YUMC - Earnings call transcript Q4 2021 | Yum China Holdings, Inc.

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Operator

Good day, everyone. Thank you for standing by. Welcome to Yum! China Fourth Quarter and Fiscal Year 2021 Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to your first speaker today, Ms. Director. IR Shen, Michele you. Thank ahead. go Please

Michelle Shen

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

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

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

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

You included and Joey an actions. update should the of is in Reconciliation our this measures. regarding our earnings financial cover will performance provide performance call greater the year key carefully in sections. review comparable over and release. then GAAP X Andy measures non-GAAP and past then detail. GAAP Today's outlook will consider includes

open questions. call will Finally, to we the

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

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

Joey Wat

of safety Hello, ensure quarter, employees nation business. to us for thank business and In the our for like to across actions today. would I taking minimize right customer gratitude fourth Michelle. you all significantly heartfelt disruptions. you, multiple Thank to outbreaks everyone, of our the waves joining the and impacted my express

[ph], shield from us in For example, team during major the our excellent chain Xian supply lockdown disruptions.

of the They immediate community quickly provide to services and need. took delivery to takeaway. teams operation actions Our in this time vital resume

resiliency. Pizza stores. lower X% stronger, day compared X demonstrate new That More stores. product. new also the to more a the entering full higher-tier in aim people per Therefore, per year. of We cities. in to workers to grew times and uncertainty. while we meals have came ago. XXX social for for X,XXX of we where and critical of coverage China's stores. continued revenue or of over can We X,XXX cities, stores greater insurance the $XXX The stores basis, full adding new billion majority The day We and cities the workplace equivalent sales to growth is to excluding brand items. environment, our as challenging X,XXX thrive X% achieving XXXX. XXX,XXX and medical their a enhanced On our we're year, of KFC Despite profit stores in were System new protecting consider we X year Yum store in sales a teams same-store net by a this delivered our supervisors. These around token employees supporting over year, RGMs, the opened We special be operating opened of strategy. $X.X just density tier add them careers growth cover remarkable employees. benefits to pillar half contributed XXXX. management also a sustainability in medical than business provided free back of but We restaurant appreciation. to Hut XX%. for frontline million, grew frontline than

past The by happy few full line a stores, transaction of Pizza to bottom its opening over with also XXX the the was operating record segment XX%. profit results up are reflect growth see XX%. remarkable brand Hut over years. driven year We XXXX. opened volume over improvement strengthened These increase since

me fourth let on provide color Now quarter. some the

the the Day sequential During early from holiday October, quarter. National in recovery saw a we third

impact levels. both Authorities compared mid-teens December year-over-year slightly were to still below but than sales approximately mass travel Same-store or restaurant same-store the consumption of regional But year November XXXX. our the nearly and of or more in less more height implement and stores surged, social XXX overall nationwide. were foot and were takeaway delivery outlook, activities, traveling testing, sales XX% outbreak importantly, our These business. the regional only reduced lockdowns November impact and traffic by At measures XXXX softened our services. stringent provide across XX% industry As down and significantly temporarily closed improved prior brands.

we share the with me our you business. stabilize Let actions key took to

great advantages. the ability drive First, XXX for accounted promotion, or launched customer over value. Juicy exceed and beef innovate The burgers this last our RMB with and core over successful received such we new and time chicken one At year. to and great product new therefore, on limited mix. product in XXX have as putting are broker feedback. upgraded whole another fourth competitive menu X% traffic of We is KFC, categories, sales permanent year. menu and quarter it we sales Beef chicken, million had again

You also Zhou design from Puna the spicy chicken love Hubei to and duck He in partnered Customers Chinese items. menu innovative rep We and sandwich from and popular with quarter. new crayfish Wen the launched Hei brands, we Ya

XXXX, offerings are customer late-night favorites. dishes and Beef Len snack. sourced Beyond breakfast We in kebab from from coal noodles with among KFC SME launched from Kowloon Wuhan markets. XX and China, to national local in shrimp Northwestern regional launches, Yami expand seabay, our

Gamin cheese, special hit. successful Wuhan regional Wuhan launched dry a season, places even or holiday offerings we was grilled featuring hot Pizza year to and winter-themed mignon. At fillet nationwide. mechanism pieces for to out have Hut, the a We last prongs La noodle, roll more big

average across our translated pizza We we also offered trade them our increased into brands. value the toppings, flexibility customers, weakened allowing which response promotions more consumption, to up to higher In ticket. to option

Thursday KFC on and promotion promotions build a example, For Pizza Screen we impact. minimizing well-established at Crazy value mechanism and to Wednesday effective offer margin Hut, while

of of our grew growth represent core with to half quarter, than growth is profitable contributed to Hut. Driving off-premise Delivery Pizza be fourth off-premise off-premise continues compared locations XX% sales. traffic. drop XXXX for services sales. the we the in XX% dining Second, home driver, to KFC a XXXX services consumption with both in in capture In demand delivery to strategy. more approximately takeaway, and key our and Combined mitigating

products retail new We our million to home to channels. choices XXX XXXX. more add are tripled demand over capture food Our RMB leveraging online within sales and off-line and consumption by designed

Lastly, App address the as We the It experience. digital sales million power more of the service their XX digital of we KFC program account The XXXX. and of the unleashed customers in for before. needs XXX loyalty customer members approximately Hut end XX% to continuously our Super improve Member is Pizza or than year and enhance and million XX%. operations. exceeds of

with personalized and Hut billion in-store ordering together exceed using empower order enhanced or automation We've Pizza to coupons digital and reduce digital display KFC, dispatches inventory our waste. in capabilities, digital digitalization For food menu At XX% feature. automatically and users our We sales store over example, XXXX. KFC's USD level IoT. AI, to system X assesses RGM real-time

We color, our a introduced et also technologies of evaluate cetera. shape, cetera, quality operating quality products control customer These on automatically to the the efficiency. improve et food based and experience the system both

on update to Now our I brands. would emerging you briefly like

as Wuhan, to cities expand business coffee XX momentum. is such Tier Hangzhou, We and the Tangshan. X Our X cities year. last from all X portfolio Lavazza Tier covering leading gaining

Pilot our million XXXX, enrich Joy increased growth. stores and long-term and XX% open merchandisers same-store to we the to to the XXX have reflecting economics. with Pizza Bell continue shown tripled tests year. Chinese more XXXX, revenue increase years. Coffii smaller Cake business XX. and with We to our on make both with total more continue compared KFC store brand coverage. over offerings food a approachable compared representing tap success sold by lifestyle we from and will into We over cups XXXX. for to Coffee fundamentals. tune pre-COVID levels to improved stores to ended & In economics, as to will XX% year-over-year growth Taco formula year new grew we improved drive XX last sales refine done improved as further the fine year, XX has last just actions XX store took for consumers. We in Hut the count the formats This year unit

particularly careful was Dawning also Huang due their we are decided in were our and concentrated. COVID-XX. East stores during brands, a cases Our where Chinese a hot situation China, wind hit cuisine review, faced Huang, Northern hard to XXXX Western down Little transportation large of the operation After Ji number pop location to Sheep in located A resources focus. the on and brand. adverse focus and

ability accordingly. uncertainties the call to the face we have want Before external we but and enormous to and to headwinds I innovate Andy, that embrace change to adapt emphasize environment, pass from the and I

protect and key We levers continue mentioned the just our term. in to sales the short on I profit to drive focus

this for building long-term our We will capabilities With period confident we Andy. to core emerge that, to over strengthen leadership sustainable I'm I the growth. our call from Andy? even challenging that stronger. turn are also market can

Andy Yeung

reflect adjusted and Joey, of tremendous of result volatility hello, relief tighter received In significantly adjusted conditions second of grew $XX regional in our team profit revenue profit operating the outbreaks half has up XXXX. in. $XXX deal COVID COVID our profit the the we stable. less roughly has from a situation in volatility XXXX. put in when also relief everyone. strong In We our the in delivered The and XX% operations of you, year-over-year. We we the great to business million but was first Thank If performance the reflects from year landlord validly currency. reached year onetime resiliency a equation, reported on our sales our government measures. will affected the operating Despite business be the $X.X by of public $X.X XX% the was full onetime year, challenges, and XXXX, This billion. remove arising effort COVID and the constant from billion System of to half comparing and operating million. basis, health

initiatives, store store have the of first impact formats despite enable a stores accelerated well. single high cost combined decrease digit us XXXX of A per the payback There China, period newer to still reduction KFC more in The years. lot size, Small We and the healthy Hut reduced X have lower-tier Pizza store us X for majority CapEx in first a enable in years pandemic. other cities. for openings year-over-year. years space around with of store the performed by few in X months. achieved to Even them the monthly are white within especially from past opened We breakeven of flexible. store maintained expand half opportunities

systematic We apply in will store open a process to stores. disciplined promising core ensure and our continue we approach high and to opening

in of approximately Average traffic ticket XX% mix, sales close XX% level. Pizza and same-store XX%, due were the X% $X.X down XX% fourth quarter of increased currency approximately XX% of mainly year's prior fourth the sales the year-over-year, partially mid-October, forma unit quarters, of financial review we Same-store for grew due roughly the Like comparison XXXX to by since XXXX, traffic level. convenient growth. level at by outbreak were grew the the billion were sales decline, same-store our Now sales offset let to levels. providing X% new mainly partially increased profitable. XXXX to KFC's prior XX% me here approximately and with to are prior revenue versus discounts. with remain quarter the same Hut of pro at approximately and level reported repeated offset same-store Even XXXX results. XXXX System with measures year. in XXXX. X%

This While the more lower the Hut which sales X-year margins. average fourth average the down in mix This transportation locations. has was in. store for than tourist in on ticket our in quarter decline increased basis. about sales, a than higher dine The quarter a by to XX% smallest is was a down in having the a was location ticket fourth mix and affected Pizza sharp KFC delivery, experienced quarter approximately due seasonally by and X%. KFC driven

more year. to sales value XXX deleveraging by points sales due deleveraging, mainly increasing on Restaurant as This sales is margins caused in to compared down X.X%, delivery promotions was delivery costs last as cost So basis higher well the significant was margin impact volume. inflation, more prominent.

year. item. face year. XXX packaging of inflation than ratio Let promotions protocols. costs staffing was implement basis me in aspect. deleveraging, last sales sales resulting higher due XX.X%, to to delivery This staff last This higher year. each the than is traffic increased due to to is points were increase impact. was and labor as delivery rider go levels value higher volume XX.X%, Occupancy sales and and scheduled was X%, more points Cost drive points through increased last higher mainly other attributable expense customer to was than XX.X%, to safety of Cost deleveraging our basis mainly XXX line upgraded of XXX basis This higher

rate indirectly. approximately completed gains, from consolidating Hangzhou small and utility and prices in as expenses own government consolidating to last in Hangzhou received profit contrast enable gain increased XX% headwinds us XX. the mitigate to mainly in $XXX The compensation mark-to-market achieve $XXX productivity enhancements transaction a Proactive was expenses mainly was the fourth onto partially impact of was G&A quarter. the million than was on Meituan, management a difference less currency, Hangzhou KFC of of up million million by well these impact the catering XXXX. investment the the we fair as addition, now starting $XX XX.X%. December In value and December. Net $XX revaluation Operating of loss due of double noncash $XXX Effective in we includes and million KFC. Adjusted in $X and quarter is from In and $XX million. operating December, directly and year-over-year investment only was year, This income Other KFC profit of tax the $XX million. digits from in as gain adjusted noncash completed landlords. million, a cost went the Hangzhou million. was the due of to Compared to increased profitable was income benefit KFC. to relief X% net constant

turn Let's our XXXX. outlook to for now

Over First, as Delta Omicron Tianjin measures to remain year-over-year also or Same-store and the highly The at cases provided in are the development quarter. such near uncertain we XXX Shanghai, sales of to Chinese in fourth of last delivery peak our the spread same-store future. COVID January closed the variant services seen stringent in stores expect to in Shenzhen. temporarily only period in In year. Comparing takeaway have down as were health Beijing, from XXXX, remains volatile. comparable outbreak, important and apart New holiday Year and effect we modestly remain sales from January. improved still cities, January, the

the on is Second weakening macro.

exceptional economic on the development to supply pressure value Therefore, government drive providing our China's As has recently triple is to contraction, from expectations. we facing and traffic. shots focus mentioned, weakening demand continue will customers

chicken energy the globally. prices On the rise cost side, inflation and digits. beef is cheese on double have as as as Commodities increased well such feed,

will commodity efficiency, team partially relatively utilize menu Our expanding are cost is local rebase but in cattle, to suppliers. and including to they taking mitigate fully year. our we items this we this part base, our face locking initiative chicken when favorable, With especially expect innovating structure and of pressures initiative, rising to to price more improve costs, still prices supplier all

share a the and We very in resumed repurchases repurchases delivery Additionally, billion future sales Approximately investments. We the authorization. sheet $X third maintained quarter available for approximately XXXX. with $XXX cost. share cash remain in increase increase under strong million mix short-term will wider balance the

capital anticipate density opening We will stores to We as lower-tier in space capture return white cities to to we approximately and excessive X,XXX X,XXX net continue in higher-tier shareholders. cities. increase new

will with continue high-quality new disciplined We of our approach opening stores.

to million remodeling. store our XXXX allocated in in is The capital majority expect openings the to range $XXX of this expenditures billion. $X of to We be and

digital will Michelle growth business. up driving capital as outlined to long-term allocation you back We Michelle? part chain, With investment essential the of Investor Day in the are This stepping Q&A. that, are September. of pass to in the infrastructure start as long-term investments our supply last sustainable I and our to

Michelle Shen

[Operator the call the for Q&A. questions. Thanks, Andy. We'll open Desmond, start please Instructions]. now

Operator

Instructions]. [Operator

from of question from the Bittner first comes The line Brian Oppenheimer.

Brian Bittner

openings? step-up a your you openings And your unit uncertainty prepared a during the outlined this based are to continuing business, as still in outlined talk you XXXX big very on heightened time Your it's trend of in us returns the unit in that outlook. But I presentation. realize your and as can what driving remarks for specifically is is it and appears in strong you

XXXX. of just Just COVID helpful. growth wasn't development up new unit of type any on a you onetime situation an behind has environment opened the level Do this would color opportunities? it additional about the believe amount this strategy. dynamics So in Talk of be elevated

Joey Wat

you, Brian. Thank

store the on transparent focus our For we new opening, been team management that very has the way are about thinking.

look a the this think term/long operate we in business the when at that clearly how we X is Day growth things: Investor the I lay RGM, in and out we short term, focus resiliency, the on to moat. very our

are opening, new more we we way, a thinking than we even the push will once be still for even then important store might growth. achieve In our But to -- resilience really So grow. same. resiliency,

are whether Brian, holistic looking have why opening is are we the So stores? you that's in we getting As yes. payback that are that is and most many question, we answer of sort for, And specifically, thinking. the the earlier, criteria the important still mentioned your

still X For years. KFC, we're payback getting the within

Hut, Pizza we X years, in actually, XXXX. since the year, have years. In is more stores net For past actually we the any -- more than new Pizza opened X the Hut in all last the this store past, year the opening because we And stores improved. other than opened

X from store, X X to we to as has to So X a almost payback to X satellite improved. it get as payback to The can improved well, Particularly good X KFC. years has X X years years. to now -- the years,

when So we handle. open get payback, that's we can team the should stores operating the our while then can key And criteria.

where requirement still our in So the of is the X. One thinking, city. strategy. payback. that's is lower-tier the our our Well, are third, And opportunities? Two point are -- opportunities the

XXX new we mentioned earlier, I enter for cities. As KFC alone,

delivery strong, there's improves, existing we only is it new and When stores a only because And then open very in, has highway in a because in Pizza even improved, the and then the cetera, is the we're rider Hut, too. density. few limited we there's these and for obviously, is area shortened work is KFC business density they larger now. few cost as the of both center, the benefit opportunity Hut very service. other -- for average in and are in the particular it's brand franchising to get white better the well. even And more for cities et cities, then that hundred because the right the has also as because opportunities has the space And was our brand cities station, see service China convenience distance to the opportunity the actually store Pizza new. delivery the channel operating sales such to transfer other because for increase improved, delivery cost customer the store average for It So

sense time is a growing, gives business. more see that of So the particularly very China are see I good you of resiliency last way, yes, landlords the terms of can X then in And to them harder much And how when a the because opportunity COVID during the years, store in clearly. opportunities. Yum market it's in that time, think in opening, where us during gives

our our can but across So opportunity we Not for shareholders have landlords more to reliable all only we we tenant landlords. also can tier to and employees, deliver income deliver to cities. secure profit good become rental and even popular

of a why lease percentage certain which calculated is about imagine are the flexibility -- tenant. we lease, on our and the cost sales, based have a percentage rent in significant can give of structure. resiliency popular sale XX% our therefore, talking of are the And you So XX%, we us terms of

Thank testing, opening. payback and out opportunity. new more store in to the But I the that X we So of again chase open when the you again. get the some you, color again when gives specific terms then we the we'll We hope see we which and years, emphasize Brian. it numbers, never we've store and been can X

Operator

Next of from question comes Christine the Peng line from UBS.

Christine Peng

more In in XXXX, upgraded the have So in strategy country. that initiated competition China, of enabling regarding we I app McDonald delivery question digital the the landscape. its noticed a version a expansion much

you delivery whole can in observed you us of So new Chinese considering landscape the share the competition with terms have strategy? McDonald's particularly restaurant industry, in more color

Joey Wat

a our a since as delivery priority putting see, stronger. business been to our business very And have has XXXX, time we grown long, Christine, can you high compared in delivery even long ago.

alone, Hut you can Pizza and from full numbers, And see plus, As year growth versus delivery XXXX. it's XX%. our KFC XX% XX% is for then then

So you a sense. that gives

to call also team, experience, be not are but team both the app delivery operating experience the that terms focusing store offline we clear the have the in We seamless convenience with our also digital we improve investors app so for -- operation very the business. and on to a digital it our to of ensure that online our might team work it

So is services. digital experience, So that engagement, second include helps the team the right? the a thing. two one store lot working together to too, about deliver because people have the the And with that is we that's membership will

our unique and we The which rather that beginning, been building not on Yum but own now. the the one, have delivery can from which probably be it's model, is only insist well, building only very our capability, China, rider third actually since we bit, right unique, hybrid -- understood have we own to

again long-term if and Investor competitive we own we moat advantage the rider, the the is Day, the our growth model. the in the shared moat, hybrid think is that strategic this use our resilience, the our and delivery with I framework moat,

experienced of see we service delivery the version thus, took complain much and the product, we is work that complaint, drop which the have rider the one. with on that rely and of is sales convert multiple past When quality, traffic, Pizza delivery lower, customer the One The current advantages. to Hut the we the has percentage in-house, the the rider we when exclusively While problems quality. deliver source to service the our from increase. own to we we

delivery us very our unique advantage a gives in business. So that

last a years business business. It net-net, important very to grow that even customers. to deliver resiliency services in with us give become X unique have unique strategic to COVID our long situation, has good moat to and it has the you, the important term continue power capabilities Thank the been our in more we given So very Christine. the

Operator

from Luo of of Chen America. line of the Next Bank comes question

Chen Luo

follow-up I've our a on So got question opening. store new

for So that as managers store store in our we we create staff? new in new are hiring period may accelerating payback stores although of new are understand challenges stores it existing of terms and the create any store could seeing the resources be management may Meanwhile, still opening training the stores, right also pretty impressive, additional the we and terms to actually cannibalization pace, requirement additional attention.

our in us factor expansion So remain for is the coming impact, down growth pressure to consider to our temporarily? under the sales of this slow any there COVID XX with because months for mind, chance if same-store store

Joey Wat

the sales of as -- it Luo, number despite store see, stores, of right. our the all we plus. And system since we same-store you to it's growth at XX,XXX, XXXX, total the of manage XXX,XXX of our -- growth actually -- new handle maintain XXXX from managed thank or now, staff can staff over our X,XXX-plus in right despite to you, quite resources, and stores,

here what staff, the the is the but So in total delta without store we of automation and digital. AI and increased number is increasing

store the of will new right terms we the somehow base, then we in quality see it, we of new store store So of pace our adjust store, new cannot with the we opening train And challenge if now demand. meet of to the if our our do staff particularly opening, can in course. staff

impact Andy? other to the the can about So Andy and with that, pass I stores. the Andy, from new comment number question

Andy Yeung

Thanks, Joey.

So Year. Luo, Happy New

want recently all, Joey is and the say late a a of mentioned area. organized especially market of white Tier in growth space, new what and has store in about first both to I bit China openings. echo little obviously So terms cities

years, past encourage into sales And of analysts over SSG. so X to quarter-on-quarter sometimes basis, a lot system and COVID Especially see rather than because I look volatility the the on think we a we of investors more development.

uneven. mentioned decline the have and years, from nonlinear we a to COVID expect over recovery we X As past

So it still remains the now. case right

opening, our disciplined we we're have in as In very terms of prepared remarks. our store disclosed

close We years. have to it's consistent evaluation to have investment. on And Pizza are for we And good and very determine return These why high years. very, investment. valuation to disciplined for for our X years. That's continue Pizza payback X KFC, Hut, process X it's store,

very our comfortable the of also with of we're and So terms strategies in store. quality the

are mentioned, I we breakeven have majority despite of stores few opened overall even also of pandemic. the from the they're XXXX, impact first the A new opening. the half As well performing that in reaching in them first months

And Now pandemic, think growing. we look right disciplined consistent But sometimes And with openings, way we've new to store. we delivery deal back now, store years. we're very especially before been sales, certainly, internal the been the cannibalization, in you I new growing we XX-some network in if have some a transfer it. our store and how over past the

impact expense normalized from store So with new we SSG doing have opening.

then, we effects and also new when takeaway network look as positive incremental business. on mentioned, store, And The other one is opening that profit. we and sales capture Joey also delivery at a

changes, -- on also So pandemic making our we and given installed the start redesigning network. some

we mentioned, logistics at hub. transition Joey look for As storing, operations the have concentration on we wind this because example, down and

better locations for to that allow off-premise dining, So serve -- more and open then us example.

year, profit build our achieve some for continue this the obviously we're And in despite capturing of if our a and on constant what positioning ourselves market then we able take very basis $X.X you to adjusted operating the enhance environment, long-term our are are view And reason. as system And significant a these resiliency, able it's the growth but basis, and think currency. good. we opportunity. we and so investing a to revenue $X.X terms we all, generate the up, recorded all are you increased to grow step a we to $XXX billion. challenging pandemic, very of On was look our at of basis if impact profit do, in and back I Despite achieved full that's million, of by in sales also we XX% billion. on year

So review we're confident that, cannibalization I and right obviously, I pretty store openings, we'll but think in continue think internal now. strategy new that to we have the

Joey Wat

and in Andy. I strong comment because our more such just you, make a I'll Luo, interest Thank new store opening. think one there's

store, we have even For tier in new We will has to pricing lower menu. CapEx, Tier differentiating city, X the be means it particularly lower lower strategy, price differentiated compared our have city.

special, very also -- menu special And incredibly, leverage as help us value we in some that have will We well. franchisee good only. product to money for

So in of want numbers in number. just that draw one CapEx modeling, just the helps. and number your of But terms to historically, I attention to terms

opening that many new twice store year we million reason spent some amount look $XXX opened that the got CapEx of has you that at might number the opened money, we Our and of stores. XXXX, That's But XXXX, By if historically, independentally-listed. you be our We gives some lot, -- as opened we with concern. we on increased stores. XXX a CapEx.

million, which XXXX. is than less is CapEx Our $XXX

to So XXXX, of that, has increased it means, right? X,XXX. significantly, improved we our what stores new And by store new efficiency of top on

infrastructure the billion million, but and also it Our mean, CapEx going $XXX increased is but -- bit bulk XX% well. digital of I a to more, more, $XXX as

of going be for than openings. mentioned store on year, of forward, it half or Andy just So billion, half million slightly will $X new more to it the coming $XXX

It efficiency that ability but stores CapEx, of is thing the more the new get and CapEx our way Number key open the is to you. term. business. look amount new long the to to the becomes stores it. we total more in out allocated and at our Thank that's strategic of resiliency thing, and continue and So one that's efficiency of

Operator

from comes Lillian Lou of China. Yum question Next Julio

Lillian Lou

bit talk growth, new a we focus Since the opening, switch the need growth. on bit another lot little maybe that by like driver growth think why gear similarly Andy down quarter. a in I on about August? said fourth less Because store way medium quarter high I a the growth sales think fourth number provide sales And our sales But higher despite number Can for same-store we little is color. quite same-store that revenue the you time, that trend to of growth than or in actually risk I same-store sales the that August, cities, in cities, is the also remember on mid-teens.

from impact for same-store dynamics, that continues predict, you think development. the also, trend if but this current sales And situation possible this what at scenario the COVID sales remains like understand do growth to to the our most I the same-store trying know growth our level? COVID So current the challenging to situation, is the standing

Joey Wat

Andy?

Andy Yeung

the worst QX the is quarter I I think worst the not conditions, first is believe, since XXXX. actually,

China. I pretty folks to obvious think most in it's here

have outbreak. here on a begin Delta up also China. We variant And in the Omicron cases popping later we of to see then year,

restriction China have load of Now measures. dynamic deceptive achieve these -- is case one in a here that very health a because, cases may on be health lot obviously, X try here, for is quite sort COVID, generally, measures and cases and and we rely stringent of to so

also outbreak -- So and in wide the you now quarter XXXX. at but the first if since the worst it's spread, case the in the look

same from digits. mentioned significant outbreak December, but then down press outbreak in the the in in our November a and from we in some seen October, we recovered have the release, we've bit then but little trend, summer see impact recovery as still So in double

capture have and have in that we told to and going preparation, it's new mentioned, look when operation, our [indiscernible] well as with. make at time, able we we is more can to obviously, time good, ensure China and COVID, bad profit. we're market that rely introduce contentual how challenging, we in more execute deal and even our in operations have how investors becomes on situation and we and to as can analysis resiliency opportunities. to need and Now plan When well analysts When we

with And right? able profit. But core hard, sales, full operating basis, so do. environment what quarter, we because that's a predict happen if we better to in from to to think system a the our quarter-over-quarter even grow and mentioned, we're Despite I able very even bit the you volatilities to grow challenging revenue, our as a grow will year, picture, our little But that step I think COVID. worthwhile XXXX, to see operate it's fourth back the or step for I for basis what's we month-to-month back going it's

little but need think, And have so bit COVID, sometimes to also a accept there I think some in be with that care, we take a I to uncertainty. the sense, we will fact

even and terms to of second we're then first SSG in like that the when see in Now very well XXXX. able the also you profit, can half in situation half stabilized, the excel and is

are continue things obviously, our both product brand, we and delivery. our challenging, digital and rely our when customer, on to operations, the Now our team,

on to So because the But provide is we volatility for it's COVID development have the me we biggest and guidance SSG impact right COVID. impact. on of kind now, SSG as mentioned, of hard the

past impacts. I operational learned a over we some of last when but COVID something -- couple over team, years, of the and of and the so how to mitigate we of because X respond years, -- those authorities do in trying confident terms our in there's try to to both RGM, terms am And our outbreak

So -- situation I think the we is term, right way you some we sure, now that, have headwinds. the short macro the if look at COVID, of have in the I

operations, term, confident in bit have in But our cautious. it's So short very demonstrated think, are I a brand, more employee. consumer the products we our and our loyalties, little

customer XX% largest the have We we been base, have growing membership year. last from

more Now of our membership accounts. accounts than for XX%

not network that's and and has we still are that the our Joey infrastructure install only longer I why operation, capabilities expansion, in the And products the but investing term, we're And opportunity so new the here supply brand that very China, building the in our and in about chain. we're digital in customer base opportunity and mentioned. our confident have and think we optimistic on then

perspective hopefully, China. so on situation we how can you some in at and the give market And we look here the

Joey Wat

Thank COVID situation, and need resilience but focus: as X to is we is in crystal growth the operating to are -- And Lillian, Andy towards think very Andy. We strategic clear have simple. about our the you, resilience, ball moat. management I thank focus. team. cannot we I'll we Resilience, the just of summarize. don't What talked Andy. Very you, clear Again, very this. you, thinking like Again, do? Thank the about, do

that's fast, to Shanghai market, down local training market, And responsive. Beijing our the team even are like we after the years strategy. market, are level, that's Guangzhou We strategy, national each X market

Our team knows what to do.

In terms category of Because growth, clear, X product Andy new burger, chicken. the sources important? it's terms like consumption, whole very chicken of beef mentioned, is as trend. also or with in such innovation, something traffic. on Why home the whole local of the is focus the a partnership Wuhan which fund Huang interesting right, we [indiscernible], et value. growth, Ji cetera, the drive The to exciting, And

through last which in good over savings incredibly Pizza something We the and customers takeaway, the XXXX digital delivering save of digital have savings, tripled the consumption of to sales consumption of Hut is own is surprising. Safe, job XXX terms membership Scream we which of alone. demand, what the very at value is million and Right campaign then is pass of billion signature brand, home million well. home retail the now, is and source And the working and retail. XXX or And off-premise for other the strategic The done to can our moat, KFC $X Wednesday and on growth the in retail Crazy the value. delivery, then Thursday

and our helps infrastructure, our long Our of of competitive term cost own efficiency business. terms in that building remain our getting all ability the ability to our terms rebase also and the in in base the scale, getting

is So capability business. just how I mention utilize our If the very, another thing clear. core do could very the focus we to grow about

our our sense. It to For use the hybrid new deliver we own model, rider, example, retail. delivery makes

the to directly. rider cost is our stores and reliable good, to already, low. retail and the the We riders customer is in new have Service we utilize deliver the

hopefully a growth So clear you, of moat very management's Thank you and and strategy, situation given Lillian. focus the resiliency, uncertainties gives evolving the that sense COVID. on of

Operator

next Our from comes question Citi. from Xiaopo Wei

Xiaopo Wei

of My question business on focusing your in of the operation store terms is model.

stores long self-operating You out preferred guys to have stores. franchising

the COVID, franchising And more have also target clarifying infrastructure, your the better versus self-operating chain, looking you stores all for fluid Given cetera, out forward? supply of opening et a new year. consider situation will the most target -- looking you stores forward

new opening franchise only to target X,XXX including stores? and X,XXX So or store this stores stores self-operated including year, both your self-operating

Joey Wat

because question, so payback the be the franchising of to the includes for is will And the new first store of your majority So question, stores the as part target go good. store new well. back the your store still equity

of franchise the already. our mind However, Huang, over Huang spread. about mid-teens of it mix we'll and the as going you can But always been minded right open it's -- when the it's open about store see, we've is Especially has after franchising quite now, forward, acquisition option, increased, it. We Ji the years, the in do be

in franchising One some franchising we as of the in remote So the there focus. terms such Tibet strategy, do or X Xian. are is locations,

more way can the manage from instead imagine why it's way of to headquarters. the all it because that managing efficient You

Secondly, it's channel.

ability use franchising these managing so to So et the are channels service the the like sensible And cetera, mention thing I is the third highway technology to as to system. center, strategic would then help the such very opportunity. franchising

very been have cautious about strategy. We the franchising

a China, also franchising of in are can lot a imagine, lot with are As we of the end-to-end store process that in with of the operation with the of there but few good terms challenges you to the years. quality now, going in service strategy there the care franchising advantage of has the on, about. our digitization IoT, improved last ability store significantly But right among the most the automation, ensure

quality better we as that compromise that in open terms franchising the of about suddenly mean service, comfort. hopefully, particular So confident when of we're I'm we us don't, well. gave mind in And does the strategy, it very product that not

So I more we think have a few questions.

the Let's one. move on next to

Andy Yeung

which include our the open, and X,XXX And franchise is mentioned, them to both about going of operated expect, store that want about number stores. the next as to the we just store talk clarify. jump net net is is not we Joey the there opened, equity to of new The Before number we most we I gross that to stores. one, on move in own stores. be new And X,XXX,

Operator

the from of line comes Ling of Anne question Next Jefferies.

Anne Ling

for is question first The Andy.

moving trend whole year of your cost and cost commodity forward, for cost cars, I that the 'XX. you would increased have quarter or cost occupancy expectation missed with for staff as the as the XXXX year the if share Regarding well us also trend it, first

Andy Yeung

Sure.

So go ahead.

Okay.

we -- So commodity globally, think right we inflation. look price now, at if obviously, look you at I see

If you double up costs [indiscernible], are at energy look digits.

then at Now it. obviously, if also, in most level without of labor, increased and level, delivery high at the also, market continue a bit for normalized last continue we're at X sale cost year, to have at look obviously, rider One driving doing mid- we're commodities which driver as rate And as growth to little wages see to we increase single-digit posting and rate single see components the all the there's continue going And have is, digit increase, is and probably China. to cost store to in we of mentioned apps. anything, likely you so we'll a as we grow. a see for our

shift would there mix So cost delivery increase delivery the to well. as

in since on December. China, to and in energy experienced side, Now the double That's the other utility we that in response encourage in of cost. by increased thing price savings reductions have some that tower one shortage market more have and obviously the energy dynamic. In summer is the occupancy and production in digits more more

inflation all so commodity labor happening. looking think at some in all, we're And I

same-store sales But marketing again, seeing is Now on impact the obviously. an also would biggest this, not leverage and margin impact Obviously, actually the side, we're deleveraging. that. growth on have on

One supply a inflationary offer products to there's and pressure. to obviously. protect want but initiatives for want lot we very also new efficiency lower have to is fight Then to and wider this and We prices to of headwind, to customers. also chain provide people leverage margins, range, lessen upgrade we pricing allow entry the scale a our to with good a team, try

more prepared including on that's when opportunity the so market arise. As price remarks, mentioned locking we potentially have in the favorable

have and ingredient we chicken. the that will customers our how of part good great like and our the chicken, the totalization right. also to At to same of utilize the use also efficiency gives have, do we that And -- looking We us how beef, cow, can and full have -- try margins. we to chicken, product increase that the do for

obviously and rebasing chain the cost efficiency of other also of have to then have as in overall is They're the increase looking supply technology, we labor. mentioned, that also and the mentioned, an our people in liquidate a always team We brand. next billion investing, billion we supply important part of labor $X productivity improvement. $X as IT chain in over then earmark investment few infrastructure we're and have That's why and And years. digital investments

all also also productivities, all, at operational and program, process the to how whatnot. we continue it. I we then to so think, drive try commodity which big will spend look we efficiency to respond the try the is we and So sales, then -- and labor how one X that membership drive to utilize in our and and in to frequency, efficiency drive to And improve marketing reduce We members. member inflation, this rate largest and the how we world, is And then overall pressure of have

Anne Ling

or mid-single just cost Is single-digit your of for Got digit increase, to to you it. cost that commodity increase, labor for estimate high provide low correct? the like mid- that And I to -- clarify, exercise. this efficiency that's the

Andy Yeung

we Radius, normalized the in are are like itself commodity single obviously, of increased that. we a digits. by the marketplace have prices mid- Well, so double and digits, high rate to reducing expecting

we also last then year, all this -- more through out last rolled -- year, we And that and we are to continue roll the then phase -- markets estimate and out for have also beginning to So year. we're then [indiscernible] out country. to we prospects

Anne Ling

Okay. under Got opening store opening you your with the understand budget as X,XXX last on majority coffee your brands, well. as store Hut, like for plan store you of could question But store the net KFC second be to it. Got is other opening, a us that believe what Lavazza, it. like Pizza the of year, well the And share opening. Hut Pizza my I I estimate is as brand. X,XXX which for received your will

store plan opening maybe other you with share us the for So forward brands? the can moving

Andy Yeung

Sure.

it of accelerated if you economics, openings So a opening. important saw you obviously, improved Pizza like us. also the KFC the economics store Hut because store brand and is last for year. down, have Hut I They have are at largest Pizza majority unit new think if break very But

fact, last remember XXX if store million correctly, you the In it of previous increase you think, store, X-year new Hut, XXX look it's And if look Pizza year, net since higher total. it's, the at XXXX. combine if I I of at a opened

year, play like also have would will And we have last X -- beginning the stores. satellite so -- Lavazza I have we the beginning the is of in, the about of I think year, -- the of model. say especially store with at will obviously success at it's

venture XX-some We last up obviously, have now brand China, we store. we but -- year. and joint in pretty new have the opened with it's still And a Lavazza expanded

We have great plans for the brand.

growth we as mentioned, As have it we engine. deem third our

we now several in not the top cities. the Tier will Tier cities, So X cities, X also in tier only but

to We more look to then membership experimenting into growth. we I And all coffee, good markets. have think pretty formats with in the expand will and brand, continue seen different store

Again, as last year. not highest much, also Bell. in opened more one this And more -- expect some such, is store combined. to XX-some And will at so is but now as Taco the Lavazza Taco like Bell years in open many talk it's that did of brand a we year opening we we

allow of in I at the the these format think going We I store cost smaller is we're how target it's all store -- some to able to very key market, opportunities, format effectively. development -- So store designed there, more the the open across initiatives. And overall utilize I think brands. the the to and like that how some think now menu back we terms right the all is not we take format of to us

KFC you. going we how be it. another at and look then that's and still So of to The then business. Hut is key the Pizza signal Thank

Operator

Goldman Sachs. line from have the We of Michelle of questions Cheng

Michelle Cheng

a on front. I to bit up still cost follow little want

costs, it other and more is deleverage impact the that occupancy significantly. the at look we seems if So

few this mentioned the actually I has remember the drive these gains. years, You in increase, past a lot cost of but items contributed energy efficiency

the term? energy So can of cost in rental, you take whether that, on we color, the pressure see like still other cost, items, give us top And near anything wage cost. more there's aside more

digital orders to room further labor efficiency number the gain can is of contributing per to close the a going any there any since delivery XX% store are sales, like expect staff So like already we so say like forward? the

Andy Yeung

yes, you Michelle, thank for your questions.

that obviously think, of In post in terms reprices. O&O, see because I thing increase one we price in obviously, a change point increase gap double-digit it's

The pool folks. but also components, we component we our to Even store of have XX% as high have have is of mentioned our rebel a of obviously one stores fixed percentage have other almost of though brand, there's brand a that. a

and of -- that that. so see when on And what that's the a key there's for sales genuinely, impact deleveraging, we driver a all as percentage revenues, so is

improvement. facility labor our of terms in is one other The

improvement, this and payments. the for obviously, you on of some make see use can think a digital make digital orders I store, app example, to

that think did that already. things But actually. other that I rollout, digital so And has not there's see do you

We have a in labor productivity. lot

and our more real-time so do have to we mentioned manage pocket store manager have before, manager, get them that it scheduling. the help We efficiently, that information more to also

that. to and invest our IoT all kitchens and our in count automate continue We inventory to also

think our routing, into X-year the chain, of our back going our better of automate delivery side, department, in more back example, of training before, then right, queuing our trade and right, across Joey now, investment terms in us new also not do initiatives, the the digitalization basically moving end kitchen on to as And the also having and front with we'll there our company. has for right? chain as to also and even to only rider integration with to have is customer, optimized supply more production, not up I delivery optimize also design and into but to supply for better have. in link as a program, we such mentioned, the for think use in in then as the then So I right moving food forecast only And and better finance more potentially but data rider, terms have over invest office, I we That retail [indiscernible] better the allow office, in mentioned management. process as port also we the our other that product demand suppliers. utilize routing well continue

you quite that. a there's a volatility time, have So at improvement. despite to increase we all at if ways look while look done And labor of over and delivery lot

have as before And pandemic overall a We from near-term think able are enough offset these revenues [indiscernible] of improve continue to labor relatively the time, we're shocks some seen given to COVID. of cost percentage stable. I to

Joey Wat

expansion you like I One reduce a a don't prime prime, the think in is, I business in the about grow, continues compromise the bit, term business location, would We when it of store to in little long delivery and that the be about things, area. X comment our means right? think it, -- rent. need the we can our delivery way, Think to Michelle. helped helped. Because if it, new location, to

Point the rental the delivery cost expenses X. helped of point side, X. saving the So

show platform, In order we rider cost of strategic the terms we that is is that. order, right at philosophy higher of look -- also Because the average now, fact our understand cost our in delivery resilience cost the the is and and our the right of per moat. mentality, riders, than the way

we a it better because We now, option, quality service. riders right this of have keep way but they the our deliver

work to But pushing our comes them then average deliver down pay the because to quality paid well. you that they on go, they then we higher less, So as side. pay first, cost, leave, ticket when make we elite. to less, they rider items of if such the instead leverage we cost right, sure And rider it

of way delivery as the So Michelle. cost rider side we well. think the that's about you, that the Thank structure

Operator

Woo CMB The will last from come from question Walter International.

Walter Woo

Can me? you hear

Andy Yeung

well. hear you can We

Walter Woo

to Okay. ask the chance questions.

perhaps still we take sales the given size. ticket dynamics the do first question outlook 'XX, Hut the That's quarter. the it the the to level positive your is KFC of KFC for good industry is in increase my still So about last and average of was increased the and out increasing in the think If ticket or you Pizza is from promotions? And the mix, delivery average question. impact reduction ticket FY the

Andy Yeung

is And address different. Pizza So let situation, KFC the slightly about bit for KFC me Hut obviously, and a little situation.

actually increased take delivery of KFC, the average. the For

will to at actually kind Hut, there So gathering help When for normally. social lower have opposite, the delivery because a mix generally, place them activities. shift just been Pizza of we

the we'll [indiscernible]. average, And ticket is than shift then so have [indiscernible] that the yield mix there, higher

think right lower, is is I I the on and Now high now, we average the that I and campaign have. things, one promotional ticket also too, activities questions regarding, depending Obviously, think, other have the really is think, more we public.

one The overpricing strategy. is other that

uncertainty I think rising of COVID sentiment. at us it's and inflation look for consumer and the important to in the pricing, some especially of face

what sure to that to want our we quick value make So offer this customers. we

and we again? do low All pricing. our price high customer cover margins range, of because of value how is the say a mentioned, great both that do it different we as price, all so protect And wide we the sort on products,

again, one make to chain and that like The efficiency, of leverage other competitive supply is, scale have more it our supply chain sort advantage our to cost prominent.

is product resilience chicken, we into with Like try we example, The other of resources, one usage to enhance, stage. reduce consumers. waste our that the including have obviously, the for our

to right? We the a to efficiency is improve also in -- continue very program invest to and membership So and important thing. productivity, want technology

to So to spending. drive us help membership continue

that customer, member example, nonmember. you for as -- you a much member, as KFC, generally if at So member, look our have subscription, if we privileged that twice spend if

do. things that lot like a So to we of would

one the of moving the is So average parts. ticket

Walter Woo

Got And next performance And number travelers well. quarter? versus to last it. it Very of was home increased the seems New is compared as question my during returning year clear. about your How last Year. it Chinese has the

business domestic trends your the you then how see this going quarters? overall at next that was into positive does transportation to two your it do hubs? And the Or a impact how So business?

Andy Yeung

Right.

And this Chinese last the year, beginning Year. Chinese a this Year of than February middle little year. earlier New last New was think it year, I So New for it's is bit year, for Obviously, in mostly of Chinese Year. February

we as January, prepared to especially in Year, of XX Year So still days modest fourth comparable the Chinese Chinese before the Chinese the that Chinese improvement compared At days for we're days did so period, quarter. mentioned period. this comparable a But in least New after and New Year XX New XX far, on -- middle I it. the the is see basically remarks, for New Year the the for

level. down the to that's we think look the a I year. into think last pre-COVID And is offices for you whatnot, think compared will it and far, time to so if And But different I to [indiscernible] at travel the reasonable bit probably compared to see overall take still year-over-year. level travel, the recover some overall, I any

look we year-over-year to great Obviously, the different And but to So uncertainty. launched last when have we down still, at And we it folks -- of campaigns. Year, authorities there's is year. extending to a way into go is the New to in Chinese compared slightly [indiscernible]. that Chinese the stay But because now cities there's quite Year. travel pandemic in New uncertainty do put, celebrate stay the terms that locally see we encourage

respond also there's about the to how I that. uncertainty So think people

changes what plans, think. So to respond is in we to and positioned continue we have market we'll different the

Operator

Thank now the the I to you for like turn remarks. call questions. management would the for closing back to

Michelle Shen

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

Andy Yeung

Thank you, everyone.

Joey Wat

you. Thank you. Thank

Operator

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

disconnect. You may now

Yum China (YUMC) 9 Feb 222021 Q4 Earnings call transcript