YUMC - Earnings call transcript Q3 2020 | Yum China Holdings, Inc.

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to Yum China’s 2020 Third Quarter Earnings Conference Call. At this time, all participants will be in a listen-only mode. There will be a presentation, followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded. I would now like to hand the conference over to your speaker today, Ms. Ding. Debbie you. Thank ahead. Please go

Debbie Ding

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

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

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

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

You is sections. should of measure included Reconciliation in measures. our Today's the carefully three comparable earnings GAAP includes GAAP the non-GAAP and release. consider call

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

will open we Finally, the to questions. call

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

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

Joey Wat

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

our period, trust shareholders on certainly test employees, respect to when and Resilience proven and tested Yum As I it. our we is will partners, I China. for want our this in challenging customers, continued thank our your the only

stay for over the This we for disciplines, leadership China. food, our the on culture the XXXX, we true to Following and to good throughout a We working two the achieved in customers care communities. quarter. cities delivery. and safely and safety, partners, growth our in of All we we our Help plus innovation, value our our stores. of convenience career employment, third challenges. dedication COVID to building and pandemic, our to sales these the quarters, improving great of much focus, stay of the Yum and operating to X,XXX us food operate, our XX,XXX commitment provide progression across add staff true challenging actions. In system local despite delivered customers COVID guide hold result key is our employee We digital tireless resilience provide

First, this we XX,XXX our marking stores significant opened a milestone. quarter,

excellence, Hut our and anniversary Secondly, contactless set Hut brand tapping by pioneered improving of and We shift companies XXth off-premise driving delivery, corporate in and segment January. demonstrated XX,XXX KFC celebrated late innovation signing its the takeaway execution, offering. early. into to capturing with another customers. menu Pizza delivery innovation, over regarding new individual engage Pizza its

listing remain larger we and discipline. a corporate remodeled. we a Fourth, Third, and to Exchange acquisition Last of first the a opportunity. we're time, footprint closer maintain new our the joint market. the coffee company business consumers we and our dining market Stock and same Chinese on and vibrant freshly future to explore incorporated This China September the much Lavazza China. strong cuisine in or the of Kong both Delaware unit shop continue At across markets the one listed Huang the the investors governance to have list Huang venture but least, the Ji The most China brings in formed Hong coffee to Chinese journey on we tap NYSE Yum formed will to Kong opened Asia, will us becoming in massive trading first of partners. get Asia with Exchange. in flagship Hong will completed the Stores not

key segments. and of This a disciplined infrastructure target through innovative by across supply M&A will day whether serve brands occasions. built in food growth logistics parts supported or process to digital marketing. and A continue organically strong portfolio will will chain be We

future. our growth We growing to future market leadership in capabilities. enabled growth stores, of and by this in portfolio A digital are investing in committed and membership

me each Let these of growth elaborate initiatives. on

us X,XXX quarters, XX we It stores. years open over last growth. X,XXX well. the four the first to In store opened as stores took Firstly, over

We have improvement the stores new models infrastructure to build capability profitable at store scale.

and delivery more faster us and sizes Importantly closer Increasing as serving them our our incremental popular, takeaway lower we density and to adapting while are capturing stores gets to CapEx. and customers, smaller profits. become sales new better store

to which value large We us are economic environment tier flexibility new with are China policy. operating with menus, market markets a and models diverse layouts tailored efficiency. and for models cities customer. greater more culture to store lower piloting and a regional serve store enable penetrate Localized is differences,

from to strategies trends solutions. a specific to more strong regions to adopt Market our franchisee will models saturated the strategies create pursue in infrastructure are us flexibility regional IT different regionally. centers also require crucial enable and and Multiple investments will We logistics network. channels, to a expansion, develop leadership growth

to need leadership will built and online deploy Future-proving our strategically both We we stores. for XX,XXX capital assets. as next the offline

welcome China are the Lavazza this Huang brands family growth, and Huang to year. proud to Ji portfolio Secondly, we our Yum

in have Yum franchisees three Yum Similarly, our franchise dining And partners brands, between are our experience, Chinese and of economics. receiving we Lavazza and data and growth, are ecosystem found Sheep for opportunities strong capabilities in Huang distribution, brands in drive seen core China's store are leveraging seasoning western dining has for portfolio Huang across environment, partnership improve supply segments growth our will COFFii to Huang and China’s to synergies. the excited consumers and of digital our leveraging stores customer delivery few over delivery areas success. exciting past Ji new addition with Lavazza an Little JOY chain. creating & feedback. to the months, already are a coffee In further with Shanghai Ji for capabilities we great collaborate brands. early The Huang

quarter, as growth their driver. shared Last and in The some membership. of digital and around digital thinking we third a growth importance our initiative memberships is

in invest digital marketing platform. a creating will customer-centric We

and digitization farm application AI from technologies end-to-end by Additionally, of fork. tools the to

give improves us From across control to further Our growth. of franchisee is Crucially, customer partners more us and analyze improve drive remote to our accelerate our and with portfolio satisfaction. of empower to this working goal areas, reach confidence in receiving add goods chain. and driving create This investments inventories digital track, turn and real-time will into within synergies operations, value programs efficiency in of digitalization to operational and membership brands. our store unit economics strong automate

growth to initiatives are these agility. our necessary leadership all are on three of build All and Investments interdependent. across

offerings, with progress demonstrated capability. observations tourism and quarter, campaigns weak. third Now travel year Hut is and strong execution tourists initiatives. continued a with XX% KFC to and improvements make and Hut restaurants fresh Pizza Pizza supported our few prior value recovered digital transportation by recovered, hub period. sales the still from great slowly this in new of to international sales but quarter, Domestic volumes

in Our ensured over difficult revitalization for constant improved percentage a proposition, Apart KFC actions we continue and this pizza, average during improved launched strong Pizza operating five points our national Burger sequentially. row, grew is as beef margins across profit Fridays. and program innovative Wednesdays Hut attract Durian XX% Chinese-style and at pillars the value, our all-you-can-eat consumers customers. to Dongpo At of Pizza brands, great brought the Chicken hugely from period. we Value currency. level Across to by a Thursdays Crazy products important fruit extended September. value back in Restaurant Hut. money to braised popular new a bear ticket KFC the at year-over-year

of Latin in seasoned markets, nacho flavors Mian regional tried Hot-Dry strong quarter. Wuhan accounting across such into Delivery our crayfish, also sales spicy entire portfolio, Noodles, third seasoned Gan Re We night as XX% the late chips. approximately delivery drove Wuhan for growth and

Digital out sales, offered menu menu about Cumulative pre-COVID orders at million. over XX% Together, off-premise of to members and XXX We to XX% takeaway Pizza of improving and were XX% of continued grew over levels. delivery. KFC account we’re digital for sales complement the Hut.

privilege million multiple signature membership chicken progress we than we period. and privileges we covering $XXX have holidays. [indiscernible] meaningful of KFC categories. it This summer Chinese lovers family Despite the we Hut per and special the in sold sales our million KFC items tripled the efficiency memberships from Pizza During XX pay quarter during million eight over at membership, Other at quarter. the delivery deleveraging generated call the improvement was frequency made. excluding pressure during profit, subscription strong member and operating sales this in the the We of sold result

optimistic. to the well are the that recovery The be With we Andy the uncertain and hand We must end we so As that vaccines to look to a to I and be and levels of our varying positioned CFO, stakeholders regions these cautiously need we will remain to uneven, developed. agile. market continue COVID diverse until experience non-linear large, China vigilant our call forward into new is to remind I’ll impact XXXX, year over will times. and continue navigate Yeung. Andy? are of

Andy Yeung

XX% you, to the year-over-year hello and mentioned to by from of the environment. promotion everyone. Revenue figures of the XX% dedication same-store developments in to employees recovered sales. XXXX. testament have in initiatives. same-store Thank the period. quarter improvement All challenging were quarter, second Improvements noted quarter. was at to refer drive sales of sales effects address digital financials XX% third work in This the driven the key in Unless the KFC’s in XX% provide the and XX% and some first before year effective exchange. flat is the a recovered our largely quarter our of color brands will All percentage second the recovered year with value quarter. sequential topline prior of on I then Same-store hard compared in And period, and third otherwise, to traffic Joey. outlook. XX% the to first changes prior to foreign are

XX% Value to first of membership still hub pressure. higher XX% to Huang and continue traffic of being consolidation to for The but KFC, store tourist ticket opened Our Ji our and XX% from X%. Together the premise. core in sales stores. over improved, campaign, to delivery and contribution total recover consolidations of Huang the and driving of Pizza XX% year, all-you-can-eat dine-in X% prior sales Overall, We takeaway to were contributions Strong the yield XXX total initiative, same second quarter transportation volume Hut, all quarter. average. Suzhou XX% revenues recovered to under over quarter. effective in and compared in contributed the the remain our with sales of brands. was system sales with in

and and and differ. cost. more in year-over-year. has relief. they cost X%. in closely will levels received work development quarter, Cost part-time markets team We and last year. was many million sales write-off Cost in to This to mandated the secure as inflation driven Sales margins workers shortage take advantage a commodity approximately impact coming KFC. months as XX.X%, quarter almost quarter. X.X% operational was the offset government suppliers minimum Compared Rate traffic particular, to of in our X.X% subdued increase more Despite by by offset year. we formats, with of was in largely accelerated accentuated $XX promotions improve major flat second were than wage of benign improvement expansion. the and decline, flexible staffing sales almost a was X.X%, our XX.X% year-over-year. KFC was was service The we as favorable million rent was aggressive In locations drive of of and deleveraging same-store Labor builds labor Labor million our by reductions to was aggressive increase in flat compared last to offset inflation sales. with efforts campaign of largely environment. inflation lacked aggressive helping wage by efficiency. poultry restaurant the control improvement a New increase store also to productivity to and sales It up cost of efficiencies. our of in impact May intend more first the X% XX.X% delivery $XX Hut, balance at Pizza partially inflation productivity value increase reductions store has at more in promotion $XX government of

to G&A KFC. at Suzhou of this and G&A government increased and prior of Huang mainly consolidating due Ji to phase a X% expect incentives we year's However, expenses expenses impact out. Huang lapping

million, including Excluding the decreased profit achieved approximately of impact our in year-to-date Suzhou G&A expenses X% operating We $XXX KFC $XXX gain year-on-year. of million. equity stake consolidation, of of re-measurement existing

a special of X%. gain, $XXX such adjusted profit Excluding items as operating was million, re-measurement’s year-over-year growth representing

up income income EPS was investment million, be it adjust diluted touch to And would Net that a million strategy. XX.X%. $X.XX. year-on-year. $XX was Diluted If million. rate allocation $X.XX. capital was on net in net exclude $XXX like $XXX was was million adjusted, tax and effective I Our X% $XXX gain would EPS Meituan, we our

Following we will a capital our financial cash fourth off dividends resume quarter. $X.XX in review at position our the

driving focuses our on China, while providing to sudden capital allocation disruption long-term a navigate of Our growth adequate any business. to liquidity Yum

and technologies. in growth. approach maintain while excellent listing our remodeling brand with to build accelerating cost focus investment to new With in Yum Hong we maintaining the in on: capital Three, capacities in investment logistics one, opportunity, to exploring disciplined stall will digital, delivery our M&A drive a secondary and for invest stepping infrastructures support China new and portfolio. Two, up growth raise opportunities and the Kong, and

is environment. in paramount operate As liquidity this to having have sufficient uncertain year an shown

sheet the market to deal targeted drive growth long-term capacity balance to will capital to allowing potential planning us us approach We make believe returns. Our and capture with strong to drive while investments provides this contingencies, opportunities. shareholder

In terms as outlook, are we look improvement. sequential fourth quarter, to encouraged we the ahead by quality of

to the mindful remaining we is over The challenging. going journey to that be not is pandemic recovery However, be must yet.

store quarter by impact the by: of margins inflation sales be expect low-single consumer transportation term XXX relief, leveraging that measure Facing Small value operating two, staffing on while sales one, At of be more three, impacted; traffic. flat COVID-XX. new also COVID-XX continue store campaigns tourist our behavior; precautionary that take to continued we to expect and recovering colder time, to balance approach. continue remodeling. lingering And to we digit, services operating quarter as the and heavily a volume additional and inflation impacted In by out of finally, now It's may percentage impact term have results impacted company effects we increased season now on the flu stores. traffic impairment for Huang but and We drive inflation quoted to store focus of including as and significant enter and be fourth in changes to COVID-XX-related and/or reveal be levels to can In consumer in same efficiencies. on only months driven wage XXXX, low store be of Ji mid-single not digit commodity the for expect to than note to sales, target seasonally, lower also to lowest factoring Huang biggest for outlook the we opening, open prices. to the important is quarter investments or stall a profit. the

As shares XXX reminder, third we ended quarter the listings, secondary following million our outstanding. with a

is if for started performance. non-linear impacted varying social under and experience balance and normal in pandemic likely the October, XXXX, we market good uneven. Qingdao continue be for operating COVID-related we will until the testing This which activity. is recovery new reduced a momentum vision Sales China, and As reminder regional of are travel the were to be of of over will disruption with In of will millions that outbreak Western there in and people.

on cost as face to of commitment part continue environment. funds our pressures to the We multiple

We will use of our to of been to XXXX. is face begin plastic delay This or Rate materially defer our packaging. increases in mostly sales. increase have the expected cost

catch to up. these expect We

opportunities our to solid infrastructure strong our critical out logistics sheet, be and and leadership. investment prepared digital investment these while accelerate recovery areas capture market infrastructure, in will build We also growth. balance we step additional maintaining up exclusions will to and are With delivery in

in Debbie earnings start pass to that, you early XXXX provide our Debbie? the will I With XXXX. to We on specific additional back with Q&A. release will target QX details

Debbie Ding

floor open questions. one to time. the please as Andy. to Q&A. now We’ll limit to questions, the get as Thanks, ask to many poll people order In the at possible please start Operator, chance a questions your

Operator

question And comes Thank CICC. you of and now our from will line so Ladies Lin first much. [Operator the Instructions] session. question-and-answer we gentlemen, from Sijie the begin

open. line now is Your

Sijie Lin

performance. Hi and congratulations you management, on my taking questions, the for thank good

QX, So that Hut, history. near through restaurant right. question, see really questions margin, even a I it’s high My its XX% for can the ask because level we Pizza is one of

this sustainable know it So about more is you. behind looking we and forward? could what Thank happened

Andy Yeung

Thanks. Andy. This is

address question Hut. So Pizza will at margins regarding your I

still I leveraging at have you do KFC think we Overall, than overall roughly X%. quarter, overall the if certainly three for look performance more Hut margins, impacted healthy the if you on at example both Pizza look Hut. margin we strong for Pizza by and

we inflations, the do but than more improvement. productivity goods, continuing offset pricing pressures For cost pressure see that’s commodity the – by of labor for

items, we if that of in sales, look for these improvement like X.X%. commodity is class quarter XX look cost example part if at promotions see XXXX. of of about offset we almost inflation by we each Now, that that’s at Main

wage labor, productivity labor for see remarks prepared this on on of mentioned X.X% exaggerated we improvement Now cost the quarter. of by leveraging that as inflation about seven see despite shortage gains worker sales is I offset we

And also from is little big do the a level, to with what also insurance here lot call lower on at improvement benefit the of so actually – initiative we costs. O&O the and The restaurant it that part we utilities, maintenance including bit a number contributions. social has

got some… We also

Sijie Lin

you, Andy. Thank Okay.

Andy Yeung

Thank you.

Operator

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

Brian Bittner

you, and congratulations navigating Thank on this environment.

very for any XXXX into growth think to a outlook about to Are growth XXXX? strong in continues the us starting unit the the give despite opportunity us how or able you pipeline give Your look for you’re be on pandemic. XXXX unit to color

Andy Yeung

this is Andy. Brian, Hi

feel to to want then color free would later. I So in may give some you and Joey jump

income mentioned, this year, suddenly we at our store we the little opening. COVID-XX half beginning – first as of the impact have from think of we I year,

there earnings delay in some prior our have teams in limited a because infrastructure, but development April the time, of call, because lot we March, our of in at project in have timeframe. pandemic, obviously the pipeline mentioned As the the eat mobile was

they So to have obviously. up, trying catch been

good why raise guided stores confidence and to we this than done the that, have we more XXX We XXX that’s pretty quarter. to a about now to XXX fiercely can stores. job So and – in from that they to we meet target

this it planning was the for term as we get doing In think another Joey a now would a pipeline provide our of mentioned, think much stores. suddenly XX,XXX do will information, around. XX,XXX. first the have time early It next we took It to I years. look more us while planning. that we’re XX be faster As We details to quite that have and you XXXX, milestone with would to mentioned, to give we but process almost

expansion. However, but right our put we for store still at if a network you that in we situation opportunities now, China do think current lot to have look of growth

at KFC in cities little you If a of Hut. we now, than XXXX we’re the bit look have and right for Pizza number think that I XXX plus more in – for

we in a we’ll So top penetration think think about tracking cities and well. also XXX close future, the increasing to that, space. white Also as also obviously in that to – penetrate XXX are opportunity we the we more tier in there’s lot can I cities, term that feel of or the probably so those

density below. water the North country Asian at America, to density small small also other our is only compared regions but Looking and still to not to

catering in Hopefully to your So question. I store take a market and more inviting. I more the we’re of towards format network that also delivery address opportunities penetration shift the that the think terms increasing think away do existing and have with I we our lot across store in smallest

Joey Wat

emphasize stores. three Andy. comments you, the is, One would we your Brian, of try quality always on of just I question. add Thank to

stores, we be or at So of aggressive see opening stores. we about and will new store, open-minded breaking the even opportunity good if least store profitable

close at find approach we’ll that So heart is very, up that’s we and them. open the bottom line those bottom very if line. We bottom the hold to our

portfolio adjust we it to just make Second the rent Tier at well. of and our smaller specific takeaway is for are And the going tracing. fill to other strategy, delivery and stores city, model the of city, Andy the to mentioned as store want X X because to earlier, growth in efficient Tier a Tier handle costs I gap as more quite and X, is it’s also a the

lunch working lower cut even have models. For stores year, more open of getting have is the this tier on have feature the you models. – normal we crazy city this in give Not We the set also last we the a And city. in et To tier the Tier Tier my is be few lower star four our a do We the manager, RMB X, feature for lower find model but that, tier something city which our to to tier further year. combo innovations bit city, cost month called And cetera. $X. have a breakthrough combo, we lower. a such menus in than will example, for only we XX, store XX XX, will lower which city a been the for items X

the different. the products you So gap see and are

the require of are going our a Hut. same the to and Western as part particularly the tier menu. different Point Northern – such the We big But China understanding of product lower price in not Pizza city some three, gaps. sell in

last last talking satellite we’ve month models in been terms and what store about working of be reduction a Because operating year, is since the model. a means have in store We and on it. CapEx essentially, different quite store satellite huge

And meter move much example, square se. need it to per is half a style menu size, For different by more kitchen cut a too. on to the our from XXX

for stores and encouraging. seeing satellite Thank results the happy will happy going for store, and say Pizza so both than Brian. about city And I now year, lower what initial we right this we for And Hut to KFC. have the more see are are satellite you, stores we’re that to be tier XX for to

Brian Bittner

Andy. Joey. you, Thank Thank you,

Operator

the line Macquarie. open. from of comes now And your much. so line you Linda, Linda your from next question is Huang Thank

Linda Huang

I Hut periods Hi, have I years, noticed before, the store expansion. regarding four to now that question Because one management. to increased period, especially that for three is five Pizza I right payback slightly of the the but for think years. payback

want future also to operational efficiency the I the Ji just store we a in Huang do expand And period. we with issue? that, Thank to So you us share about that can about a whether continue and you. know payback worry Huang it’s

Andy Yeung

Hi, Linda.

let me of ones the So back then top adjust And get the that. want. you I to

mostly [Foreign store almost For is the model, a model? franchise leadership. all franchise So Language] stock that large the majority of for goal same

franchisees payback. operations – meaningful not franchise very with can continue that we over so there. the pretty And what term And of for that, say to us that’s the franchisees it’s in themselves decent out few why especially be of and actually happy see of we the lots

Joey Wat

It’s Pizza payback Pizza are of way numbers the the the I for that for think, period period, COVID-XX number. payback because Linda, Hut. rolling calculate we the and

the period period impact a course, overall bit, but the Pizza of with the trend payback satellite QX still we of are confident payback on store. innovation with little of during overall QX, So particularly, Hut,

we’re right in Thank We Hut. see are Pizza happy what now quite you, to Andy. seeing

Andy Yeung

Right. Right.

so period number. actual genuinely to Linda, we want just folks the disclosed So when are we using remind that, I

will mentioned which reflect recent I on the impacted is, COVID-XX, impact they by right. guess, So the month, Joey,

at back Pizza SSG, KFC stall there’s you then – XX% own if the for think, to for overall recovery of a look Hut. recovery, sales terms I at, right look in the XX% overall, but I directions we and So think

should, to feel the in I haven’t then as seeing I recovery, be be in that comfortable over. fundamentally, then terms would of And lowering may with think also though outlook, average pandemic that how eventually, think, material even. can it’s But even of but I think, we sense, mean, we performing. and the term we seen be that. think it’s we’ll term longer all I non-linear a then change going to being I And in So that impacted,

continue we We will how not for store Joey store, of, satellite would that store in vertically our store Pizza Hut some changes have as to was our we Obviously, economic. example, being mentioned, there to operational format experiment fundamentally also term well. format change this

think a in would future. on change the more going haven’t think I smaller sales, scale – definitely the nonetheless, maybe it So view changed format more happened but takeaway I payback forward. delivery, our But

Linda Huang

Thank it. Got you. Okay.

Operator

Thank you line Group. from so And Xiaopo of Wei much. from question your the next comes Citi

now is open. line Your

Xiaopo Wei

Good in the strong morning, and for Andy. recovery fourth again Joey Congratulations quarter. the

quarter, hind, So because interested we are have which that recovery a quarter, peak year is a in further. low my choices terms in first year, more season. have team In I now be the tougher XQ and sales in in we to is view, fourth upcoming of season. is to more facing will you Joey next next which one be proactive

back On any the to other due hand, coming any over you of have COVID to disruption against hedge risk to cases.

value offering, campaigns, your like strategy terms And innovation, Thank the menu how et deliberate so Chinese with and two and operation in say, [Foreign So of Language] could you you. the cetera. balance

Joey Wat

you, Thank it way good a to Xiaopo. on you. Thank put That’s someday.

same shareholders, and But our in well particularly prepared. analysts the strong flexible. to that all And terms of about still of sort be to because what we How to focused In employees. generally are so we we’ll we it. of both at the the for or and flexible, very agile approach, here of are just all core to pillars achieve be very then And the and also on recover. the just still and and campaign new of drive privilege actually for do product innovations make time, customers have But SSG for investors challenges we we manage our LTL, lingering year let’s of we actually terms XXXX? the business, optimistic. different have if suspicion. our Hut, the the It’s we fact, going we live each are We shine Pizza then our were good and of Hut. business, QX going for be and COVID-XX. of for brands and As that’s pillar come of our the and this improve on will We we’ll the We’ll look But for is be value this to KFC be aware have for our resolve say, hot what we traffic and outbreak position approach very at general to with effect QX COVID-XX. continuing on value since particular happened recap, happening and caution not that exactly to promotion, too KFC far? we’ll year for the in and in the focus we strong our focus earlier, on each to uncertainties mentioned Pizza repeat to that cautious, to but agile, also we be when I sure

And membership could during times, we throughout could work marketing the and back growth QX. do to still very improve, COVID-XX and actually we come on when campaign. particular, double-digit difficult effectively not new launch our with the QX, our pillar grow top to QX we membership, the products advertisement of continue focus our our for actually the on the of delivery most delivery So on membership

XX% pre-outbreak still it’s is business. period. very And tourists, being challenged. and It’s transportation is about So less. still hub agile resilient still for The below sales delivery

and make city the also city. recovery is Northern to which the in first with sales higher But recovery. And Hut the means or differences now we China, now. by targeted then traffic about more COVID-XX, is because bit is quite weekend in And and right not well even more agile a marketing due channel. can we than So learn KFC. deal weekend okay, weekend then party let’s we but then do lower weekdays traffic size COVID-XX, the recovered doing years were and encouraging eat. average have Regional differences. better all Pizza thus talking change, the to QX, traffic, been the weekday the last weekend, improvement more and discount, profit still tier how will traffic it’s do of And regional the we takeaway a campaign, work for we the we how still to opportunities China stable promotion ourselves was have and way and the vibrant. only too. increased perception Eastern the promise discount and than or the few quite with our XX% despite and we’ve and ourselves of flexible, on value continue the value But better regional now progress it. better to seen But fulfill tier in and later, still campaigns, pattern that, particular past, that’s menu, we we and and a the weekend for you expanding driven actually bit

deliver would each believe in ability to all I that pillars flexibility resilience continue demonstrated our XXXX. team’s of you, our and I to shall So XXXX. resilience for we with our business, and with on like for the have our time Thank We Xiaopo. difficult XXXX, during the all, very to and focus driving think our do of

Xiaopo Wei

Great. Thanks, Joey.

Operator

America. of Chen comes from you so Luo next your line Thank of much. Bank And the from question

is line now Your open.

Chen Luo

results. again, Thank also qX congratulations you, and on Joey the Andy, strong and

What’s pace So, we a same-store which dining it year. that are in we the with the at growth got also for but time, a getting qX? Pizza we for offer food declined quite assumption to Pizza Typically casual at for revitalize dramatically margin, Pizza Pizza to to industry KFC, or sales same big time, and Thank Pizza measures taken the China actually And the on that pace should than – Is reason of at are maybe for And Pizza by costs is to KFC. sales as if Hut, the in paper and recovering actually case, trends the of faster faster. last all was a close as same-store than past, regard should question because promotional less potential Pizza qX. the of that in with whole? Hut seems that this for that If partly, we Hut the have be also Even reconcile it behind a also recovery you. Hut. is because encouraging the that? how Hut Hut is Hut, of be growth surprise weaker quite

Joey Wat

recovery on driving can our talking first traffic the your our of say Let on and particularly for very I positive business the we time now. we traffic, questions we recovery on. XXXX, to recovery, which And our Hut agree overall the Hut in that’s for was have have Pizza because what delivered what working focus, growth as was the due back particular business, recovery few would been about years recovery we model sales earlier, thoughts pizza be side we’ll dine-in have then pizza Actually, the And lot make very, margin. the address Hut critical promise and been before comment XXXX. is of me of and in overall hut Pizza business self-service what I traffic later we I – believe. about a XXXX, in is Andy mentioned profit last for

And also a we few revitalization. XXXX, So, have the that’s food, talking pillars The of we our of we hot percent XX, important XX% the XX, word, most menu. the XX and of XX, was get by improvement been menu part a change the customers. and the about

or We very So, I the our is of And look on a to increasing Pizza the done stakeholder, or money, No the because we and even perception our the innovation don’t increasing retained before we we took whether mobile took were take a very to system and away, in for before surface had it level the dine-in is take more in in-house, strong for off. system or absolutely also price it’s a the Pizza word, launched we impacting a very, business actually, margin. we back sales that, for we the delivery know commitment or the The it’s point it’s built the growth got for business during as Hut But was value the Hut work a do environment. model. price years, the challenge. course, three for sales COVID-XX, big which value painful. at we it’s building delivery, years. trigger critical it away also not but to that way food clear the it the three bring of team, without But different. it commandment

So, another leg our to business.

due that’s it’s the improvement the to All certainly many work Hut to due have been one Thus, thing, help to quite transformation model result not we the are or will not results. of deliver the quite proud doing. two of we it’s to pleased things pillars that So, do see improvement hard team’s the And I’m delivering Pizza now. are we three our progress. yet. producing and that done the continue of believe is ongoing business fundamental change the right And

We us working still Andy an it’s opportunity give that, are I’ll question? margin color that’s as With pass to ongoing. question just on for still for well. to because paper, some about the the the But breakfast example,

Andy Yeung

Actually, a bit. Sure. Thanks, Jeoy. little I to want comment supplement,

XX to XX, important there, I pleased into the think quarter was quarter, us things we’re think, about actually you SSG. Hut KFC SSG obviously, they’re that at for improved in have XX; quite SSG Pizza down. I they’re look was if it’s XX. about well put at last last quarter, this perspective, the in

at by bit in were school importantly, the having also we third in the growth holiday. obviously, impacted So, more seen further outbreak if of of the example, and regional quarter, we same-store the And the beginning both think, recovery. Beijing. struggling from I year impact look for a brands then still in we at have actually the quite impact third improvement And

quite have still business. the of we our are the at that, before, I location, we both those are of we closer obviously, pleased of so closer pace And we get we because at with. brand high in important in more, there. look with levels. over cognitive at held last as right. So, is single-digit is traffic the transportation light our tourist as reason you even look than more We of now, more some recovery to business, right, full right pretty not mentioned we be think bit part recoveries to and if is still would XX% for as you going The a XX% year’s traffic are challenging. of time that and for account of business trajectories. and mentioned, have store,

measure beginning last optimistic dine-in far, are may And the group so and to what season had cautiously expect some we we we the in should we quarter very in cost of take there the will this we, actions, extraordinary or look by new – for growth. glad it that and – have that’s as been people the product of overall why we profitability. be and emphasis should at been our sales is pretty they at margins, we’re cautious, seen so comfortable situation. fix saw if quick consumer that a feel in winter a time that and typical very – like, in flu the has Hut, our about so terms has a think, felt seasons, potentially, XXXX we with the good well sense say that This traffic charge unusual at always getting, mentioned, the and margins, venture we think, savings, it’s I little sales, into the and fundamental fourth in and of then we out can winter go more – especially that additional in year, see bit and especially – outbreak the as in that to they the bit obviously, government in Joey obviously, the we as decline so as I Pizza been we

So, sales better. a X.X% when we dimensions, for it like look overall Pizza sample Hut at causal was

We Pizza savings some targeted lapping on for total very no, obviously, still Hut. and benefit would We’re But also size the focus promotion, market heavy ignored cost competitive in promotion. this year. last year commodity of comparison from pressure inflationary a to under

for inflation, still it’s postponed. brands, much of both mandated of wage wage terms labor, year, the lot government have have by a or but of delayed because cost in we been increase moderated this more So, minimum

at low it’s think, this inflation; So, digit we single wage look I more at you year. benign, probably

And expect so – up but some catch there. do we

labor other The The right. became also is they have been that that, labor one some shortage productivity accentuated.

work extra harder. actually have So, with to people

of think do we the level. remarks, as to efficiencies, have prepared as the that – levels on we coming increase we have service in mentioned that to we may ensure we as months, well So accounts staffing

I there. There's down lot In a there's think, in to one not again, think, a of you terms coming this improvement of all initiatives. It's initiative. just – of is number mentioned, I all And cost lot a things.

We have cost. lower seen utility

relatively see there also as lower maintenance cost We well.

still a been So I commodity the of have this early think, little bit, perspective, the year, terms monitoring when inflation but looking in especially in think I we is market compared to area certain of that, part through catch pressure, those in we be increase mentioned I two as We costs. be stacking inflationary of terms XXXX. would go wage up, there likely some in of before, could example, up year next basically for years into

are initiatives those of sustainable. Some

and issue But, levels these as new months, I have a it staffing gains. the the could look gain you of see if reverse times, mid using in we the a pocket may in of some mentioned, technology improvement. example, So the at, would from of be the mentioned store do scheduling through labor we manager after few focus all for coming both cost as those we'd longer-term tracking have have shortage you labor, increasing

need subdued year to in of some all, that may have next you year. little those so some it. for bit inflation with the ease So, don’t and go stay, this may a improvement I But we with some up names all them wage up before think, catch then, of would

have commodity think, elevated come a compared back if XX%, poultry that But you overall as supply inflationary a for probably pressure In easing I in. year. ease to XX% probably at is very terms higher the last little look inflation, chicken pressure prices we like, of still bit, bit see

very cost – this However, [ph] normal. new promotions proposition as that may mentioned consumer is value Joey money important value of on help bit in good a us those So, for little sold. for

back more to that back traffic savings And to so, consumer we may some pushing of in prices drive spot. terms get back those of in

all hopefully the So I addressed questions.

Chen Luo

Yes. congratulations Andy, Thanks Joey, again. a lot, and

Andy Yeung

Sure.

Operator

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

is now open. line Your

Lillian Lou

and and Joey again. you, Andy, Thank congratulations

margin on personally. is question well Andy my think by I answered So

my the is So cuisine. question think on more China development I next of

the of to Huang, fasten but the the So want Ji development division. that more set Huang of up expansion I newly longer-term units check was know Thanks. partially sauce I behind this is from

Andy Yeung

Hi, Lillian. This Andy. is

market. Let to lion's big on Chinese here think of that, China cuisine share Chinese takes me in our the address business. a terms the try cuisine cuisine dining consumer in we the for very Obviously, outside. is Chinese question your here

So there's a lot opportunity for us.

the turnaround consolidation years. Chinese of with business responsible existing of terms with Chinese formed our been and Ji leadership of for Huang Huang the cuisine unit cuisine of business, he obviously of and the last by is In [indiscernible] we year, this the Ben kind couple new ships has lead the Lee over

business, we cuisine significant scales, which supply different franchise Chinese for of China’s partnerships, rate to terms with chain, have us. – is try In really a offer and goal delivery leverage example our aggregator for preferential Yum our communications, our

innovation we of, want also take to capability. the full of advantage terms In

at we we Sheep, looking then Sheep in category seasoning launch Little also, opportunity of look barbecue, Little product for we where the product, are a into business. example, you And [indiscernible] if we sauce for for product. example. out can we also So similar And in great the like will see a

up to Little business we the of to visits. And good the opportunity that Why seen years. that Sheep don't see have them an consumer have we also they past over so, very And store? actually growing couple that at use you sauce a for leverage the

what look Huang innovations, on of costs, China So issue if Huang, be sure think, closing there. integrations we can at year, opportunity about Ji about just that in about also making I synergy product you business franchisee-based would drive cuisine but not that we obviously this Chinese

business. of would So, and in we moving more the multiples seeing the year, more into in as well I as like mode, on space think, see growth next seasoning terms progress franchise to in they sauce

sort specifically. is of at this looking So like, China view current our

Lillian Lou

Thanks Andy. a lot

Operator

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

Michelle Cheng

recent want – good result you wondering to Joey for color about can the trends. share Hi, Congrats I Andy. again. the I whether just some And and

below think normal XX% plus I do earlier level. you hobbies mentioned around that transportation the

positive we you. other more point retailers restaurants. improvement So the since significant seeing trying understand for are Thank hear some relatively a to October, we whether data like and

Joey Wat

Michelle. Hi,

when reduce. a For key earlier and hub. business and weekdays Hut the much it growing. now not transportation weekends transportation in in the the The for difference I pillars Pizza KFC comes recovery. The recovering have to even the the gap tourist still The business continue, the for is hubs trends bit location, and because hub delivery transportation does about regional mentioned KFC but business

minus [ph]. the KFC. still to mentioned And international the concern the and So limited It’s XX%. it's for traffic, holidays the we below very and during barbecue But one the thing of probably about due big COVID-XX. about – ongoing Even mainly still a like because concern also the that's challenge. our job, post interesting cetera. have the investors little customers analyst concerns, trading et situation, usually very to when caution would of is phenomenon we And still still the overall and is have holiday economic

after tend during the the holidays, different It’s been it culture, only one in see weakness not generally different You to trading impact. pretty the shows country. psychological actually true good across But country. little true holidays. It's

right trading just U.S. So are we Europe. about a our overall good. compared caution too, for that. and which that. grateful we in China now that to to quite vibrant. China, the But I The trend the analysts And normal bit like mean, little is life see is is for would of

improvement, to that. for ongoing grateful recovery let's very, normal will life the the hope are very good of we And So our that back continue.

Michelle. thinking are we where that's So

Michelle Cheng

you, Joey. Thank

Operator

next from much. Christine so your you line the comes And of Peng UBS. question Thank from

is Your open. line now

Christine Peng

the well Thank future. outlook the about detailed Andy, as result, positive for very as Joey, towards the explanation you, very

to want to your question, not a I So get related have may I separate which but Joey quarter result, be – thoughts. which is the

reached So launching your JOY retail company and & which COFFii recently, units. starting China, [ph], from packaged news is brands throughout out food is we that a reports from some KFC

Joey. with can need appreciated. be sorts initiative? business towards branding, more of us So strategies, share you distribution can And to with the share long-term of us this terms much colors pricing, your if you Thank you, that’ll in

Joey Wat

[Foreign hard yourself be products. will catering Language] But type you, able to try Thank serve be for mean, hopefully to we will the you obviously our have it I opportunity to Christine.

during the For that because business our I related of have partly retail obviously so trend come product COVID-XX COVID-XX, natural, the that, one it experiment partly increase is which consumption and with why in during the the up we later, to do say explain the innovations the we I'll Michelle's time people, right, occasions. is [indiscernible] is the question trend of is earlier seen home the

and steak, take consumed And the which lot and product come occasion home increasing, we home. consumption and of is a is has but good. these And – the occasion our sorts up we come the yummy product is of that a could all team, team, own with very home off fantastic great innovation and opportunity. leverage with the they products up during at be and they its can launching home at the the is Pizza the So very KFC it's respond very see stake that, – COVID-XX quickly prepare result cooked by Hut

have we far have chicken, from so very And and we smell. we chicken soup area with breast, And noodle rice is a – have the like chicken strong punchy launched others kind then launched [indiscernible] right. launched of

result team, takes And and own mainly because team. sell such game in product can the this our encouraging the store app, testing the product leverage our fill can existing and they our and we product very is is volume through as such as they setting delivered current our the our customer right and in-house so and product to we to a buy innovation the buy So as we the e-commerce it channels volume, channel, because own well, the delivery stores peer it are such a can launched be top well. it current as now cities up stores time own via as in

leverage our So it, infrastructure channel, team, you we expand business. how see we the store distribution can our all delivery to product innovation team, do our the

before and I JOY, a name we been way. it's for years, is quite for we the because & China, so and never I'm more many, version, just local a So used excited that name right that's sorry, compliment, it name COFFii local the we but got officially. in cheese of the where it still mentioned it so many as about that it's customers ourselves funny a progress being name call people JOY now repeat, I but if We probably days, and COFFii has in are & took KFC, are this KFC, been a immediately, used early

a notice So we that course, we make of might little so it official, cup we call [indiscernible], are also capsule, of different what a in coffee we it because And launched and are. we that's it's tiny coffee you and have And the instant like progress. top version city again, coffee flavors, testing with small upgraded with that. we in tier stuff happy the try and it's

of delivering Thank you, business that are KFC kind we Pizza retail still to to our we learning. Christine. customers. of And Hut looking this yummy the are area is So and products more an forward

Christine Peng

you, Thank Joey.

Operator

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

Anne Ling

question. team. Thank for you taking management Hi my

over this or also and to we the driver to what is Hut? come I here? from Pizza actually in delivery. a delivery is these growth for corporate – been is that corporate of this earlier minor delivery, mainly has key from that one understand start like corporate much out potential quarter business third of Just the all management regarding thing, launch, mentioned know, or the delivery. one delivery sales And also park the And KFC has May delivery I the How initiative. it’s sales

see delivery side. stressor new Thanks. the for the to wanted growth just So

Joey Wat

by to deliver corporate the And these X,XXX because hit. expand system. like then year meals the in we COVID-XX to XX meals food targeted hot – a last became centers free, over always of trying commitment. IT by originally system make our different delivery our is to Thank companies strong famous delivery about we we that's all lot is, right been Since to our for X,XXX over provinces. COVID-XX delivery, to need for the government, free to And this supported be and free very we year, matter corporate you. things, due community food for have working emphasize and the sell we the business and on because even and XXX,XXX And effort suddenly how the hospitals in on no for the

delivery, brands open few we of our the majority March, extra have recover start that gave is Hut so business recover the us still store one because that trusting opportunity when people trust – company and our And back food Pizza brand of for came and KFC and to to quality. April, to us

much quickly quite So of a set and to is is new we have and we this sales do unique if you for thought. that, KFC And certainly is have demand don't hire we delivery essential, of the corporate Hut and Yum to very business. operating something benefit than are and China higher team the we opportunity the respond Pizza which

and have drive than behind store and managers, cities tested We all we our manager, stores, our people often and they more have now XX,XXX stores their it. right X,XXX in

on more but that, and it's the than now, is only have and the we overtime coming. companies breakfast, of right WXX work as XX,XXX with So the not meal

so kind comes very could or food question base convenient small. it imagine And very, about percentage particularly because order the of But et other integration, given be and do the get cetera. your with Yum the strength-to-strength. their own KFC that, Hut said X% for big, it quite It's would when payment, what's can combination, It want hard as we it company and – with so, is in be opportunity it well. Pizza that website et very China, but require convenient growing and it's we to or by them. make Pizza to payment only brands so menu, their not To some stores provide or it's easy so all company, partly from staff cetera, Hut our but complicated that have or support companies. meaningful, more or You customized still their the And this is meaningful subsidized for own require of we'll also for restaurant support business it's sales, very to to thus system base very to big. KFC

the You sales can imagine increase is meaningful.

we where right that's are now. So

and customer. food network to good continue for good our providing of value our We expand

right So a are deliver other imagine connection required customers. more our the our and there can between you offering corporate we now deliveries for can have the do lot of store, store over with business of store here. and network XX,XXX partner one working We by service to or

you paradigm now, and to that and our to lot increase customer. customer of to buildings, cetera, the office in it we improving location, a part trying to by box, up where see So but the spot use some connecting will actually And box like start of right it [indiscernible] in when customer comes the the – we are the it's there will small from thing with kiosk a point one et it cetera. delivery that's having a is as example further yet, certain our network opening debenture et stores the pick can some is or at even not convenient see very convenience delivery is are to smaller you a those more store

that you, point customer's Thank all things value, Anne. and we a view, food the So but it's convenient. good are good these of from exploring, are all

Anne Ling

Thank you.

Operator

much. you at so this Speakers, There time. no you may Thank questions continue. are further

Joey Wat

you very much. Thank

Debbie Ding

a concludes the Have to on call. call earnings great This the We joining speaking day. look for with today. today's next you Thank forward you call.

Andy Yeung

you everyone. Thank

Joey Wat

you. Thank

Operator

That does Thank for conclude participating. for our conference today. you

You all may now disconnect.

Yum China (YUMC) 29 Oct 202020 Q3 Earnings call transcript