YUMC - Earnings call transcript Q1 2021 | Yum China Holdings, Inc.

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Operator

Good day, and thank you for standing by. Welcome to the Yum China's First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. like today, the Ms. now your over I'd speaker first Instructions] to conference hand to [Operator Debbie Ding. you. Thank go Please ahead.

Debbie Ding

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

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

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

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

our Joey in our measures. update detail. of comparable will You should development and the will regarding carefully the call recent XXXX quarter greater the Reconciliation then consider performance includes three release. cover provide earnings financial Today’s included an sections. GAAP Andy results. GAAP in first non-GAAP measures is in

the will we to open Finally, call questions.

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

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

Joey Wat

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

the accelerated We We results our resilience quarter with as store year-over-year, demonstrate System opening Our quarter. first sales XX% growth. million of expansion, delivered new Yum the in China. $XXX grew profit. recovered in stores operating same-store XX% XXX sales

with thank locations, for employees was families, sharply uncertainty volatility The Many XXX,XXX-plus health riders of where pronounced of passenger their trading results patterns. serving to to did China due adversely delivered the instead in dedication of holiday has public particularly during our transportation their with like and contributions I their introduced measures. spiked and and would lower quarter First was tightened by hometown to pandemic this in trading these to our return and strong customers people. to volumes. cases outbreaks the impact We agility celebrate our the resurgence COVID communities. difficult not affected The and our period. Northern them

by overcome suppliers Our nimbly possible we demand planning, XX,XXX-plus Partnering team acted for operational with changing successful situations to reacted chain a through disruptions of challenges. our deploying the and inventory resources and our fulfill managed our planning to and variety supply and in-house complexity of store network. production potential and conditions

and operations Our ensured level delivery the team of staffing best possible restaurant riders.

as Our we fortify and digital to by offers fluid is operational to quickly shifted. and technology It continue the certainly our reinforces Amid adjust deploy our demand capabilities. labor facilitated advantages. chain effectiveness in able supply patterns to situation, were competitive digital, investment our determination

Let update brands. me you core now on our

KFC. continued expand, with sales XXX the $XXX stores rapidly KFC in quarter. first operating million. new delivered XX%. to start let's System profit First, KFC grew of opening

During burger. Chinese traffic. New our the our on Year, and to chicken kept signature foot heavy We of we fried operation products address simple focused

with golden abundant resonate Our [Foreign customers. well and Language] bucket value offered

signature beef more With make party captured and exciting. [Foreign brought off-peak to KFC rep, the we different variety In the it period, we back Language] and buckets, crayfish add sizes. of premium

customers. action very also well part [Foreign As we promotion by Chili Language] offering, burger ran the Chongqing Impact the the a with which was [ph] We Language], launched Power of [Foreign popular special game, new received role-playing younger Genshin

XX% compared digital in fulfillment aggregators this own recovery leading demand, Super to capabilities the situation. stay of app, sales, drive quarter and drove first sufficient riders, this up started in while in growth especially XX% improve is was through rider-sharing with accounts growth This of rapid to level model, capabilities. continuous and riders. Despite remains XXXX. dine-in, omnichannel, delivery strengthening marketing We dedicated delivery pace our success enable delivery crucial and Chinese agile rider pre-COVID hybrid us for our of delivery station [ph] fluid our monitoring. Our and in rider done based platform to Year. zoning, ensuring own by the in by in our which delivery in we routing XXXX. enabled investment this Delivery our us was We upgraded also demand Last allowed popular our capture New to year,

lead we and sharing that is our and platform changing Chinese started connections Year over first consumer our campaign can with time conditions test assets members, them progress. with Leveraging the market direct more our also period, million during marketing digital are XXX Pizza the to course. be and to and so we demand, time to we testing We rider modify put peak between This the of the KFC shorten and able New of were pleased we Hut. responsive

Our operating also to essential appropriate allow deploy the digital where to needed. efficiency. and staffing infrastructure level us Digitization is supply

this historical productivity. levels, of enable inventory part improve trends for an management data, inventory limited offer. initiatives, leveraging time As accuracy our real-time pilot end-to-end inventory This and digitization optimize to improve our and tool, we AI-enabled forecast to recent us restaurant launched

Hut. let's Now Pizza to on move

by XX%, quarter. efforts and recovery improve sales reflect reached profit We Hut's Same-store strong are operating grew to $XX results million. our encouraged Pizza in first fundamentals. These the

key four Let me update provide an along pillars. the

the years. product over have First, our offerings past significantly few improved

upgraded with Roast great received These products Hut as XX% new tapas. such well and launches beef and as March, crust with In pizza were stuffed seabass sharing Flower-shaped products product successful steak, Pizza signature the Surf Language] Language] refreshed [Foreign Language]. several and or Wellington the New feast replacing were during such holiday consumers. its a and Chinese and featuring Ox menu, Year, of Year sets, Turf offerings, [Foreign by [Foreign for platter have Beef of We pizza, menu

chicken dine-in. popular curry, our on the We also Portuguese to menu introduced delivery dish

food, potential good we from breakfast online. set strengthened We been breakfast the a have offerings, also and french have as also tea. been engaging toast offline for such We unlocking both time. with three-layer the growth and and menu actively of tea new afternoon for afternoon tea Apart customers

celebrate into then been And some with bringing as in and on festival and Super members Year, strengthening such the by our consumers digital Chinese China's stores. we engage the During program we membership cultural customer improve our have front, intangible of to paper service. in App heritage, shadow puppetry New cutting

contribute sales, Our sales million a XX% member percentage year-over-year. and to up X from of of base ago. Digital exceeded total points XX% XX% XX ordering increased over year

As kitchens in popular, digitization table-side ordering operations. more automation to applying became are and mobile we our also improve

we part provide pace customer and shown real-time As results roll Initial project, started an improved out kitchen preparation of efficiency to AI-enabled Intelligent have and multi-based food performance. our to tool of Kitchen experience. metrics

XX% ready-to-cook over of accounted level of its an for first delivery from increase offerings. quarter Delivery XXXX. of and sales, Third, Pizza Hut is strengthening XX% pre-COVID the takeaway in

ready-to-cook While are convenient business menu growing making from them our more takeaway through expanding we consumers. a and innovation and for small base,

Lastly, XXXX, we more Since enhanced make Hut we over Pizza store of to store stores. our relevant them is formats. refreshed accelerate nearly XXXX portfolio stores This our half through remodels and have the new to consumers.

long-term we the is that will Hub format, XXXX this half model, Pizza As strong potential average The store The growth I'm & are combination Investor in improved growing strong Hut's is and three operating delivered format. new XXXX we over opportunity multiple small Pizza quickly fundamentals, creating Day, digital opened growth that of mentioned quarter, we in brands capture enabling to market summary, in which the the new for unleash to units profit remain assets. react Hut's the capabilities, XX we're small us pressures. Day, those conditions years. which confident expansion, the below fluid the dining. and more Spoke in that our age channels Of store also now rejuvenated first demand opportunities for we about pleased off-premise is store includes China. much our Most stores the Investor promised look through in great. importantly, sales optimistic despite In

expansion store and We emerging China. chain will Yum grow and to bigger end-to-end brand, a our enhance core and brands continue nimble supply our for intelligent digitization build accelerate

about in lingering back that COVID like term optimistic pre-COVID we still Heightened volume public a to measures not have and but daily constant still. we we Dine-in normal continue remain are conditions. are on not saw our a reminder sitting near below are behavior. is about continue future, a to impact to we recently health are Vietnam, well cautious Occasional levels, yet. upgrades, be we While routine consumer

and Andy. Our us marketing to nimble I operations things and as evolve. Andy? will adjust to With that, quickly over culture, innovative enable the call turn

Andy Yeung

you, Thank everyone. Joey. And hello,

year's foreign exchange. Let me first the all details additional perspective then are Unless financials. our this outlook. on otherwise, noted percentage And before of provide effects now changes share quarter on

the volatility comparisons last first new XX%, unit Because first of by the in pandemic QX me quarter, Let in our fewer sales year-on-year growth year-over-year period XXXX, year-over-year, year. XX% We store the lap revenue and led results. as by experienced COVID-XX closures. grew substantial financial representative. of the we Total less began temporary to growth cover same-store contribution substantially induced are impacting

Looking we give how sense, to two trending at of year a are change better the pre-COVID levels. back

convenience XX% benefiting are compared the XXXX. Same-store to forma recovered quarter units Ji consolidation Huang. X% for from first measures to pro to and of grew Total new here XXXX. Huang comparison Suzhou with we So XXXX, quarter providing approximately sales first revenue of KFC roughly

New volume by X% resurgence As X XX days declined of travel. was disrupted we while points was during versus executing year. Year favorable XXXX, On recovery significantly up of same-store a approximately dine-in in to led the like basis, to Travel grew to compared These year-over-year, XX% XX%, by takeaway KFC, delivery in the government dine-in increase outbreaks year the by impacts two partially commodity KFC ticket is investment it was The points in at year-over-year, was which with driven to more sales by impact compared And prices. were regional On XX% recovery sales, diminished the discussed and to remains was Pizza achieved in sales a prices and the basis a call, labor a was last improvements average prices. respective sorry, Restaurant XX XXX plan. than in and and roughly recovered lower flat. year of locations. down delivery has in earnings increase period to by basis, Cost operational XX%. leverage, of due mainly poultry This recovered This the excellence of more driven grew true Sales X%, Chinese XX% mix ticket was mix. ticket traffic the year-over-year approximately XX% for lower last - promotion year. testament Commodity approximately X% revitalization contributed Average a subsidies. margin than remain driven recovery X% labor sales sales entirely its approximately increase reduced lower traffic. offset basis, by delivery popular. and same-store On as offset Hut XXXX. was brand stores year-over-year The in by versus last KFC, helped grew sales delivery mainly to two transportation the productivity and points pronounced and more success the same-store drive the Cost has year. to of sales by sales average XX.X%, last XX.X%, wage than traffic. of XX.X%, lower the XXX leverage inflation basis XXXX. traffic.

costs. the to was experiencing, to year, restaurant and last X are sales XX.X%, still leverage staff. savings other and than Given shortage operating attributable we additional actively lower we hire that labor points mainly in are Occupancy other seeking

and received to offset delivery margin Huang a and approximately the flat. expenses also relief. of Suzhou in restaurant activity to gains volume. sales Huang in of related associated mainly rider $X value costs control The government and phase-out Compared timing rise COVID-XX due KFC. investment increased rental consolidation cost XX% reductions of promotions leverage, G&A relief increased incentives, We with and shift relatively the in gradual Ji to year-over-year, million was government XXXX,

margin Excluding this driven to our million, and reflecting the increased controls. increase offset $XXX mainly impact, profit by ongoing Operating restaurant increase partially improvement, in $XX The G&A compared expenses. sales was X%, G&A by million was cost year. last

and XX.X%. Net was was adjusted $XXX rate income Our $XXX million. was effective tax net million, income

part mark-to-market $XXX XXX% Kong to was of million it $X.XX. in This $XX loss, listing up investment common Diluted secondary as September reflects shares our XXXX. Hong EPS Excluding in year-on-year. issued that increased million, were

the let's outlook. to turn Now

our near in are the about As Joey China, we growth we about remain but opportunities cautious term environment. optimistic noted,

yet. impact pandemic pandemic The and the mindful must recovery time recovery uneven that with be subsiding, the takes not is non-linear over While we an is path. full

We here. a are of consulting couple [ph] realities

risk. remain on Sporadic First, - remind outbreaks the in a preventive effect. will behavior. consumer measures of will This lingering have continuing remain impact consumer

and distancing Dine-in may well occasions for below gathering smaller levels. Social are persist still pre-COVID some time.

data April, related domestic still level recovery holiday to that despite comparing volume Second, over apparent travel in in down consumer Chinese in shows pre-pandemic weekend Government [ph] was to travel spending XX% cautious. is spending XXXX. the

at sales expect remains sales XXXX this fully to it our well take to time fact, levels. In will below Against recover location backdrop, transportation levels. pre-COVID same-store for we

on for occasions. focus and topline off-premise both value with campaigns, more consumer product driving will We marketing compelling innovations with digital engagement and propositions, dine-in growth

At initiative potentially While pressure pressure margin. face partially from turn The will favorable necessary, our poultry will we Apart time, rebound we cost into commodity first this to expect likely that, prices of this headwinds. the this tailwind - gradually subside. in other year. prices later quarter and inflationary

and with takeaway. materials, plastic replacing also packaging for to eco-friendly packaging we will addition delivery invest In upgrades

two that. in costs to are components We expect the to There subsequent quarters. labor increase

first First, minimum wage quarter wage X% the deferred certain in as increases inflation were markets. was in

up inflation digits. wage half at stay the Full pick in expect wage of year the inflation second mid to We should year. single

Second, past restrictions. the to levels. quarters, restaurant We're hiring. have working we to staffing increase increased due short part-time increasing - COVID-related workers few In of been

and and training customer this expenses, critical our services hours it's viability. wage long-term While increase will for

quarter. temporary million have first in in landlord of from due This of and government a XXXX. $X relief applied shift the previously We amount was to approximately timing partly the

this taper year expect the We support off as progresses. to

accelerate further capability end-to-end margins same-store drive $XXX up strengthen wrap in infrastructure diligently near the up, XXXX. we technology, received and US$XX a our our are and million will XXXX second million relief. operational in position. But relief solidify our As reminder, Step pressure and things working quarter digitization operating term, the lapping profits. in store will approximately and competitive To we this in alone, investment over we're sale expansion. to recovery In

to the drive to Q&A. term. for in committed invest, and pass also that, create back Debbie I start to are growth With Debbie? our you value long We accelerate shareholder will to

Debbie Ding

Thanks, Andy.

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

Operator

question, Our Instructions] [Operator from Brian. Excellent Oppenheimer. first is Bittner your ask Brian from question Please

Brian Bittner

overall, better consumer you. safe. States in given already your that the located all transportation seeing investors I pre-COVID in I in the you trends. the the who understand just in sales are XX% not better your understand China, Thank understand you not are are recovered well transportation you're store base hope hubs? staying are United locations help what - But challenged of and transportation you've of volume. trends the Can doing type

So to you're recovery. pretty full close a

in So are volatility a in you markets hubs? transportation outside traditional the pandemic seeing there a more of more still is clear headwinds path to to that markets? pre-COVID lot Or related those sales those levels the are and

Joey Wat

Brian. you, Thank

China We out completely yet. are recovering all quite despite is safe quite not Shanghai. in staying smoothly,

Hopefully, me the trend on bit Pizza Let what's about you non-transportation the a Year Hut then give Chinese compare a about hub. going overall the New here. about and then KFC some and that ideas picture versus gives specific

well plan going soft. why scenario. that and stay level. to had a hubs, for yet. see dine-in the what Year. New Chinese agile, Chinese Outside are the the continue And because to trading, a Year below is the bit lot with the investors in done out New Year, so we into particularly volume we is transportation company was We remind But the the market possible of answer have the New has to we transportation quite woods was trading hub. what But trading do? after start the question, a Year let's Chinese So some our Chinese weaknesses uncertainties New planned, up to And react during can we in few That's we quickly. of as we not pair, and picked our scenarios robust. pre-COVID your adapt We still before we condition,

one. So that's point

versus In terms Pizza is which big point two, a KFC of of Hut. picture

scenario same-store but Pizza are for planning, transportation pre-COVID-XX Hut includes Hut of store recovery Pizza We with which to referring in their to and and QX of without resilience brands with minus hubs and disrupted, energy so the sales sales the brands. XXXX because QX, I'm show hub. XX% year-on-year the the the years, recovered that KFC, both is portfolio. was level, impact transportation both The two to KFC much X%, the of the happy results was XX%, compared the

And a many because a gives not that when Hut we year, system Hut although store that unusual. we the compared the because sense in last X So XXXX, numbers QX. then Pizza bit minus to is did look are are XXXX at up picking the Pizza sales, still opened

because of plus year. system KFC, last X% to a lot opened we recovered versus XXXX store For sales

not gives that is transportation that, the sales having gap a bit hope same-store it's I still with the a versus without sense little - hub, So or XXXX.

pretty more hub it's to about a And that's So to talking the in slightly then in cities the talked compared China, line, XX% trading. - store down we sales, of the come traffic because about transportation trend of And And in the much cover city about it's better number. in I'm KFC still Andy cities X,XXX terms than traffic. tier, the although business, over specific of do in terms China. bit KFC and X,XXX XXXX. the

weekend stores. softer. better because promotion more because part China tier have then bit western be part going to had better or mainly sales Northern much And cities. to is which mix better it's it's a to sales, is therefore, - the X% the the level. now where where a tier And higher gives and pretty drive than to recovery. been lower and tier it of the hub to of transportation the about big a part element bit we And regional cities delivery gap then have weekday, part The back China, same-store bit just that So traffic we pretty in north-eastern picture needs out city of single want what's sales the on lower each outbreak, And be weekend the back our but a tier or and they it a soft hub the growth traffic, store, have normal. and non-transportation stores pre-COVID because XXXX here. the better eastern before, have led was higher cities, of stores, versus

and still So we you But thing that pass value point to a they comprehensive not are Brian, behavior new products. From the of mindful of view cautious, want can gives be I that to still only the They we view, trading. about value on still hope quite consumer have the that's therefore, they want. consumer.

So other sure than back. come new to customer that that, we products we make the still launch to encourage

So Andy? pause I'll here.

Andy Yeung

Yes. things add a have just I to couple of Brian. there,

for I higher facing think bit mind still folks think in that and we're the of keep of outside uncertainty related China, to important to a challenges I COVID-XX. it's

lot a like to though trading. even right? this regional did have the an impact down the have So last year of have our end things on we first a here, they year, seems at resurgence come of quarter at So beginning

and we think around, still bit of I health have that quite a in So then is still - we look when measures place. branding

situation. look recently, countries alert and the in in So of continue to will government including resurgence we Japan, and to that situation and outside but in alarmed, COVID seen as And stay India. some Asia, other to Not folks say have due on alert. of be we China, the then more the was remind

the out we're not like that wood. us reminds So of that

So lot challenge - still ahead. challenging a

for As business they is account of single-digit Joey for obviously, the sales. mentioned, transportation KFC, hub high

to at where thing SSG I at Same be challenge sort continue the the traffic Dine-in, quarter, the pre-COVID a that recover to level. right? will about to like dine-in, them level for fully that for still XX% level. So the compared think, was overcome in first of reach to pre-COVID

last is strongly delivery right? doing business fantastically So Our year. well, grew very

pre-COVID that obviously, I us, bright year be I continues still than, level, a So, we're mid think, more think at growing number, grew spot this compared double-digit XX%, XX%. right? for to to

Thank that's you. situation here. like So overall the

Brian Bittner

both you the Thank you. Thank for perspective.

Operator

Our from your ask from question is Chen Securities. Luo question, next Chen. telephone BofA Please

Chen Luo

got I've side. Andy. on and question a Joey, margin the you, Thank

strong or we pretty it calculation So it highest - seems the – QX year. this correct since XXXX revitalization should in And if ever process. fact, that when margins started Pizza for Hut posted correct, be my is my the

are strategy of Pizza that So years revitalizing with Pizza that what's above be Hut growth? Hut process margin our the in same-store we terms Thank past it of balancing say to could Pizza in margins sales level regard the you. few Hut? of future the fair saw trend the future we Is during and to when

Andy Yeung

is This Andy.

let questions. So follow-up. address any Joey if to And your see then me try have

you look at if think Pizza very execution we're I there. Hut, with So pleased obviously, the

they over really building they right. think quarters, have have demonstrated couple I they the revitalizing resiliency, [ph] that excluding program and of are the then on past well, that

of as some we think improvement. is I obviously, mentioned So those, before,

us we at the based I think laid it remodeling, for pandemics, out that able we look are also to work food, out the you well worked in look the menu, fundamentals, if have quickly. on at we on to We continue give the improvement will Store right? very very that digitalization the program, fundamentals right? which before,

at So It's if now. you number top motors, almost and it's our that. incredible digital quite right of table for X% – look

mean, I cannot wood did whole fundamental. say the say So the recovery strong, in but they are – to as compared that, pre-COVID out is I have we job like, We still good don't – very we I company, we revitalizing can quite think level. a a think

glad them quarter is the that we're we the driving So level first see the not for to year-over-year, priority quarter. in for also compared the top increased the but XXXX, traffic, traffic XXXX and actually, in only still first

we continue emphasize think so some So the there. money. And number, will to that one value for still next on obviously is driving sales work and there's I

mentioned, Joey coming now out COVID-XX. as of for impact from they're same point consumer as While, the

number pleased progress execution, often with think control, the but one the in again, still I not for party So is cost are we us.

if and the also to and full in sales then recovery consumer store We KFC, But pre-COVID will same-store of Pizza vote To are the to I think improvement the for compared definitely level. store import at the obviously. like back traffic, Hut you drive still Hut, look Pizza some that drive continue.

for of the we example, prices, we in And before, that, second some mentioned as line. are that's going prices the as see poultry half poultry up,

a progresses, inflationary investing but gained plastic year. to pressure into improvement materials, have from brands for - due using also may That the improvement, for we technologies, half year products. like two last of the - Both labor productivity overhang we to shortage delivery lot see able Labor the that eco-friendly – that would is and we particular labor As of there. the seen more the sort AI doing, transitioning are But have to that packaging be there. packaging upgrade, been also somewhat we some have we've operation. restaurant productivities, right, second also in the of

mentioned have We that.

to continue to try We resolve that.

So the looking those out. are then last continue things. the long-term look level we if right? again, very to are in $XXX [indiscernible] into staffing important this you overall So that the services, it's of government increasing million couple make and that's fund, we relief, phasing maintain level, And sure already received We high the customer of year, margin like at a year, from

expect have year quarter, progress. and out phase first to the we the continue that to million We as in will $X

in then terms see So have all-in-all, some margin so some also cost. we and we headwinds of and positive still

Joey Wat

of path Pizza I since we to I a two add just turnaround. the comments. One the to recovery have Hut is with for consistent commit think been time want we very

focus which results. sales business our years, later of seeing are clear always the on first, are is last fundamentals grateful we priority, the have been very we the in and that the few and We improving about profit we

well. on next? model. of at populated what what that hard achieve The few a few have to which last improving Pizza model years be in resilient So last want And that's Hut we a is, is business, want trying to Point business is least that’s resilient we the made Pizza the in sales changes the next two resilient we for we as aspects That's in one. One first make because two want, and years. a the changes to very Hut we path continue. to that's to point the been KFC, all cement is business [ph] focus aspects, what is and

want both and we profit. Next, sales

mentioned a is on sales bit vanity, sanity, we I before, occasions of both. profit As other and want

Second, of the second business model. aspect the resilient

see our we increasing, can have business. You been building off-premise

of of delivery - is business. the the we XX% four well. to So much relying to because over business. too this right and is co-product now business are takeaway, heavily dine-in, better pillars as And the Four and off-premise or now business dine-in important between instead two have not on the ready takeaway It's delivery pillars of pillars.

So are Thank looking two we examples of for. resilience are Chen. that these you, Luo

Chen Luo

and Joey lot, a Thanks Andy.

Operator

question Please Michelle Our Goldman question, next comes Sachs. from Cheng ask from telephone your Michelle.

Michelle Cheng

savings in that My these been occupancy huge few quarters. Andy. the Joey, Hi, noticed cost actually past line has question is about a the and other We costs.

also us give post-COVID. more leading from favorable heard on restaurant time pretty you colors like we breakdown? rental trends, rental more the can they have So, ratio, a on And specifically other

can are other good next be So you. we Thank sustainable seen rental just wondering also that compared with the savings quarters? level, cost the saving? these few And in how seeing pre-COVID a

Andy Yeung

Andy. is This thanks. Michelle,

So, quite O&O, substantial seen like coming question improvement you're O&O right, XXXX then and regarding X.X% on same than your we've I segment, lower from think roughly lower, X% the period. year-over-year

part you big O&O as think sales is in these a driven numbers, two by can I see, leverage.

driving the So that. factor that's most that's important

one that's other if look on there's utilities, is two things going there. at The that, you

reduced sort years, the few cost the especially basically to government try of utility the business have so past the over think environment, during to improve I the pandemic.

year end or So of early the next that think, I also power last, year. help, this maybe [ph]

tried have past of we years, The over and automation couple kitchen one other is, obviously, the improve to our operations.

utility we the have that have the store, some device smart some procedure. We in of installed of mentioned

is the terms And to saving So and some we relief that. mentioned some of relief lowered of relief, temporary payments that the in government also whatnot. due also, that security then rent of and

I the million. quarter, think, in have some we $X that, still So first

- forward. think have a to I So, of of the do improve those of with us carry so sort our is process. all of would help part we [indiscernible] these that that a big I to as But that leverage But, probably percentage some combinations think sales sales.

Michelle Cheng

Yes. Thank you, Andy.

Andy Yeung

Sure.

Operator

Please question Our Anne from Ling next Anne. is question, ask Jefferies. your from telephone

Anne Ling

Hey. Hi, good the It's Andy. I'm first whether wondering but just experienced margin like there any a the catch-up like the quarter. Hi, strong. - is leverage. we been regarding Joey. I the a so in one-off, questions it's - because have operating have have sales that not very

of delivery Thank the sales point, higher quarters? do mean, do exercise, that some of - dine-in, of our investments in delivery be I So terms about we these expecting what to want and the margin the in operating and the on the to fact the between we first of behind? it, that quarter margin And is of at sharing the this delivery there the play the are that, investment need all we With for that in is past, will was to we so couple you Pizza of side? that the coming we talked higher a that little are case, you. that question on time So is side. bit the the KFC, If in we the getting a part the because should ask terms question also left business of - shift for be business. - a the costs riders to delivery other some side the with a need in margin given have catch-up, might that some that Hut question. because some the efforts there I think Is good dilution but that that's we have of my mix

Andy Yeung

is This Andy. Hi, Ann.

address the questions to have mentioned, received to and and the that as have then whatnot first like about that I the last be trend government one-offs to your continue [ph] think be some you we think is will we So year, Let obviously, $X me continuing In subsidies that phase-out. quarter, I million, And whatnot. try of so there.

in quarter. year, we couple begin benefited a Beginning cost that, years - poultry the seeing bit sales, that half are see going second X% on see is the prices a we for example, other we in that the up. We're feeding We also commodity as like The prices. poultry But here part [ph] both like a see news, in you think example. in first corn I to up, easing last the were that quite after year-over-year of We noticed up. of going the stock all poultry and prices of but prices, for probably already of for prices decline have the China, overseas.

tailwind beginning turn subside to locked up as one see progress the mentioned, two likely as into and ahead year. time. But we is later contract inflationary we quarters potentially - to that of and potentially on Our year probably we will pressure this

plastic. is, on other of we embarked one the phasing-out The obviously, have

then as we business, takeaway into operations. investing we So packaging our see and also delivery are - increasingly improving the of and as part important those for

of part you this think ongoing for and like So labor year see toolkits the probably as providing to In of see - been that as have labor, obviously we now. to of continue is that that the that I level will progresses improvement costs new to a years operations. continue by we production technologies improve goal Is up, also term to really packing is roll of out. go that number productivity would

half that think last there second is there. issues labor that did shortage some year. is experience two last One one - we I since is

to not rectify would we mentioned, I the think to As and then that at But see. to we step try we still hiring. level the I that up have like try

to continue drive will we So that.

obviously is one wage inflation. other The

also economy - of [indiscernible] worker. the as impact tighter But will some - and probably we're rate headwind up. had the dynamic we getting see inflation potentially mentioned government as by to have going the stepping then that that remember as be think for a that's is market compounded mobility that And I through. overall, right? As years, you plant the into labor subside, for worked And two tighter. restriction to the So pickup, it's we

story improve operation is to complicated margin it. But also holistically. see for necessary to margins. right, need cost improve For because add we - a the always Obviously, it's not delivery, to I we inside have can our restaurant, think a if the the up delivery we at that look - more we to it's

from, of in markedly for at margin the XX% pandemic, percentage So if of, stable like that, XXXX maybe you out to almost example, in think, before our like sold I increase margin, see sales delivery mix our look you X%, sort despite volume or XXXX.

able to a offset we increase So that find way to are in costs. delivery

So be pressure, that. we'll as that to offset do to will we continue to trying find a we're to continue invest. But that but way likely

overall. that's So

and cost like going you're have control. know headwind terms some few of very like, very in et But the think, proud team quarters, are we see the I of [indiscernible] into delivered going So our we're cetera. cost strong in to I right, next and we

Joey Wat

Anne…

Anne Ling

Hi.

Joey Wat

Hi. points Andy's want I to comment. just to add three

we X.X as cost upside three, peak is the during are can to example. about the with have Year point during period to on, I enough trading aspect And very trading of of personal hour. equation. good and New AI-enabled such work we delivery really, upgrade, peak more peak terms side, If routing and point optimization upgrade hour. that In riders, the other want sales sales continue is trading the of a rider really two helps. zoning, and Point the actually But Chinese trading peak upside point rider two have we these out period course,

be side. just we will So to bit cost it misleading if the at ourselves look a

store average holistic we delivery having holistic the the then density, It's this, that So it a when we increased said portfolio that's point cost. to that two. been It earlier indeed, think Point necessarily But is the delivery three, approach. circle a stores And more straightforward when reduced of this way. Andy that distance. approach. about not help is was

reduce we the X to the For and example, the can when reduced kilometers, delivery rider cost. have distance X we that from of store, kilometers more

only not the So just it's cost.

We have Thank years. do have Ann. other the the you, both few that - number quite manage last have can has to able the And that we a sales and costs. our shown that been to to in we do few aspect we increase

Andy Yeung

this And is Andy.

Just - If two I correctly is opposite incremental Joey’s things. want out. to add incremental a higher. little profit margin bit on point - sales, higher, Joey's margin is much right comments. the is One There

That's of we still looking to The very think that in The work, run enabled effect. interesting rider how we're high delivery density the a other see fact is terms by own I right? our network. the network. one It's that the network thing that dynamics

We have hybrid model. a

Joey Wat

Correct.

Andy Yeung

work manage executor, we We own the with delivery, outside. with the traffic operation that app. and our But

so from on can We benefit dedicated that rider, continue looking to factor the have that. we networking improvement

operate operator be [ph] western and a US, western here the So bit in model. We different want somewhat operators from may a China. little most, create that to big

Anne Ling

Thank it. Got you.

Andy Yeung

Thanks.

Operator

telephone Lou Morgan next Lillian from Our question is ask Please Lillian. Stanley. from your question,

Lillian Lou

has comment Joey. follow-up actually Hi, the thanks. most were questions the Hi, of That's have of I Joey answered. about holistic on the the business local still the questions one and because that Andy about approach. made

margin dynamic it's ago, lower to ago, to tier So And delivery of changes a kind Will impact relatively XX%. But of right delivery, still still the then, cities, compared to a a be of the make incrementally compared store couple also Compared actually what particular, changes? dilutive. to can delivery of the years of know when we impact you. the on of margin amount we in depends this years? the what it is margin? lower smaller calculation, projection probably was margin couple this revenue, close Thanks of - kind store couple higher. still to in for positive kind like margin? it's it's the to density and what And that also, it kind now tier In of of to network probably next years

Andy Yeung

Lillian. This is Thanks, Andy. Okay.

maybe more that crack a additional little if bit a take me Let this more add, and have Joey at then later.

delivery to is corporation. - it's delivery, fair overall don't dilutive if know In I the the terms of think I it's margin to say

we So we look operation mentioned delivery. i.e., product restaurant multiple delivering holistically, have takeaway As before, at to right, customer, of our like right? we ways the generally and the

need satisfaction. at to look and you to you because time, right? need for ensure then restaurant margin e-commerce, the consumer. food certain us, to it's consumer the it of Now to can you a quality customer important is don't at, need just E-commerce, distribute the food deliver you Food and - to obviously, unlike right, warehouse

location So is having restaurant must. production a a or almost

been For delivery, growing us, very you if look rapidly. delivery at the has

before And think are bit first the overall XX% incremental sales. if right? I this that for for similar we part you that, restaurant to - we year. stable, XXXX, the level back in the look then largely example, believe our So it's other KFC is And pandemic, 'XX. that's it margin, then in to at quarter about 'XX, overall was a

increasing. period, all So delivery has been through this obviously,

to to sales margin. was it's it. in I lot now So been about our it going - Obviously, As XXXX, of about delivery hard about able right? and mentioned maintain of work. hasn't XX% plus, particular we're it's before, But a that through work dilutive There's us. XX% [ph]

pandemic cost it in been look The we this XXXX - XX% to the in example, or being KFC, example, despite see including other stable is at, example, if So 'XX, right? one in is largely level, that both continue XX%, was [ph] probably the for wage It's cost at to stable XX%, at So China markets also before then like, expenditure, look for XX%. about which for inflation you there has also, you about labor high and cost 'XX, for digit - - and right? KFC's labor, of if had bio we XX%. 'XX, year, is single

incremental So not is dilutive actually overall Joey actually these sales additional have I margin in delivery, the for come think high. contribution us. it's mentioned, as from by necessarily If because higher pretty sales bring we marginal

Joey Wat

maybe get the delivery, you locations don't are rental relying I it a But to be delivery-friendly more compromised if the relying more are when as well, has opportunity the to that us. good rent, Otherwise, too business. stores, much, small be and the store actually location. percentage we too very, we more and for on open deal point more for very and lower that's not up that at slightly more location help cannot building into just have Because, on delivery bring Actually shift Andy. a just question. one add, Why? to more Lillian. the you, dine-in heavily business our is business, actually Thank

as it expand delivery, store we moving helps. our So certainly, portfolio,

Lillian. Thank Okay. you,

Lillian Lou

Joey Thanks lot, a and Andy.

Andy Yeung

Lillian. Sure,

Operator

question Christine. Our next comes Please telephone from Christine UBS. Peng question from your ask

Christine Peng

I the provided quick outlook Hi, the by regarding earlier. just management. question have one management

situation, there into some you traveling still having that, observed activities, Day in regarding So said pickup actually especially but strong COVID-XX China the going the we very are in domestic mentioned holiday. about, uncertainties Labor a

is compared can upcoming give investors that terms in one level? two more expectation same-store get one pre-COVID-XX a past you're maybe we the the quarters sequential setting terms better Thank months, can in feeling of recovery so or in color sales observing with what be So you. China us two the trend you in or of the for should

Andy Yeung

Hi, Christine. is This Andy.

think I Day, and bit, volume, if domestic I that quite like travel spring have going picked you're especially think, weekend. holiday's up the into Labor a and the correct festival So year this potentially

So that's volume traffic the overall side.

consumer I think that the cautious. the is difference still behavior but - that remains

So look the at that January, they if trip shorter you say, are trip.

are But economy with about level, right? probably the at So economic generally sort they situations level right, so of different. down like pent-up like to there I that level, when some go generally, to still I XX% we also obviously right? day the the then sometimes if there's overall similar infused it's relax. compared spending The to right? to need are - like be and relatively People type for you see that's separate, strong. the significantly, situations, right? plus I think, look what may So trip is to two And sort think be down, to quite that post-holiday things Joey holiday, sales out pre-COVID we folks. we spending mentioned, still that is but of before, holiday And that Like uncertainty see take will observed think season, different. and trip COVID the we this take also softening. will that So of they cautious then urge But

think obviously, have we but and at it's reason resurgence again, going what's - I we before, China, early alarmed, on January. compared if obviously, terms alert. be situation overall look situation, we - COVID at you look is here. compared we XXXX, we to in that's mentioned Like, year The stay - as not So in the last if COVID mini to even end to but in much to alert, better the situation, a need because of have of

is think everything I back think, things calm reality for I think to easy down, But normal. to when it's like So that is folks not. it's

think We would it internationally, consumer an impact segment I happening also here. - on also what's overall have the

situation recovery, not the just for in and to out or the it's the us to constant need we And it's uneven. out expect folks impacted full recovery to India are go have reminder non-linear We to continue that that the a seen in we a by COVID-XX, thing. a wood. India - not of We be

we analysts I belief, different that's not -- our say and the same but liner investors our to firm operate way some And we think in this how the how And linear sales of same-store it's and extract do why time. full to recovery and take or we situations. encourage plan. extrapolation. is we plan for scenario That's a different

Christine Peng

Thank you.

Operator

And ask Yan from question Lina question. from our next your Please HSBC. is

Lina Yan

a I your detailed sales effect Thanks, Hi. on management, the regarding for of at very hubs. performance. traffic the base analysis the have question

the in year. growth last hubs traffic about to very started talk second quarter the you from think I negative

So it from like high single-digit sales, has last always been of second quarter year. your

sales So Thank will base hub more for from become would you. you onwards? the comment quarter favorable traffic that second

Andy Yeung

rebound lockdown, impact, significantly level. big and a I we first Yes, I volumes last pre-COVID then think over in likely, obviously, right? So see the because the the the the have think beginning, in traffic still in below the quarter, year year. we the But at

on on in in the the program, also a for quite a China I And compared you in see will period. will the pre-COVID, think a it calm then obviously, to fact January December But we're a bit of recover. resurgence that two vaccine year-over-year year encouraged after think the - basis, governments I will period here time the by So fully possibly take improvement. situation is and

stores for transportation KFC I but it - because more have So would hub the you location. impactful in think more

don't we The is that forget, international, other part have international locations.

and that travel big be on So to right will continue is travel, we immaterial hub. right? country overhang a transportation much So pretty open until up international border still now, international the see

Lina Yan

very you Thank much. Okay.

is I comparison to year every basis? you. think Thank So referred a comparison two

Andy Yeung

That's right. Yes.

Operator

There hand further closing like is the time. remarks. no more back call at the to this for Please continue. questions speakers I'd to

Debbie Ding

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

Andy Yeung

you. Thank Bye-bye.

Joey Wat

Bye-bye. you. Thank

Operator

you all. Thank

a great Have disconnect. all Good-bye. may You day.

Yum China (YUMC) 28 Apr 212021 Q1 Earnings call transcript