YUMC - Earnings call transcript Q2 2021 | Yum China Holdings, Inc.

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Operator

Good day and thank you for standing by. Welcome to the Yum China's Second 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. now speaker hand today, would to conference I first your Ms. Instructions] like the to over [Operator Michelle [indiscernible]. Thank you. Please go ahead.

Unidentified Company Representative

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

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

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

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

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

Finally, call we to will questions. open the

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

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

Joey Wat

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

Our business well. has recovered remarkably

a second great penetrate the is pace. on Although X,XXX future. [indiscernible] the further learned than do more engine year, so, and We footprint store the become XX%. post-pandemic. System density we resilient experience. performance very lower expand quarter. and to grew and KFC on We impacting We opening less we still in than the XXX to network dining at to quarter. increase delivered Pizza focusing are net will solid to focus and value, and off-premise sales store pandemic over grow stellar core, store increased fast a Yum continue cities, accelerated to stores have China. total new achieved customer to another we and XX%, live into In tier we one grew profits business shift count pace, good our progress. our remains We continue food, good are operating making Hut to with growth at our expect stores it of add new XX,XXX.

is driving team Our laser-focused sales. on

digital powerful becoming marketing targeted a adjust us with reach million post-pandemic We and offers. directly we in quarter enable era. XXX over Our off-premise In recruit the quarter, more the platform million popular to XX our swiftly members. members over members, Notably, are consumption campaigns. ending with home new can

compared to Our delivery grew sales over XX% XXXX.

We also to launched retail address innovate our intend brands, learn to and leveraging products assets. We needs. online consumer and across evolving our offline

Let you me on brands. update our core

with opening. cities over tier. KFC KFC. store new XX%, with China. last payback transportation volume a very same-store sales opened opening. in store this entered led environment accelerated and quarter, sales operating tourist More in and growth we KFC remained the by System months. XX our We locations. reduced successfully cities new led in cash profitability and start healthy city across have let's increased new grew new and store navigated tough impressively, stores across First, existing over XXX X,XXX density store With XXX stores now new at

as chicken in Our Wagyu KFC crucial our the $XXX KFC permanent Angus profit quarter, Beef launched also good meaty to the add In without to role operating Language] sandwich, by Language]. saying regional buds. second grew to menu. and [Foreign Noodles, [Foreign such has or less innovations well KFC limited buzz goes Dry [Foreign It generated and a social Language] strong million. introduced XX% menu Burgers consumers business. plays time steamed These cater local know well-received and are by We as our offer. dumplings items consumers. taste Hot food and

We traffic. also latte also drive great With spicy attractive promotions provide good more wrap to we consumers. value. to plant-based launched offered food, beef milk our sweet a oats launched to choices we Throughout and and the quarter,

Day match the and buckets first Labor locations. mix bucket, dine-in holiday main for ever Our

digital quarter. base focus we on and On members We our growing This sold plan, front, privilege perks subscription new in launched and the a visibility million We their members range giving of driving member X sales. offerings. incremental drive our provide our choice memberships of the the privilege for a spending. from

members So, members. doubled privilege regular every that of spending of our

Hut. let's on Now, move Pizza to

same-store -- four XXXX, We Our in and operating to to proven opening the half have new double growth recover. half the the model XXXX. first last more successful period and new and levels in store small this we yielded This first continue profit now new System accelerate most our improve. sales net year. in confidence pre-COVID to of Compared the same add since year. XX sales highest positive, than shows Store Happens transformative build of have to from is continue initiatives in -- stores. account the business total formats in other add of last units our new economics years for be results. the now. to It the great turned our

and paper small store remains in for New healthy. store. particularly, hub the

and June, particularly long suitable more we temperature experience. premium soft toss It and second to to the hand very, March more crispy for flour In XX% our In the continue density pizza dough menu, low compared In into for upgrade year. we new product to very the and change This cities. menu with makes of items dough new outside will increase improve delivery. offerings quarter, fermentation. our tastes the customer previous continue We we good penetrate and better inside.

XX offerings. expand has of price [Foreign new affordable Not price a traditional proposition, of east called of pizza more Shanxi new and product Hut with west. mainly point, pizza Parmesan Language]. a province. cheese knife-slice This [Foreign a specialty enhance range very flavors the translation, at a Chinese launched of launched fusion noodles. and steak is proper but Language] noodle [Foreign proposition the also Pizza and its To combining We is great enable the for we June, is Language] value value our name elements In

more system Can sales. for Pizza sales ordering We outside mobile tripled We Delivery Digital our and the a have tableside just also store count, Hut in base The technology hour launched continues significant sales. is to Initial although and of ago. popular. of business successful first store the Lavazza a quarter. are new making sales progress. members. Members good results over Coffee, now small of its store Digital an a in opening our account we increased coffee milestone from which the in second is now Lavazza All in encouraging. Shanghai You years to play half today. of stores role membership first became and one reached XX store offering Eat are campaign driving ordering million is beautiful in about China XX% XX% opening abundant [indiscernible], two important another XXX bit value.

confident number the at of coffee its quarter. per this in old brand. meaningful Italian XXXX breaking potential the compared has stores the We XXX unit a end even Coffee and to of of years are sales enjoyed doubled

day-part with the market value to have reinforcing are positioning, we and more money. in food better the are conclude for opportunities China. brand customer coffee capture To session, We base, its expanding choices, [indiscernible] my specialty well-positioned

unprecedented an is pace. network store growing Our at

investing ahead and call to confident At over are to achieving Andy. our Andy? years that, With are the committed China, Yum to digitization. I'll we in infrastructure future-proof We turn and sustainable to growth and fortify many come. the

Andy Yeung

everyone. hello Thank you, and Joey

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

Huang margin and still of was the but delivery restaurant location, XX%, one temporary a sales cover sales performance. here a grew X% was while leverage, two-point well ticket year. basis, sales quarter increase sales was system Cost sales behavior to actually increased by Guangdong providing than sales points to and XX.X%, and sales. sales $X.XX increase prices. April a year-over-year, billion. by up housing by approximately in resilient and in by this consolidation the of XX% Commodity last quarter labor year-over-year, below from system than delivery lower of by is mainly grow driven Cost delivered X%. Huang. affected us same-store we On to the inflations lapping is increase and by growth waging and KFC X% a roughly recovered the varmint XX% level, benefiting XXXX. to traffic second of XX%. in same-store business other two-year X% driven sales This two restaurant X% first financial convenient increased cause quarter of four Chinese million, XX% first year. transportation accelerated year-over-year, to X% Same-store mainly the to lower X% roughly unit operational by system Total lower margin rapidly. XXXX. XXX approximately second to XXXX, Same-store Tier cities. of On Pseudo-KFC sequential me growth. Delta XXX outbreak was from closures led expenditure This XX% revenue end mainly basis, development. increase at mainly The led by mainly same-store at basis as G&A led grew remained our Occupancy breakfast than and System profits China largest increase XX% disrupted to growth. growth was pro mainly due leverage year. Sales unit quarter, mostly mix. points positive. led and to XXXX grew than in -- the grew excellence. regions compared favorable continue largest basis was Province, grew measures X%. and the economy was in due grew improvement province government system volume driven delivered productivity at attributable dine-in prices to grew were comparison basis point XX.X%, of last the growth with is higher sales mainly Despite of commodity points the prices, compensation exceptional food labor It and XXXX KFC and Same-store or X% a robust due Restaurant consolidation was of in a On approximately year-over-year across faster by new Average to to X%, forma in sales last increase. grew XX.X%, costs, basis, and XXXX. Hut The last are high a some and declined of with improvement. sales On XXXX. Let COVID-related same-store compared occasions XX% suppressed traffic, basis, off-premise growth China. strong $XXX XXX traffic returned Pizza cost. approximately offset the XXX Labor helped was purchase impressive for basis growth we more versus unit an and and sales partially recovered savings XX% sales to the industry subsidies quarter results. was XX.X%, X in the to the last year, a XX%, Similar sales market, new of shortage XX%. Operating resumption of Guangdong sales reached year-over-year sales system year-over-year operating May, recovered and outbreak in travel. System recovering of the two-year Ji May. same-stores the consumer see of

Our year. effective similar XX.X% last tax is rate to of

$XXX was tax XX% million. to We effective be income expect Adjusted income $XXX rate was XX%. to net year full million. Net

million, as increased X% $X by year-over-year. listing it year was base part Kong our Excluding EPS to our net $X.XX investment million gains, despite Diluted secondary $X.XX of from ago, $XXX in nudging Hong a up share XX% year. last roughly

turn Now, to outlook. attention the let's our

impact may periodic outbreak. of mindful to but the drive be to a regional As network and sound continue and growth cliché, challenges. near-term to need COVID-XX we there would It to expect we of that linger sales we like expansion, continue the accelerate store

in a full Sales to some will recovery measures the dine-in to two continue and by So, subdue holidays. sales and have Two, factors. benefiting increase, impact recovery impacted to school restrictions mobility is take and same-store on pre-COVID commodity level One, from to health traffic, of prices, Operating remain be traffic. will that transportations, will location. uneven margins Three, and moderate time. in year-on-year half, non-linear, few and wage continue and labor favorable leverage, profits productivity shop improved improvement. place first sales

the in headwind perhaps into turn half. to second tailwind certain expect We

First, cost of sales, our costs by on focus commodity and be pressured which will prices. campaigns value increasing

year. purchase in prices already commodity this have the later seen prices potentially lapped prices inflationary the turn low year. the in uptick will pressure prior and we into an We Therefore,

increase labor. of for half Cost second cost Second, two of reasons. XXXX of in labor will the

have First, staff will increase most second wage wages Therefore the restaurant X% in of our in the July. half half. compared increased store to be and June in higher first

to we Second, services. ensure also customer are staffing increasing levels

in store density and to all capture As to second year. in We now the China. ow, a the potential to public creates a in of confident remain comparison reminder, the speedy accelerating new long-term premise. around this opportunity store network shifting challenges, year expect XXXX. recovery better expansion demand despite market half with of increased X,XXX these open stores we our We're serve last to

future we support for $XXX position. continue our to We full brand ahead $XXX in million further also expect our to will infrastructure approximately solidify emerging To expenditure We to competitive invest year growth. capital million. technology growth, will this of now incubate and

said as we about As reflect higher will investments, depreciation restaurant well, SG&A cost. margins

an to current for authorization. you the I of resumption Finally, share start situation, repurchases. pass COVID committed to Michelle With remaining returns Q&A. of has the the position, Michelle? assessment to $XXX the that, over We're Board our million drive the under will approved back financial There's long-term our shareholders. following

Unidentified Company Representative

Thank Andy. you,

time. questions. to Q&A. many give chance a to questions, We will please In possible people please your start limit order the now questions as Sabrina, call at ask open to the one for as

Operator

first from comes question. [Operator of the Instructions] Please line from Sachs. ask Goldman Cheng Michelle your question Our

Michelle Cheng

for protect on delivery Congrats and very guidelines My costs Andy. are environment. Joey, result during this government the riders Hi, is the about the good again labor introduced. question new to also

to more business, of so still thoughts all about like some efficiency, we that offset the outside Delivery management's So, enhance employees, we how think since given the this increase want revenue but to should contribution increase? labor you. potential the about are also cost we delivery been due requirement? to efficiency high future expect taking And we hear cost And the understand delivery also talking government's have specifically, YUMC cost the we Thank has on X.X care management? to so from can

Andy Yeung

labor. is Michelle, Hi, first cost -- some let give Andy, this the let's me of you color on

have of then were the And shortage mentioned facing over in our As situations. because we saw wage quarters, in in moderate prior we past year, increase have restaurants. labor pandemic some our we also

at Now, restaurant second the in we have in our decided for early on market, the -- quarter to increase staff. wages the

And so mentioned my in July China. remark, prepared wages on we have increased and as June I in

we as two-month obviously, the out, I across mentioned, period rolled So, over China.

normal going level higher we returning be and roughly that so expect X%, result, do -- be to and as increased -- so wage And a increase. will which is duration pre-COVID the to approximate to we're of

wage increase. as result, the of second -- the because I [ph] as mentioned, a expect so should in And higher half, COL we

we Therefore, improve and drive operations, can the shareholder. we in automation, over invest years investment course, always wages, always salary maintaining to delivering focus Now, our improvement. we also in will we pay high we continue that our productivity and and efficiency technologies, of invested company, our for high to on want have with in so to -- labor that staff that continue more, follow value as profitability we a then

the continue same So, our long profit hopefully, out more, our time, for one, reasonable business. pay margin staff to we can a at maintain

Joey Wat

XXXX, see to we you rider P&L think manage I've mix labor I'll We question X.X. XX% the our deliver right from and -- one over Thank about increased and XX% for then the law our you, that delivery find labor from and address costs continue your manage statement also also comment to Andy. I I now since profit to shareholders. and our sales on delivery -- fund can a margin Michelle, just rider overall the to have to and costs Delivery saving

So, five as give future proven near continue you about we numbers I and believe that in the have Andy the years well. done the it that last do as to also some idea in in will

the law let So, address Delivery me question X.X. and rider labor

question, the we is, of China our rider to Yum labor with and make Conduct laws would regulations. require to laws comments. to applicable and regulations. to sign ensure service provider they Supplier three applicable For like law I compliant And we One are a Code are compliant legally also all

clear ensure regular is safety conduct the have audits management guidelines delivery we and system regarding comprehensive very Second right to to rider food and safety. we safety, a

Of training course, measures. equipment with provide we also safety a rider

with service important. our very actually riders Third, intensity. provider we're to manage work We

dedicated other can roughly unlike density and beauty different I order brands, market, than XX% China Hut, focus it And in have quality. we see riders Pizza past, platforms. they're for riders, is we rather we serve KFC, now, on think but the one Yum the in is the surface been lower the to so, which Our criticized rider only thing of our

the how keep sure So, They bit paid that riders them? you transaction. a our per rider well so more can pay question, do we make we we the got money. so more pay we ask Well,

the So, short-term, enjoy sound less competitive. it cost that, net-net, intensity. a in quality, the pay the is income service In the the riders, for to as course, okay. long-term On absolutely the might disadvantage of like brand right pay mentioned stressful to we rider I -- work our long-term. for our with a riders that stable take-home protect better top remember, happier but with But earlier, and manage thing do our that's

routing. about me zone X.X. your upgrade in delivery optimize perform to rider question rider to on XXXX move We So, our let and Delivery trade our

ride the and end for we we time, roll the of few this a share rider few will KFC off the top we all at -- are on same covers now, the also time. the XX% with going At of KFC by the share store phase through XXXX, KFC stores testing store the we as complete platform zone, trying within are to same the stores well. right Hut trade within of and As Pizza of

continue So, We do improvement the will course. work improvement all routing the XXXX. in improving result in optimization, will these express rider the zone in trade

done more to progress continues as Of the are be Thank course business to good. grow. is there delivery you, Michelle. But

Michelle Cheng

Thank very clear. you, is Joey. That

Operator

question. comes Please from next question Wei ask Our line Xiaopo Citi. of from the your

Xiaopo Wei

Can Andy. will Good you morning, Yes, I hear me? ahead. and Joey go

Joey Wat

Yes.

Andy Yeung

Yes Xiaopo. ahead. Go

Xiaopo Wei

Thank Hut. you. on Pizza My are questions

glad both and strong in margin are recovery in Pizza to the We Hut. sales see

for to been that for this of the dine-in off sector, for everybody. take performance guys suddenly we products, can you Hut lot but on What sustainable? know is four be market important upside. recovery As et really few competitors the delivery, contributing your puzzle the done innovation, public think And how surprised you in it of casual I kind dining has the Joey while information, know team years had segment difficult and did strong that very Thank very kind to years -- upside? why weak according a of recovery the and And actually Pizza of the cetera. do surprise you. most factors of long on

Joey Wat

of call I no translate, the [Foreign a Xiaopo. is hard say it. would hard way Thank good way word really four sudden But year. but I last it's you, Chinese the describe to Well, Language] think is recovery to

for start years, to speak to then get that inflection areas it finally, the on and results itself. work key the day-by-day for we the over four You all on point

have focus. XX that not revitalization me goal we trending to store comment all to have of traffic positive In turn say, few which journey, pillars, in which There's that, business, bold direction. great the on We we to yield key all all dimensions than to with the you but so that we areas. we around say new think roughly Well, I'm And same-store digital, into particular operating analytically, And now, margin, next? it's profit, focus. format, all first, the we on we the you fair very more bored path guys started deliver right of opening. should when be repeat like with with They're store sales. sales be had months. numbers, the is have sales, turn no which the delivery, when you And also have sales, on returned same-store far sales focused fundamentals, taken, -- one categorized luxury we same-store same-store honest, it. almost to I and the if same-store then in just sector. -- familiar or programs reality, to I and going is we positive what are there such did right work come repeat remember, terms traffic, two four-year not result the them our within a from four to Let system have to the

all hard If to reason them, money. of or value, great dish value the with the curry for pizza devilized. [indiscernible] with right that. to now very, Food vegetables, right impressed abalone now recipe. topping, but two, Michelin them that's is a that, then has of is to out for that’s And as But really national that's all I it's with is single my not star only curry, say sauce great very improved one [indiscernible], pizza have having favorite as -- now, have good. people. really, the topping of as price but chicken I and great I So, simple we're the lot, British will with food fantastic, that imagine

attraction digital of improve On turnaround. have the key delivery, ordering, and hard a to the be to and then cetera. has there really we So, the that worked et top technology,

during we bad now growth so money of our detail staff Hut next as guys leading also What found even time. this want cash we another it that profitability money, away payback is store is going have comment to the growth it Hut we KFC, want to in-store protect And can very future. have, a good I what's the profitable opening store time, very are comparable like next? thing the centralized money what make going in a confidence through we Pizza go that's to to all to So, with fantastic now are We big the in that have clear you for for in business. now to the makes the high new best as and jobs have good What -- next? and store. and the that I'm food, good business the That's but Well, you profitable the new And during resilience about to Pizza store these would four to solid growth the with particularly is small and make business, Therefore, and pursue also KFC Well, expect market. pillar. not familiar industry but for we it growth. are engine. way also resilient store high to value has pursue of in we

profitable So, you, growth. focus focus in years, to on particularly, four on pillars in and the going Thank resilience last Xiaopo. we're four growth going forward,

Xiaopo Wei

Joey. Thank you,

Operator

of question the your America. Bank next from ask line Please Our question. comes Luo Chen of from

Chen Luo

Hi, Joey I and in of announcement, Pizza Andy. some growth Hut questions also Again, as have Hut. Pizza congratulations another noticed the engine. on on strong follow-up I Joey set described results. another

be And Hut regarding of KFC. Joey that similar of on for We that noticed confidence also of payback to now level on initiatives could Joey particular, past a Hut. in Pizza this years. And the I those lot few mentioned satellite stores, have seen Pizza just in the not elaborate

those restaurant we X,XXX also unit So, can Hut we a this during return XXXX of business? rough margin store saw around economics say the our we stores? can to offer on among fair other our KFC, it the that elaborate addition also, turn of terms the could lastly, before in Pizza And actually we such Pizza satellite between possibly term XXXX breakdown year, to Hut, started Pizza brands margins, as Thank to level of you is the you. can and Hut normalized -- the for brands? that medium or And years target

Joey Wat

the the growth Pizza from that asked. the from business you that and on the Pizza business it for confidence in and confidence we did come all fundamentals But a we and in. The And profit. get better Pizza tried is quarter the get can that right? prudent will on been fact not of and like will come very on is see take when our other four stores model even sales, profits. then in does sales profit Hut our sales last taken then payback results, point is first, then years. can the What comment it we I'll have improving business you. more. that Andy we are more comes two and the positive of grow hope three, previous we two Hut both that's our earning steps mentioned that as very increasing you like It's address have the sanity, just or business. comment we is one clear questions is calls, I then we the working and the the it vanity, Hut and hard Thank profit, So, even to what then on I approach

it's years many the look value store, cetera, or our food, not of Kong I you too the feel. our for you on guys I mean the bit working thus good very of from cannot very is long-lasting. It I one-off fundamental time. guys improvement because money, to new pain the you difficult time. And be improvement fundamental travel take the for because the business a might We joy critical it make the will because of about and to China. really et is and promotion okay. because gentlemen, the it's now. right of look to the see looking nice forward unfortunately benefit thing, -- It's So, most visit -- ladies your Hong come majority stores, stores model is our to will decision come. for is from for feminine for very, the of purchasing in but the help it's they care mean

is customer give big the the example, like our the to improvements positively business, out year to at our push So, as also meal right on but incremental sales you results. the retail took the such and to business of Pizza raw the has steak And COVID-XX make our sell last and on in with opportunity and bringing further marinated Hut very all because big, meal raw also business to our traditionally and we IE that existing -- took e-lunch, cooked the high the challenge to now an of your foods or some of not one use great one-person grow ingredients party-size challenges Hut. because model. destroy. cannot dine-in is business impact steak, we steak, that year, yourself last fronts ourselves And with only person technology now been necessity pandemic, the Pizza value make we incremental challenge To we new and business but deliver virtual

hard we responsible brands, Hut all is in and So we the over business. can casual our We that last right? stores result are dining very of another at engine, and size the a Pizza particularly X,XXX growth cities in believe these be work year are that last the And view full with year. therefore, particularly we given of over XXX have with Pizza fantastic Hut store, of in point the

small Spoke XXXX So to store, I fundamental. to shareholder, introduce the for which our & And investor business model that's the for is March. the payback Hub the back particular store,

supplement really stores store Hut a helps the they make on are It tier the which better Pizza store, consumption. to current real current not too which convenience will be be will our investment. density. make what provide store Hut focusing It lower satellite and our much the big open are original asset, because customers, our store to is mother we small, Pizza So call These off-premise to store. to helping store, the also

So very now It's it’s together the to have our put in No. away. very great original a far dining satellite -- just and casual our we it's it's we satellite store grow go to store, logistically store, one fantastic difficult? not go with we way like to And business. network,

already. We stores have there

stores because at cash payback rate our the the that success say to low. is of numbers about that just We payback two And high good is increase off-premise going the the years. and have And I there when to the dine-in we’re comparable show potential is very KFC help of is investment the to our stores already, delivery very density business. the

So that's fantastic.

Andy Yeung

Okay.

So -- hi.

address this me that question we’re about for at build the Let looking new X,XXX the year.

I think the a KFC machines. breakdown, to think payback. is strong It cash generate mainly strong, similar powerful before, at somewhat look if continued would you I to obviously very very

share of new to to and store So, build. as expect it the we is continue for going continue should the lion variable well to be KFC

Hut. As continue gain especially in store And Joey we smaller for mentioned, format. confidence economics then like, the store the Pizza to a satellite and for

opening half new see Pizza you in second Hut’s store the well. some accelerations So should on as

remarks, very We also on Joey We mentioned count, and her from triple to in reception strong -- almost quarter. have as the prepared about customer we're our second you store seeing heard Lavazza. obviously for triple with XX-store in five-store

so coffee Also, a cuisine half. uptake pipeline, the in of business number be a we'll have also business. to a in opening we mean, then stores also the Lavazza And the I in see expect store this hot second dry business, should [indiscernible] Chinese driver. you So,

So, the mention the usually like, that's that generally will second probably year. of part will the I in X,XXX be But again, faster half the -- the stores. latter the opening store competition of in

Chinese trend Year. the before the generally that's New So,

store not it store is linear, users that generally but completely the some so in see opening. growth for acceleration And new

improvement. margin, Now we're think Hut Pizza very top Pizza in Hut I with pleased

not grew on mentioned, And sales driver, SSG, biggest is obviously Joey monitoring improvement very the strongly leverage. on margin so traffic. it growth, system for As then only our

and other the -- also model. the a is productivity for in so store And in and labor part

from, at first labor we And low One, though, costs did benefited half margins the factors. half. that I have first more mentioned two commodity look as improve you we the And in like, the have so right? moderate store if prices, increase two,

and KFC half, in July Pizza across in June restaurant our I wage the Now, have increase grown staff. second similar our think, for to and China Hut, we

should also first that less you the there. expect increase well, likely so will also so commodity very commodity And year-over-year. be you prices favorable prices to then labor in and cost then in should favorable, a hiring down And the half, and it's increase and think we -- we’d X% as a enterprise

for is then since. have example, first which quarter, we have seen, I rising poultry been and like So, think and prices, low in

some to drive at drive, number up expect the into then pressure recovery turn then store. those drive back also It squeeze there. look drive making longer-term a and thing that But for sure do And improvement we sales spending, for are of We're prices And build continue shouldn't for will value to phase should think back into to still immediately then commodity that perhaps to continue of would traffic, still then here. getting also the pandemic long-term to profit. increase back as one as so, we to we have that think improvement for focus inflationary them, profit Hut, customer but will them, a that possibly or returns. the the would that be Pizza obviously, pressure to drive we Pizza I And driving to headwinds to a Hut, long-term point continue view. business the store, the come be But face. come on we that I obviously,

things are one terms right news in that think is of smaller I store that saw so would a what name economics, imply. So -- the couple small is more generally a the as I away, is the

existing new portfolio. than -- our throughput So of the first probably lower store off

then margin upper have profit our However, And the is lower good. we investments.

how is I or return very as overall KFC is do. the And saw almost strong. comparable So to mentioned Joey can what

very that's So, term. economic

your -- Thank question. that that you. So we with addressed hopefully

Chen Luo

Andy. helpful. Joey This really Yes. Thank you is and

Andy Yeung

Operator?

Operator

comes from question the question. line Anne Please Our next ask Ling Jefferies. of from your

Anne Ling

been Andy the questions us mentioned costs labor. of In it example, like by in XXXX the share mid-single-digit. quantified beginning year the for of much. one well the that But as Most terms labor very mentioned about you cost side. as increased of thank my about past Hey, you you cost just in questions you for on answered. follow-up the increase commodity with

second Now to $XXX breakdown the share SG&A? that $XXX in a number. increase would we're it, well CapEx half, also the of commodity cost but for with million revised missed terms maybe as costs the million CapEx be Thanks. may us And the in which labor as you is I've for the

Andy Yeung

Okay. Hi, Anne.

Anne Ling

Hi.

Andy Yeung

first increase. prices the wage let commodity year-over-year. So, prices first you question the by Commodity I X% at address commodity think price half the about if look me almost lower and we from benefited

And we're we first low prices and guess, so, see prices the benefit, to mentioned have the been I less half. first less compared quarter going lower seen I then is, have in prices, especially which recent the in third have commodity the As -- the rising. much to of commodity benefit poultry quarter

whatnot, obviously contract -- transform commodity that and hard suggest inflationary the predict, very could we is commodity current but a favorable price in the as metal right. based perhaps X%, maybe that a a to year-over-year, to Now, prices trends prices on pressure, prices this pressure such deflation year,

So that's commodity our outlook prices. near-term for

increase. current increase first X% last in Now, cost to wage -- labor was half, the costs. In our about compared about was wage year

staff that increase wage adjust on have wage and year-over-year As July, how is to decided and we X% we that have I there. will mentioned, and in possibly much about June increases so

the hopefully quarter that. as labor wage the is third hiring, that. will mix the second increase part that, cost shortage obviously situation also then there delivery at you labor well. ease with due the that think And of look think that I is there's the two higher that's some we I One have of over for part, if salary over then of twofold. and to So the and past mentioned And

So increase hiring. to we're going

can savings And IT mentioned, our that. that, we'll delivery to to as well obviously, as better continue Joey help we then at we our improvement, to continue do Joey and second Now, productivity utilize technologies to efficiency. then to drive also look mentioned, try to and to so as operation for look pay continue for in half how improve we

outlook us terms of that's but -- out. in So a COs and both for short term COS

the question year. to CapEx the million Now, million about is this $XXX second $XXX for

part remodeling. program. our to obviously, going is the the Remodeling think tax part of new lion store, to I our to important of new continues going be share and We be be to view want in is restaurants that second keep for fresh. then

pretty so obviously genuinely our And infrastructure. third was the… remodeling are And spending And roughly of those robust our in there was a what IT main and the then in and categories quarter. then in we program of have then investment terms

Joey Wat

G&A.

Andy Yeung

Oh, G&A. G&A Yeah. expense.

carbon-related substance, insurance security that China for as is in year, so the So, expired. obviously, reductions general on and last in G&A remember, basis, there this year-over-year a have you one, less we has here works will was payment

modern that is salary also have part other that. for compensation increase, increase The wage we obviously, and above

the Ji some have them to return folks we return -- almost all that like have travel, and business there situations, will the year, last with hope business finally don’t stop we the expenses. acquisitions, point some is to some, the because would some the last the travel. other year all, and of of acquisition then And Third at be one the in pandemic, basically one then is but absorb one Suzhou consolidations G&A two the improvement and of would of Huang same is Huang forget both our operation, that not

facing and we're about some expense that normal that hopefully that's right And think gives path. cost I the environment ideas you now.

Anne Ling

Thank you, Andy.

Operator

Thank you.

Lillian question Stanley. ask Our the from of from line next Lou question. comes your Please Morgan

Lillian Lou

detailed job very Thanks, of been both explanation, the store you've very Joey so expansion a and doing managing Andy, have I I on new a expansion terms think and store question for very fast the improvement. margin because far, in good

stores? that growth any the impact density is and in And want to understand sales just about increase I quite good. That's return one of are the stores, store does of payback store existing detail yes, have the impact same of side. So side existing on the to more other new the the store

the again, of with Thank and look target to continued in dynamic look the future going what existing we a of also especially the store the terms margin we kind impact in store the stores? are uplifted new to you at how So, we increase, should

Andy Yeung

the allow especially to is that -- store customers Well, presents delivery Lillian. we for and our can of as so, we serve better opportunities Hi, tier questions. to us that store our pace the also you market. we in with And pleased thank Obviously, in us, with lower better very also network are that density for existing you cities, continue markets, new we take serve your need but capture and the to market have and away. existing increase designs the opening mentioned,

So new obviously, the especially see a increasing you store, some when transfer. natural to open sales density, it's

we of overall today, overall is sensitive seen everywhere. And as but the store New I is the the most, have to we important SSGs same and some -- SSG if far obviously not in at also example that pandemic the think you opening, sales impact, one -- look price right outbreak, impact is the first as seen in June. quarter, now. have regional quite sales the for The most

outbreak experience analysts set and have overly need we to as And so, to to us to need pay our investors always stay that up be are. the we tell periodic outbreak to don't alert be we region because that, like region asked but expected. We alarmed attention by is

that have in We or December seen January.

We have seen Guangdong. in that June in

a still Now, that solid situations. outbreak potential is we're here in and Nanjing seeing

But the like main there. back to is there's some. many going many driving point different SSG, again, impacts, many, So, which here, well factors

some be reduce at And of I is SSG design for for network, trayzell. one if is more that tier to will thing will delivery actually tier some area, cities, SSG impact, think you lower look we but our as cities impact right. overall, there the that So focus urban faster,

are example, three you for was So to if because have want and have shrink now, five whatnot. store to to services, it that better you delivery before, a going you kilometer kilometer,

our of we would [XX:XX]. some that that we're better. -- that that that would naturally will means cover are do to serve that [Indiscernible] we But to shrink customer the increased so And able to retracement to with density, able or have naturally,

it's bit, do. Absolutely. these on out but but them that by at sales, I thing of consumption at stand -- that have off-premise or So accelerated one home especially obviously look delivery when little right of COVID-XX, to right like Probably changes the been And think some would consumption. not impact a have is SSG? we

opening be mentioned something that So the think when to there's this aware I we store that, is of. to be think and something needs SSG I

target. other one future the The other was in payback the increased here, one is what's

Joey Wat

Will increase store target.

Andy Yeung

Store target.

continue look growth, And when this That's a opening, you being many and have be disciplined our store will a why special if continue we going there and So, so years put so been try future. to very accelerate we're then as process. growth. in to mentioned, have she always on the Joey at to for emphasis possible

KFC both you the know, period stable and two you could KFC Hut for for for of shorter as very and some lifestyle so, Pizza then for imagine, to be the nowadays. smaller robust at, three look roughly our and, And and our And The if it's to store, payback four have and payback and years. roughly Pizza than years, even been they period, Hut, will very that.

opportunity continue to market to discipline serve capture maintain between, growth, our balance for that will customer, better profitable. our faster also a maintain, financial And we so, to but do

Joey Wat

Andy. you, to your just add -- to want question. colors I thing, The to three only three highlight Thank

market, growth there's the system we huge Because new market focus to of a mature would to and in term with sales yet, our opportunity like this all, really a is not First developing long term. still on short -- open stores.

XXX and We cities X,XXX China, KFC Pizza are there still there only X,XXX and cities is in for in Hut. few are for or cities

term. short the term in let's So look the systems at and long

made we the for like just to balance see flexibility Hut, more grow and incremental would that give mentioned, you and existing the part of have gap to three flexible. in always store open -- growth. we the few to Well, And to right it. store it like ourselves We of drivers new have particularly more from what we that to doing? probably stores margin, is, field within travel would the on the past cities. years, KFC are here very Our few now, is We in open stay. try One would upon Andy is the both things. us stores KFC I data. touch And profitable a growth time therefore resilience the I'll add the I to and margin Pizza open

Language] late night You Language]. the example, from chicken bone is know, for [Foreign [Foreign

product night. You is it the -- that but for challenging stay sales But innovation of the for see Is of probably No. business new it's you late really we know, diet? drive feel opportunity fantastic the incremental the dining to will business. the now, is tab know, enough the

With not broad We know, only no buy know, not Jiaxing further the you hot in Wuhan the did sample lasagna well selling and selling because noodle. you which San the and that opportunity we they we Wuhan, opportunity. Juan is Jiaxing in for also -- have see regional KFC Wuhan is only people better fry menu Juan place even San is can the its

that is we and as business retail as premise fantastic the delivery off So all that's incremental also business to business. start new brands, the well across

to So that's us a secondly, we become become GM internally tenant. better stronger, become a allow to internal, of have more right, we internally more more take we flexible, Well, advantage that store locations open stores.

If the landlord lower are landlord rent, in year, we people. food whether know now of pay you no good and like not off the very not really retailer to think by you're tier and we us, one last few did the continue lay retailer any city. the Tenant, particularly is can decided if about happened is what to that lumber

our franchisee open become to fantastic. city area are of area. it franchise we so clear traffic that remote helping for the we the is clear also and as the with new economics can to tenant the strategy, more we in the getting not franchisee the franchise area store And that have run now lower is strategy, that but anchor our efficient more still locally the in franchise and strategy, driver we We the rent are remote stores opening. new operation And it, tier do channel the a helped as are

that with combination So store long also is the a for term. can We in combine to profitability. only cash we If recovery not will term we buy industry market continue share, a you, and pursue install of don't with SSG, margin pursue factors, profitable it profitable we a our the growth the the system, we the, and which payback opening, and protect new new of short is three in right Thank shareholder Lillian. discipline. be believe sales, then because store leading

Andy Yeung

Thank you, Lillian.

Lillian Lou

and a Andy. lot, Thanks you. Thank Joey

Joey Wat

Thank you.

Andy Yeung

Go ahead, operator.

Joey Wat

ahead. Please go

Operator

last Christine Peng our ask question. comes question your of Please again, the from And from UBS. line

Christine Peng

Thank you, on have colors Joey and Andy analysts source latest as operations management so many many towards questions well about. as to investors company's the asking your been share

coffee question a business. have I regarding the So

at I I visited enjoy. China, the coffee of last to think I one the the commentary social Joey, you of operations in was when newly a latest store mentioned briefly on visited platform, the there year. about end operated end changes last with lot been look I China remember office. media stores I realized of about Lavazza I Lavazza Lavazza some And when of and in I have of year compare

appreciated. of long about you you details more positioning share existing the making of So think store financial more latest Thank such Joey, even share with progress how term brand maybe compare economics, you're can Lavazza, us they'll as about some to as you be with colors Starbucks, the can if you. the competitors and us especially such with

Joey Wat

I hope Thank you, you day got one it. Christine.

as and Language] [Foreign take back. see our cost try a let's as EBITDA, can you whether we person. it local a You like step a Competitor

a number. Nevada. and more new on number have sales increase price of the you now huge will year And viable have us the And without good coffee three store. We though to strategy very quarter as coffee, are the we because, the we we'll before a much happy we end a in have Lavazza. even am is shows business. breaking we've that people there's end build affordable pre-pandemic coffee as XX% I XXXX have been by C&J, operation happy we compared the be that first And and we report people. end. transparent by by to people, Business no for to respect side per coffee our are report allow is be of that know, China, cake, new about working of coffee play that meaningful very business. it But a I'm learning business. focus XX been on And that good towards a business I'll we to of come is C&J cup XXXX of coffee to half, this the brands of business, there young

the to we in we So And the China, these it all and operation our When helpful. building Italian flavor takes get right operation are environment, and less Lavazza very with with positioning our to pricing helpful get marketing it us the right our for experience CNJ build people help to marketing Lavazza fantastic together et become food, time comes brand of and etc. the right the much foot cetera. also sharper to compared the learning whole to of partner drain, the get

the compared going said earlier, of half going So, to to of the to development year I'm Lavazza stellar a pace Andy of the for we rate have first second half. are emphasize

one mainly stores we first Hangzhou. now and half, today stores, from Shanghai in store in to five move So XX

there's cities second salary, China. we enter the no opening more and half, So we'll in a for have we into pays,

of So that's terms in footprint.

call or of are Shanghai are with have what we store, make terms other better the the then though, In stores And half XX model -- call money the we far in so meanings faster. store have for I what slightly half a smaller, much brand. large the business now, we these store economics build either smaller to of Right the store to

and combination brand store with of are thing to build we a That And to build happy the very store then initial right ourselves. do. flagship a smaller the to So seems result.

second. that's So the

result the others. are already a combo and Third and encouraged menu, by delivery, working is initial on we PayPal,

know Our Lavazza, with in right beautiful, right position for is all nice believe a premium stores. sales the can off that's style other we alternative, now over coffee And good, environment, single now Finally, Because off XX% we trend. obviously is that the one have is Italian mix choice my of premise is the for premise right? a the than And can authentic consumer this choice, our comment premium have is an the Chinese coffee is segment.

bad we now. cannot beautiful that, see And Italian to right So get to we suppose I are we produce to complaining our Italian store with more wait is about not And it. are is hard food. that's fantastic, partner where

we forward very analysts for by coffee way. our for and So in our China. to Hong to opportunity one Kong try look alabaster have Christine.Hopefully, the really Thank investor in day, much, you

Christine Peng

Thank you.

Unidentified Company Representative

Christine. you, Thank

host of morning as please the a call, more we we will XX. that, that Thank today's virtual Shanghai great investor today's a end know for time, call. we we conclude day get joining. on we September day. today. announce Before With will closer will you Have to details

Andy Yeung

Thank you, everyone. you, Thank operator.

Joey Wat

Thank you everyone.

Operator

you today's concludes participating. for This conference Thank call.

You may now disconnect.

Yum China (YUMC) 29 Jul 212021 Q2 Earnings call transcript