a Xiaopo. back you, I the building on hope business. customer a gives our then color little Hut you on of focus and that behavior Thank of of sense the bit and ourselves

Operator

telephone Our next from Bittner is question from Brian Oppenheimer.

Brian Bittner

not to for your closings you of guidance your capacity -- talk indeed secondly, all are from Which the this expect pandemic? Can did you for how achieve competitors industry that just goals a store the ability openings change more crisis? then of maybe survive what regarding about confident Do can for any in XXXX? you opening because And XXXX. little your store insights these store this you China in is you bit

Joey Wat

of believe It's Thank We it. to good you, we over corner, not turned I we're Brian. have but really just everyone that hate in still question. a a middle remind yet. It's that the

cautious to challenging that still QX industry The I'll bit. -- are China. the be in competitive and reason We for still QX get will our

first. me Let you give the context

QX, recovering, And For still all the manage some as very with But expect the in May onetime likely these -- because industry to certain even May to relief some preoutbreak June. -- some flexible but not we And and companies to It's of happen our away situation by Andy in cost industry government. the help Or to mentioned, the that going terms are than that I structure, of have sort their I be during from can mentioned June from is preoutbreak players during that they at sales of down. most go QX. is of likely agreement for in employees pay. and situation, will QX, think managed still earlier. terms challenging lower and level, get landlord

Point what So QX? about -- Will better? X. X sorry, that's Hopefully. X be point is, QX Point

give is industry, the to clear XX% of benefit will not be To usually summer However, us across board, still because of kids holiday uplift the holidays, holiday in children's be what but sales. extent shorter. we summer year, the But it because that the for from our XX% this will shortened. children's of

be So that will challenging.

context. the So this is

about question, et competitors cetera. and closing your from to come Brian, the then store And

some We such competitors, difficult named are times, the ones. very famous going business, mainly smaller seen have some

test the time But financial will I some take suppose. for impact. prudence, it mentioned, is still this now, as I right to full see So the

refine because cautious, same we at things but also store optimistic are us opening, stores will not that here our ones, we time for prudence because for or our locations guidance further about our helpful tough, to to are financial our continue because, China business if it to high-quality brand, we will invest to to us they term. build are time And particularly some And also question it's the possible add? we available, there -- believe market to Come the very while in Andy, new and be become model have have potential. expand that we the your are in on our is store changed we still become do long the be term, still and in unchanged long guidance market new available, in thus, the allow you anything stores. sites

Andy Yeung

Sure, Joey.

Just we a points, term. right? for few So long investing we're the as mentioned,

think on So still our fundamental of there's lot We not opportunity there. China have a view changed.

So before, opening, site. to below especially can store COVID-XX have traffic it's And last in on return construction mostly worker although slightly quarter, of post work, mentioned roughly new we're schedule. terms we there, first done in impacted by XXX year's as the obviously outbreak, situation

coming in try that time will make up, the we So to the up make quarters. lost

so, far, we our so build And target. have -- we new targeted XXXX not

-- CapEx and for other spending. same So goes

term, from offline our how think, operations, think So seeing in these in will the delivery, important online crisis, look chain, IT, you to if from I right? moving moving takeaway. continue, the more trends are things and -- online, So I at all those to during importance, supply acceleration we're long

So we need opportunities. to our that infrastructure growth support long-term

million this $XXX $XXX as million to to year in So spending well. we CapEx stick will

question. you, Brian. helped your Thank that So hopefully, answer

Operator

Cheng from Sachs. from Goldman question Michelle telephone next Our is

Michelle Cheng

you will want about recovery but quarter, can to to region just think part a And I sales your path. last recovery bit to level recovery you into share think path to quite mentioned you uneven mentioned and When second -- recover you same-store that our announcement, the segment. Since, Joey, up be been improvement? day follow industry has this I the drive for please third how year quarter, thoughts across different little do brands? on the also challenging in

groups younger you color families, et also generation this consumer the And more and so can cetera? about the potentially like share

Joey Wat

you, Thank Michelle.

as in path, and as is right as also protecting were open that dine-in stores stores earlier, possible open. recovery the immediate we not For I business mentioned focus still still staff now the and our about also reopen many allowed to some

So immediate. that's

sales And make is the of brands, then for both of catering, was heavily cetera, et average very for or up to traffic going getting corporate ticket Because immediate traffic by et about with delivery. back. for ticket for terms much higher in QX, the particularly we big KFC, impacted, focus, cetera, our but loss item

So right getting still traffic it's back. the about now,

is improvement happy and right improving are We than more trend sales to same-store during see April, April. is the to XX%, now, Because slightly March then the which an compared March.

But medium last in to the year continues back is traffic term, not the our because journey yet.

question particularly As and the the to during I what mentioned transportation Then earlier, weekend hub. is the do.

more. talk probably I when So bit little about menu innovation, I should have a elaborated

calendar. Traditionally, the than marketing lot is example, you slightly Pizza significantly we lower. weekday promotion example. I'll we Hut Pizza our case, Pizza put of weekday sales give And this Hut, a and adjust an in for weekend. because during weekdays, particularly for lower value-for-money if KC So sales is both for Hut's

weekdays. put during we'll program the value So

And value changed. even stimulate has problem mentioned, traffic time be shifting as sales a weekend, get so the of for the holidays marketing now program to we weight to -- the we'll back. the and the campaign, However, to I of same weekend the

to area. incredibly on of small important our the tweaking, bullet sort it's a to right but get So focus

of fortune, terms Chinese, we call small Language], food. in [Foreign in innovation, mean, happiness. menu food, it small Secondly, I exciting and

manage is Language], Customers [Foreign in in new face to And you time, crisis egg, put food to launched wonderful egg. the a do be on tea How of launch the that times. it's the smile happy. product see a And can such to right, middle during that difficult small, crisis? we were the traditional very -- were During delighted. we they which guys business people's surprised and

time bad good or make people time, happy. still during whether good So food

And plant-based the this month, we test launched Very, popular. very chicken nugget.

week, that that Monday, across sweet, in and Well, a the amazing of pretty one. back we -- And find spicy now an right and item taste Chinese hour. staff Language] cannot salty, And of it's that much but But is very launched childhood it's than street more Sweet X coupons because were we now, [Foreign breakfast Language] this it's it's were bring when memory popular because actually, an have Tofu. will [Foreign So a our as food. different this flavor like because our item own it's very hard we even gone kids, have right just to China. traditional it's for so every much

response our -- forward the menu. the really look So fantastic, And on to we it's so was put item that.

good So food.

or the price. the or then future. money, relaxed with a longer good money now people even bit right might who Because And the term now think be their uncertainty twice. And in pocket for of term, there's such even medium in value might for

even important. is during [Foreign Language] RMBX, price. difficult priced exactly So time, actually value $X, than or the becomes for raise still at at slightly such did money more more We $X. not

back value the of only It's from company, not cost and our pass we a at commitment employees. we it so that So possible but savings areas for make our customer. are entire And entire committed customer continue money to if the improvement, only frontline the look look the structure on to all the at will can there. possible we

launched protect our customer closed employee we our we we time, even the staff expand the and time. when difficult understand our and importance medical very bad the pay because during we stores and time the are During -- of good frontline coverage all

at that home term our It affordable no or fancy long away. stores our they either about enjoy and some there's to they food, customers that is like there. or in there's commitment term in take strategy nor deliver short something whatever the their convenient to and delicious magic can so So

So very much. Michelle, thank you

Andy Yeung

on So couple I still our far, in compared of to a as least add, right? to so preoutbreak is level. press current, the month, have things down release, just traffic we mentioned at our right, our this

compared mentioned, a tourist constrained, than transportation business Joey and And hub to I right? the same-store So location. our think last more is year. then XX% as slight in proportion have we're also we sales of

services. train limited for most probably you goes -- still services. Same As very know, are high-speed airports the have

do business depressed. of So see that we quite portion

the and go So January, outbreak by for if at, February. are significantly the example, as to look trough we work. to you Year, return eased And people And then strong. was in beginning very were the outbreak. we're then beginning into before recover The New we impacted to recovery our Chinese in the January, trajectory,

quite sales and a get now traffic. March, we're constrained. same-store as have like but we're kept mentioned, XX%, we've And during And still right? like in safe then benefited folks options most previous bit for and quite time, of hub our because about and the period we that one decline options terms XX% and we we of in So few to food, of stores of recovery. like restricted in healthy are right? still the the then locations, a update, bit look And to we year-over-year, are -- transportation forward Tourist open

this timing the moment. think they those think, recover, bit I will little how still uncertain a locations, of I at is

from social some there's also, as that are Joey mentioned, the then lingering outbreak. behavior still And change

to practiced still Social here long long last to on in to for us predict the in how how to situation the they yet to the still a try even how congregation especially and the go is outbreak, to think hard I right? see uncertainty, that will would time, Chinese weekend, that quite large into have distancing it's China. how change we a given of time. take at customer avoid when to prior at it normal this the globally will restaurant, reverberates back crowd, think they go behavior, think So is People, this I bit that and economy still and I clearly and being

Joey Wat

for region a that of you and do China difference. question, And behind. is lower cities There asked your end tier. in the recovered still few reason cities the being X region Guangzhou, tier, our recovery. some these business part Andy. The since sales top-tier main city the higher overall regional have Xs is business Beijing, we impact the about Beijing, better best. Tier than notice thus, percentage Tier you, of And city of the I transportation still Beijing, impacted East at slightly about talking of Michelle, has northern are reasons. transportation slightly hub Tier business in then half are in particularly Shenzhen the hub, Thank is terms the top-tier from X hubs. heavily -- are like of impacted, disproportionately transportation and particular And Shanghai, doing city

reasons been For for lower-tier other lack of resilient transportation quite has it business, than the cities as well other hubs.

as went In you -- actually KFC likely to city if lower-tier reported time, difference. the go if from the that's was store right very it food in to time, you cities, that in strong by operating. a And and competition the was the at was city some favor not China, safety. it hygiene lower-tier small during us reputation recovering media is the was the our country that because that and crisis, of most even it difficult was still only outside the uncommon, now, And

Michelle. thank So you,

Operator

question from Annie Jefferies. is from next Our Ling

Annie Ling

two have I questions.

price would and -- what -- with you understand our that? price it like us some commodity mentions Management it's the and the like part just in that this the share all latest of you all share all seems the the first like check ticket us on start the You these what in we and like and these actually are include is is pension of trends, terms and on about this on about First of assumption onetime increase, nature? I quarter quarter. whether nature in increase. relief also itemize cost possibly just then come could that. days. with second cost want side. like Would included all in you based down like some what cost And whether talk to if to relief these And this these

be that, labor to might how lower? trend last is say subsequently, fair impact back? price higher mean, any in some lastly, it have the expectation? I increase And test to test do will terms the it basis? consumer fair half, out good to be it be -- upcoming see like then, come costs commodity that is of we we can do see a quickly So of we holidays, we year first in inventory half terms say that delay will this should higher How by cost this year's seeing from a and like

Andy Yeung

you, is Thank Andy. This Annie. Okay.

your in how so And quarter. the look will I that first regarding second like the the try does relief question increases, in quarter address onetime and to cost the

mentioned So payments. well. the from as that in government of across from some that insurance a reduction terms China. the we as benefit There in prepared was remarks, receive we did of We general social relief

and $XX cost that another, there's of a few approximately the so million our And labor then of in in probably, million SG&A. dollars

We also reduction, right, rent landlord received about the it's so in million. the quarter, from $XX

roughly million in those, So onetime. $XX about in is total,

look quarter. you the expire reduction to at I payment if insurance that's think second in program, Now going early social

last I is April that would the receive think relief. we probably in that month

to initially for magnitude of do same the Now Most rent. crisis. rent there's in have landlord is reductions during quarter. rent if economy the have reduction, But the as received expect, agreed we be recover, to the any not beginning we the to as same first

that we of also third have million received that first receive second worth in we the or Now $XX we government about incentive the quarter. and quarter -- in normally

the but us more we will notice in third first So if quarter, quarter. difficult benefit be second you in will you the -- for into that comparisons will going year-over-year that, do the

think Now particular. also have commodity the mentioned chicken, price. in you I

a I expect you're -- think, The we right. we level. single-digit cost mentioned, as do of sales at

it during supply declines demand have and logistic the from -- period I in the caused declined poultry a of of time. demand that temporary we think the COVID-XX, issues, glut saw

very the still down however, a is a had very But the overall bit. look at -- still is high commodity level. And elevated price come if little so you at, prices

reason still crisis. pork very year-over-year, If very in more you remain is China look at, because protein tight the than for overall double example, is despite products The price high level.

you So -- COVID. and and transportation being all then raising are chicken hub, the still that by international feedstock tight that, and think remains impacted would going are it pigs very and if about transportation to because transportation

So as impact it may on an later have well.

our So at before, mentioned of are time. as a have contract least we quarter ahead set generally

and pan And et China, I least remain chicken, pork But think so we'll how cetera, is in term, out. is that think I our will in term. going overall, protein immediate prices think, see to the I at elevated expectation near this

So looking if at of shift. we're how the also they impact

-- first up next I think of -- I think this coming week. they're all,

the May long or have a X We weekend. Day Labor

and then kind have it's a tricky tourist you right? out one, if been we in houses a time we to look of and do and all point, see one want cooped our Because think for attractions. I at up go obviously, on sight long

a this large congregation not also On people, probably the the hand, other preferred the aware at government of of option. point,

So holiday cities alleviate that holiday for try they in the China see to during period we schedule outing. for some do that implemented different so have kids congestion

the how of I so will is impact consumer And to are it and our I think long actually to have kind holiday think But shift going weekend interesting business. a will into that be also other up. looking overall, on see work coming for behavior out we

bit. So quite think shifted year about a have this if you year, school

have going impact us. -- reopened. business. for -- historically, to vacation have they're out, shorten That's also that people on going are Obviously, delay school of to generally is when summer I the or lot kids a So But season do summer, that number peak cities traveling, the announced think a an of holiday. a our

shift in an the holiday the for So have may school summer impact for us.

Joey Wat

holiday, for struggling. just mentioned, The on is kids, be will the after the May for schools opening just holiday. what And hub Yes. May top up, younger business are particularly of X reason the Andy transportation the still

that the travel to So and are started. school that not city before kids means their parents encouraged outside

are May during you. hub station transportation continue even to holiday. likely in Thank to little train the our a suffer the business So bit,

Operator

Sara Our telephone Bernstein. Senatore, is from next question

Sara Senatore

I the portfolio wanted current just environment building. ask and to away you're the step about from

equity if and Ji You stake sorry, -- think investee. -- Huang Lavazza now that the of I Huang and recent & increased in acquisition then I COFFii JOY, -- butchered

we buyback have just suspending So contribution to as about making think about And of as your acquisitions KFC your how in Pizza trade-off capital. Because growth over should maybe historically, terms some and now these smaller share between investments time? performed not Hut. or you're just as how a even well think allocating I these of concepts think, we

Andy Yeung

Yes.

Sara. try thank will your questions. address So I you, to

consists can of Pizza main the X So to in for investment control. portfolio, of you Taco for groupings our it think example, And our food, of is Suzhou as have and equity overall of sort the right? of KFC, our We in terms Western Hut KFC strengthen us, which announcement brand so Bell.

was joint a Suzhou KFC So venture.

We are us able to for negotiate term favorable transaction. this for a

of opportunity, operations, I And JV. X so it also food portfolio think core would into to I -- the these brands. to in over So look grow our Western be think, we okay? our And it's incremental potential continue we'll to so that other obviously, I -- think, opportunity to forward, control gain take time, going and

sort complementary the if Huang look Ji our Now at Huang we acquisitions, that of is leadership to operation. existing

from as So we larger consumer. mentioned, it it's remains stomach important the food of portion of cuisine. largest And to have our Chinese share Chinese Chinese a forms business. the restaurant gain

large like and expertise growing gain some area. It's we'd market. very to a that So in

run, Ji is good expertise long-term infrastructure Huang help less of million, if our So the and I in $XXX you than to slightly leveraging for long build about and driver services. It's growth important that business think existing terms investment, which a think, us franchise Chinese that in and, investment in for an us, would is scale I okay? think products Huang, cuisine to the

In coffee, terms initiative. think organic an is coffee mostly of I

sort coffee a and right? that -- right, of so, far, the brand cups successful, in So million our is so KFC XXX restaurants, roll out think making across largest us So have been so have -- we so of coffees, KFC, very one K-Coffee I China. seller within of we

phase. little a years still is a ago a launched X year X, or more almost development It's a we in bit C&J now. concept that than And

new the first it's not brand disciplined. year a and be or we to are expect possible, building profitable in While not but X, should you very

number and been we extremely have quickly. winning scale format we we store. have number, our formula, with at build Once a store concept new So have the if would always the it with And up is our product you try disciplined. offering, of experiment to and then look a

of for think finding infrastructure, the first our our Given and is But store product, a capability building building I the the right good. mix that C&J. model in right thing will be

venture we wonderful up. wonderful is a Lavazza globally. have brand, a Lavazza. brand coffee Now joint set It's a

right X flagship that to like well soft venture. so have launch, for joint develop pipeline. have pretty been we our since received And continue we we store now, And right? And will this

we So is priority us, in terms strategy. #X mentioned, our capital of organic growth. for always allocation as We --

to continue if So committed And is, to remodeling growth very we coffee, part and the we'll we're continue obviously, like then invest look of the at initiatives, we Chinese cuisine. one to second in -- is like And return opening, in store cash that our excessive of store. invest to shareholders. our these some third

of couple XXX our still repurchased have program plus have still past share. we billion. we in program. was like the have the repurchase We Over years, -- that $XXX-some We of $X.X we about a have -- million almost million all -- share obviously, we

stabilized situation But appropriate prudent. do that continue -- we'll to we so and excessive and when the cash once we'll and think to only shareholders. commitment would become it's return clear, I

especially time important, or crisis for of of I is time a this sheet extremely restaurant operator. balance have that strong think a we During proven uncertainty, during

growth have your opportunity, we priority Sara. make to that's that's addressed So sure that #X -- arise for balance normal contingency and I priority. deal may So for invest the us hope maintain long-term that have operations, to to our with to any I continue sheet question, our then right?

Operator

UBS. is next from Christine from Peng question Our

Christine Peng

of ask Joey. last have, been have I question towards I have addressed if could think I the questions management. But the by most I already the

cetera? during all So store expansion an even this your seeing opening, the in during XXXX crisis, the should resilience in industry pace higher than you COVID-XX, you especially of terms changes are the we given the XXXX given as into look expect et restaurant

Joey Wat

Christine. you, Thank

We target of sort give You are emphasize a business. store that stores, but number and make we don't familiar to a opening from as perspective. it with guidance still we have bottom-up new decision we really of the rough always the of our the business,

are and growth we'll store if But does assessment, store. that test, enough So the Because if we store the don't. meets can prudent itself the we pass we find capital. if the our we have open financial financially, the assessment not enough,

really it's after very take it. a team to we difficult course, very, to specific we'll the target. our never therefore, push very if have sort of chase of So But opportunity, the But we see target.

it's a I to more have mean, bit good always certainty.

emphasize it the we And the However, of we have store. than the compromise. been the more because store quality us, doing the not of store that something of is quantity quality on we the for

not we answer to opportunity. find push or we ourselves short it. the find guess I our force possible the it's do team opportunity, if we do won't But if the So is

Andy Yeung

of even scope Andy. target that help Right. that is And though sort that and -- this guideline want for. sort of a team provide aim aim we but like year, is a I emphasize to just our to for each

We have sure process viable projects. that financially to the a very internal store disciplined make that are open but we

So our that it's from financial you performance, over very good our payback. very opening team, job team as And the see past those have store. new our store good years a development done few have can good very

KFC, then look at Hut, So X Pizza years. little years. look than And at X a two to if it's more if you X you -- it's bit about roughly

standards, by and we'll industry that as good try going So maintain to very well. forward

to we as get to themselves they find number. don't So they point. whatever Joey encourage they don't, them to exceed then targets, force if But have good have mentioned, if to that

Operator

Thank the more Please like call to I'd you. hand back further no go there's speakers. As questions, the ahead. to

Debbie Ding

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

Joey Wat

you very Thank you. much. Thank

Andy Yeung

Thank everyone. you,

Operator

you gentlemen, all and and disconnect, may Ladies Thank you. goodbye.

Yum China (YUMC) 29 Apr 202020 Q1 Earnings call transcript