YUMC - Earnings call transcript Q2 2022 | Yum China Holdings, Inc.

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Operator

Thank you all for standing by, and welcome to the Yum China Second Quarter 2022 Earnings Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions]. I'd now like to hand the conference over to Michelle Shen. ahead. go Please

Michelle Shen

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

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

from dialing-in during we difficulty reconnect. please a call, are If we different We the line the experience on remain technical today. as locations

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

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

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

will the questions. to open call we Finally,

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

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

Joey Wat

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

difficult Second and employees our two and quarter customers our the in always safe. most was keeping on a main the past quarter half focus years. With

offerings, to new cross digital flexible many we kept expected not and and our each alongside management cost business our With stood innovative two problem battle honored for in optimization Shanghai arose. we our initiatives. agility, all, cross We brand also results. term. so for headquarters fight and more high stronger and quickly We solve months while cares glad forming better operated joy serve ways. lockdown want as both it as functional, young to base morale longer wonderful customers. We a extraordinary bring solutions, built China and together learning make delivery, managed still with team. have over resilient crisis teams, our I'm problem execute and to with under These to to came to manual imminent deliver us the tackle they than the can and Through just as firm to the developed well as but agile the

trying execute our this RGM framework continued During moat. and we to resiliency, is that strategic time, growth,

Let's resiliency. start with

tough in brightest situations. shines resiliency Our

of operational measures Let me overcome share to you implemented with we the some considerable difficulties.

we that's share of our Lavazza, of operations mobility wide an call, sales very achieved day's a under packaged restrictions. of limited tool Shanghai April, of lockdown XX% XX% mile with planning reached brands, delivery team the and delivery time, early a KFC not was our our you Sheep. the tool was obtained During and and fried the emerging to stores most most well serving extreme, critical the route In to goal of vicinity Shanghai simplified Taco mid-March, food always earning Hut, severe as stellar our dedicated launched In chain With covering for Pizza than Fried riders, also launched and IT faced managed less our last great radius. sustain promotions route purchasing desired usual and to restaurant, well products, management and continue Bell The to We delivery the in minimum was Shanghai and that of supply just of open, played the country, necessary in This brought in as May, in geography as pongo desired our city advertising remarkable We Digitization operating perhaps of also XX% XX% food we serve achievement. happiness. where base level. item AI-enabled to in In costs. customers QX during complexity including I optimized community open with store one Shanghai. pre-lockdown were reduced staff sales. the on customers, on but pre-lockdown for and menus, lockdown Little as the to store a one half Across it. Shanghai majority with able food the beyond a role. for just a management. without a agile and in-house, our level bucket restaurant to just environment customers. menu save menu, was a very have the chicken with chicken We -- permits and At community riders. we purchasing inventory one thanks operations system items challenging

that the social phenomenal. just have posts. and Who results promotion. we hard smash launched exceptionally to sensational hit The alike. you were Some remember thrilled to the this We with campaign first sales to our adults media other and thought days to Pokeman budget? we and Children's drove around of The of of a accommodate on becoming Psyduck were children see Psyduck buzz companion two The our customer viral, an almost may time Psyduck chose Day Koduck toy meal instantly went would during X. bring the lives XX% their from joy toys in reduced advertising June

partially We the compared ¥XXX sales last of mix grew signing off reduced contribute second our Combined the year. away excitingly These to dining also services. sales. driving quarter. offset more Also the focused off This quarter. with pick almost reached in X% premise reached the to initiatives second year-over-year new in of package a two retail XX% sales premise with double sales than on record Delivery million thirds and sales.

Even campaigns. innovative on stop don't value to Let's and our customers delighting move with conditions we growth. this, food like in

price Wagyu an around only diversified burgers, the half and Our With options entry to ¥XX. ability is capture growth. as choices versus ¥XX is categories beef price, KFC at pillar Angus additional of important to innovate premium adjacent opportunities. to which growth launch will into drive

This On now the chicken of These weekend, whole are thrive absolutely popular proven mid-single and is have juicy new it's to favorites accounting mix juicy sales. menu chicken in combined ¥XX.X digit offering personal June. one we two for delicious. now whole my of categories at

let Team fry their Innovation new Food when designing Our creativity products.

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XX who last late the when asked For heels snack some popular of officially night super This follows sell feet of to chicken after of bone analysts we its selling chicken before we start now chicken me feet years. on right launched year [indiscernible]. KFC’s are the

are TV shows strong. instead menu. In menu real floss new using stuffed included of campaign new such provides XX feedback all very sponsored menu customer variety to of customer launched brand media generated new received the amazing menu crust The meat social an items the just boost as a who upgrade parts of addition, the on X/X usage celebrities last and or advertising at sausage, cost. with year's with a costs. in We of These customer same The good and achieved and awareness the chicken sales. hot intriguing pizza, as

a prawn, Chinese prawn and put around more appeal lighter While health more for cereal rich the deep great [indiscernible] circumstances. yes, well tailored current cereal fried for the gained customers. customers goose sauce conscious tastes a with popularity a it to customers. resonates supreme burrito and vegetables and Bell wonderful. we It pizza with launched and Value under Taco money

This and KFC al in offered celebration part the almost adjust China, weekly conditions the have according Recipe became family hit in Original to the amazing prices. off its ¥XX.XX XXth the flexibility regions customer to price. of price a the anniversary campaign is customers. brought carte As at product and We at memories back XX% rotate different bucket and signature Chicken to found response. offers with market

campaigns first won to crazy the hearts we Since our Our of ionic customers. first back it have value launched XXXX. day

with generate regular a even inspires just buffet pre-order media creative We compared sometimes signature weekdays our now At scores customers days. in sales Thursday’s buffets, promotion campaign uplift to all in constantly The attractive with have offers. proper weekends. so XX Hut XXX,XXX very and significant also and of been Pizza social set posts. spoiling

a more The more lowered new save successfully offering and combo, abundant ticket buy options. lifted more We average combo also our launched costs.

are Let's the XX% X around move on key enablers and our infrastructure our to ourselves. of of in This generated the in represents dynamic strategic XXXX. moat. Leveraging moat. chain digital supply Digital sales first half we initiatives ecosystem billion digital in

super We exceeds program of launches second the through loyalty members and members with and quarter. social share apps, the the media end XXX mini program Our of engage as latest our groups. million

mature Pizza also senior a upgraded customer now the friendly option ordering information, these less eyes streamlined tools combos, more upgrade KFC We ordering app forms pickup it tailored their also to our Hut displays. simpler We more and buy with customers. promotion product needs more and features mobile manual save flexible super functions. our for service. for improve customized to interface of older constantly graphics,

digital Tools each streamline restaurant Our capabilities situation full crucial like pocket forecasting and system in our the efficiency. us manager to were store. of restaurant visibility sales gave

a can we changing adapt these to scenarios. rapidly With

orders. fulfilling inventories Our stores daily and greater operating to or real-time raw us community inventory based Restaurants orders other dispatch their enable from help on could share with stores logistics large adjust visibility to purchasing the materials precision. center when environment across

ongoing X.X trade which can same of even staff. delivery across our now zones, town across Staff effort allows and cities. an restaurant flexibility now sharing As ship to we the offer riders across schedule

to resiliency and in building chain growth. We to invest world-class continue operating intelligent digitized support improve and supply business a

Management We will latest And I'm eastern ago this XXXX construction and China. logistics been and XX indeed Our in in learned support project restaurants Center not emerge serve as and new Chain as technologies saying centers first stronger And and largest Hut. more week Supply just we It [indiscernible] two complete across now [indiscernible] and the in China. is our challenging. state-of-the-art our lessons headquarter resilient on for in integrate Pizza our a operational. organization. greenfield has yet, extremely and digital greenfield KFC Shanghai. starting announced now will logistics and Chengdu, project many for the center This a

hallmark customer Some during DNA value good taking that executing True to providing we are to our by of great convinced agility potential our growth. every lockdown. traffic great our long-term our sustainable, are framework, and returning quickly RGM good have action well resiliency, food, stores for drive and of positioned I'm experience. emerging brands demonstrated we by to also

in forward, Going continue that, our business new to seize to I'll opportunities to our Andy. With call Andy? grow China. turn over the delight will we and customers

Andy Yeung

hello, Thank everyone. Joey. And you,

secure On our In sales store situations were base when also average, more our million by of second adjusted $XX digit margin to May, impacted second productivity temporarily reduced. and color in by June, of and significantly we improved situation swift of Let We were and quarter. gains, results. and limited structure. were closed only also in declined cost June. quarter me in achieved which year-over-year. able share decline, improved same-store than our second on by quarter operating promotions more our to XX% has or decisive to The in the high and one-time The services. meaningful quarter, XXXX spent profit restaurant COVID than some the only COVID that and tremendous We year-over-year temporary offers in not closure XX% taking We capturing performance. profit efforts sales same-store a single able number improvement actions. situation with We of gradually but exceeded driving narrow release expectations provided generate April store capitalize sales

percentage the changes cost and the through our go otherwise, effects exchange. are financials all control initiatives. me of Let before foreign Unless

exchange have X% impact quarter. of approximate negative a Foreign the in

year’s was XX% XX% $X.X year’s due store were System Ticket reported by of Pizza units average due with same-store traffic same-store By XX%. quarter temporary the higher sales level. XX% of KFC offset traffic sales the at mainly Same-store Hut’s level sales revenue of the prior and purchasing mix to same-store ticket were Second to were contribution delivery Hangzhou This XX% grew level. and decreased decline the prior year was year-over-year, same-store increase were of XX% in XX%. XX% community sales partially billion same-store total consolidation to brand and prior’s sales currency average at of of KFC. new in down closures. orders.

costs. of To cost average leveraging to the While margin was sales, average due was delivery sales X%. high increased community by ticket point ticket taken XXX down in This significant compared take last have driven and inflation impact. by basis to higher year. was actions Restaurant purchasing. This actions, to impact, the XX.X% mitigate significant mainly we

discounts. by low in to rise year. flat We we offset the and XX.X%, took of XXX prices, warehouse menu and our inflation modest to sales go to due other delivery XX the and from mix. line cost XX.X% expense last partially as items, distribution to keep frequency increase hours reduce almost and time firm The was more as deleveraging. next order offset attributable reduce was was actions commodity of was and each X% costs higher was Occupancy taken. mainly have single to store full employees. actions labor to which digits than XX.X%, improved sales and we of multiple privatize to increase promotional sales To than costs. me operating year, Cost higher partially scheduling Let labor our year-over-year. activities point reduce higher price reduce and optimize This basis last from in Wage hiring rider Cost mainly by to initiatives. necessary, resulting delivery and simplify was utility productivity promotions deleveraging basis points

Over reduce fixed flexibility to rental the to efforts years, components. This we effort more expenses, to spend wearable continued our them considerable of the operations. shifting the past improve our of few component

net Hangzhou operating would offset lower by of expenses. million. KFC. we consolidation $XX share-based acquired, that Apart on which marketing consolidation back contribution and fall increased increased partially roughly landlords. well as mainly G&A Hangzhou Operating meaningful addition, assets was X% amortization it intangible the equity compensation through a is was points last from run of incurred XXX $XX year-over-year, due we year. this includes period our mark-to-market the year. last expenses, same end line, negotiated relief from per X% was $XX as effective we the of the It The than more quarter. million this rate profit Hangzhou quarter, compensation the to not that, rate. XX.X, This on million than investment Below The higher of operating Prior this consolidation equity first the tax. rate due advertising, some KFC $X was took more roughly benefit was tax profit consolidations, half pre-tax on in and initiatives. basis from and gain mainly savings net year, how was them in to was lower profit to lower and The and energy tax expenses In million quarter, rent to the income of XX.X%. We year income. subject tax in KFC saw JVs the effective

in full We positively by EPS first $X.X $X.XX. dividends EPS income million the expect to the of half was mark-to-market XXs. In year challenges gain quarter, returned in in year. second rate $XXX cash repurchases. low the in we this shareholders and total, returned we be to to share shareholder Net million. was Despite $XX effective Diluted [indiscernible] our $X.XX. The around impacted tax billion

our We capital and strategy. allocation discipline will continue balanced to execute on

As and organic expenditures sufficient operations, with for to in capital growth. to to daily invest priorities always, contingencies drive deal are cash have to our

Chengdu more pressures gradual and outlook. consumer saw are Now, at cautious a restaurant COVID take same-store we given remains recovery in dynamics cities challenging, we let of to cases after economic to have sentiment, In spent on commodity take in zero Shanghai, conditions the increased the following Many in policy. us quarter improvement look sales, current in infectious click downward Therefore, months uneven and including appeared sequential June, we potentially be inflation. some weakening two sub-variants We Lanzhou that cities. time the nonlinear third very still, time environment July, Nationwide, again other expect lockdown the and outbreaks, price number volatile. the and Beijing of external in traffic remain of sales and Xi'an, some decline. has Omicron

is focus to recovery. sales drive Our

We product launches, have and variety a planned of marketing promotions. new

attract consumer value great money to for We working are ensure to also spending.

addition, this agile with savings stay quarter. We're scenario regional in second planned In planning, employ everchanging extensive delighted environment. the team's than the in to better with focus our cost

these tying operational the into some we're sustain growth third As quarter, measures we to and back look excellence. long-term of austerity

promotions, simplified offering and grant menus, example, shortened temporary. For store hours reduced are leaves

real sales Also, as such continue to cooking face it we is utilities commodity significantly and our continue of as weakened have the from addition, to margins. deleveraging In will Crisis impact inflationary beef impact oil year. and headwinds as well environment. this

the labor inflation the downward On economic labor to we side, soften given expect pressure.

increase long-term in Despite the come. face, in open stores to second the will Yes, to store opening years will well good increased sales challenges committed us offline quarter, we for to that labor delivery likely our costs. In respond for COVID strategy we mix expansions remain outbreaks. growth. the positions slowed we However, grow

We be Over store into our smaller business and restaurant to as liable our to different the more smaller services of tier with years, past take a for The together lowered investment few store more sites expect cities. upfront densities format year, been we new tier store new extend innovating efficient. cities and to high operations half lower cater needs, store to potential more models formats. opened like reputations have away tenant than in delivery opening. streamline up to be and This we enhance to in

we KFC fact, stores opened latest this stores due Our in we're for to this to year, performance, of of approach in quarter economic year. majority net on Reassured opening. payback on elements first to and three in to business target we impact pipeline their resurgence the store the maintained control. period, consumer remained store payback of our certain by that we years year batch outbreaks, the In store healthy focus sentiment. conditions we XXXX volatility Nevertheless, the The business term, store continued healthy, to and healthy strong COVID and near able The Pizza expect the months. of in breakeven the new Hut. at new new XXXX continue to a achieve new our of can disciplined three two of

start that opportunity are past very new others. back in better us chain resilient. our demonstrated half even the we the this global will than our positions confident our to will more growth environment, Q&A. make As perhaps pass challenging with I Michelle well Michelle? years, execution With two us in bring and it deal stores, investment and digital and to supply and that, to Also, our people, strategy

Michelle Shen

Andy. you, Thank

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

Operator

Lillian Thank you. from comes with Instructions] question Morgan [Operator Your Stanley. Lou first

Lillian Lou

Thank question solid Joey every on is a My very the also lot better congratulation and was much you. I because margin Thanks expectation. than results. the Andy obviously, think controlled side, and line cost to mainly

more especially savings. we Just understand mentioned are some trend? do business reopen, Andy measures want I for because line running and with of these see -- some reopened, temporary at to think stores and normal the Whether cost gradually cost relatively How hours. a Joey they're of on

year-on-year So we will understand will say want the to I on margin especially changes, to are same-store side sales on project negative? How basis? this, Thank continue the you. be to going cost growth

Andy Yeung

me let so your Lillian, question. you, Thank answer

all, as mentioned, I think, exceeded first think expectations. quarter the second margins and I profit our of

possible and and as normal of restaurant endure very a store did and open humanly feel to of team, all, and employee, think, make lot especially, customers possible. who running serve to as is possible, the our thanks keeping pandemic continue of that to incredible lockdown need in all I dedication all to think hardships efforts, during first our I everything the our the

I a those don't I basis. is the think So efforts, on sustainable possible effort, think Herculean

obviously, some that on our terms of, improvement In was the and in COVID actually situation, dependent performance the as to ability the in of June to terms capitalize improvement.

some as these digit mentioned, cost we high mentioned, in temporary. of sales so, our we are terms single same-store But initiatives now And funds, June. already, declined to in

marketing promotional we and example like back for cut significantly So, so on have, activity. I'll quite

think we I drive sales, tried I to that. we know as stopped you think

up. but managing at commodity still we of first to cost the We in that in terms in also that the elevated I look think, was inflation continue we phenomenal, creep the if and to is price level mentioned quarter expect

think, simplified also second In we reduced have terms our menus we shortened labor, I quarter hours hiring. have of the we opening and obviously, during then items,

have return And opening a to normal so, we sort will operations, manuals these and some more to especially, impacts, have as of more normal tried we of is to so normal going hours.

we back I going advertising mention drive way spending way to of to, relief to proactive terms advertising government trying in these of In payback, to have, our And also are have these and do COVID terms to, that of, I do again, are someone we and eat spending. the was and would some more don't off not. of think would think, like to we some be then, we

the have can to when And certain are third close so the And uncertain quarter. in we $XX if receive million the quarter. of about about, roughly amount in we required, that we wave the

I some some nationwide. Xi’an mentioned, think when the lockdown biggest also under quarter, we July, uncertainty deleveraging forward. as as we Chengdu, remains I And of things the measures. obviously, And Lanzhou is into were in cases see we for resurgence one cities the some we right, real. that, see going And So then, COVID key third the in is looking and example, see

-- And nonlinear recovery say will that's so time we volatile. of be that and would is this potentially and take why

really deleveraging try and be think to have stay we face But new Now, then like, about obviously, up the try I there. that and we on Thank the to we will and global focus realistic control, cost planning, inflationary to you, Lillian. uncertainty also to pressure continue set nimble. need

Joey Wat

these color continue. some [indiscernible], give some these not they numbers behind Lillian, numbers, about of say it will day I the just of will some let's -- want to continue,

sharing who For across the staff store. the continue those of as such

These the a after, on very they a live a week, and employees. store stay Some such shift as run for about one in store May. stores few extreme then, for Typically the work of are week in not one of week second bit store. And April will literally of continue, situation they them moving. during number by a and staff

them. can case However, of other have that I far this is for fortune my invite days, the there this other the protect for one ones Thank the to they is creative serve days. XX to extreme job, truly have hard structure. grateful can and operation that be monitoring, them of can there send and some open the such with kind they their our the customer behind sustainable. in lunch stayed to of But they innovation sort any minded and become staff extreme heartwarming to to stayed team if numbers most protect It's gone arrangement, course we really rebasing But cost team. the of you, innovation XX have cannot for this that me terms some even company. so work more of of arrangement, Lillian. recently have we amazing They embrace

Operator

you. Thank

Cheng with question Michelle comes next Sachs. from Goldman Your

Michelle Cheng

My Hi, and for question. incremental question observed time. opportunity about is the the taking Joey tough Andy. during my Thanks we

you that a mentioned on time. go driving selling we tough pretty products purchase. are there community business, are And So new well during the some top are retail that of

cetera. you more business, do in to have the business So to be the we efficiency, et these that to aggressive the delivery are earlier, Joey, addition route enabled exploring line? we we that, AI new these going from And mentioned improve way

the we are these and how the grow we a time, you. opportunity future. think observed we going to those that how Thank wondering opportunities sustainability should even tough about during further just So in

Joey Wat

Thank you, Michelle.

quarter about is going substantial step quality, of take you has versus opportunities. see expected a what resiliency, me are effort hopefully came and we the Well, the do? amount the quarter that back XX into our strategic then highest Let comment absolute tough, did of April The make the and our the operating not did the May is result. back the is profit we do it? it on go And load. easier growth a some incremental stakeholders it management core moat. the team to wouldn't million, RGM, we quite The little resiliency your mean, Overall, a go understand phenomenal. delivered questions number bit, question to back and but I which key much improved How the can core our we asked, my to is the framework, God, demonstrated to manage the for it bit. just back the June two,

of two example you about the our purchasing these In new we the that example get mentioned, terms resiliency, are great the very and retail, Michelle, will community quickly. AI, very, resiliency,

We ability to then about innovative earned the many with we agility down and hotline process brand, purchase speed, the and and then the a or middle result. And out starting program, execute wait for community with roll putting Within got kind talking on the of it are solutions that together resiliency thus the and two March. program three later in. And that's determination, and entire us week, days the and the program. the we a the across the demand of came team

that And that's can time, also of of happened. But what which a chicken. course, consumption, all limitation, imagine, not fried kinds at then So the community they projects we sell home we Because are of is you selling can and enough. increased when happen, dramatically.

is we became the by last in ourselves the the is of this has new smaller. of to business. you on, retail And a it XX% retail math I China, our percentage question, do small with sales retail. relatively the put XX%. year, many to year-on-year height from Pizza be And back the business, supply percentage to now moved doubled year. now start Hut imagine XXXX, the Pizza now this But we're for billion of mean business, kind is Yum to reaching compare can our that the some on. during it's Well, new the is retail number to complement food. of for At if chain. XXX of Later May then And to new fourth Michelle, first that alone. I But can for it's not. decent quarter go to wonderful X we because at believe In So for in sales your compared to And new you the the not terms retail package is as Hut, June, in compared million it new -- you It's Shanghai time in a half of alone, the the looking number. new entire small, the year, retail business we have scale others year retail. new retail, sales [indiscernible] the business

We distribution, channels directly brands stores our our customer. to customer little new have without to far riders retail charged to XXXX have that of XXXX these delivery our and and incremental costs has is network which so we the are started from deliver online

it to put right continue digital do exceed So short complement retail thing and been about new mentioned Taco mean this the the the et our is Bell level surprising model leadership. business then emerging trying for about thing good cetera. the have that's And years. us time. next a product brands even pre-lockdown and will the during I sales breakthroughs and May, of they that to very to achieve talk again have with very packaged together been doing absolute for you XX within we AI Absolutely, because

not scale we We made. if are have the our chain tailored at one dedicated one supply of few, the only

be around supply the process such that even doing time. difficult of efficient quarter of greenfield can logistics of visibility upstream and And can terms digitize with the to now very supply and code building we business. image our traceability logistics chain AI-enabled of so move and we in we refill surprising can center are things two the us provide chain during and continue the we that and keep So going

the business, the staff possible any proud we single XXXX. for we layoff opportunity protect morale except such company, opportunity Therefore, together, despite people The incremental these is none. typical will doing the certainly for look that at well So Because continue. best cost agility second quarter, very are job. as ever. execution to team ability worked the every that sense not is of XXX,XXX and their is We so promise protect security the we

staff possibly and shareholder. protected. know that their customer protect doing to hope protect jobs in our we Michelle. they're And helps, So to I everything it could it the the are all

Michelle Cheng

you. Thank Thank you, clear. Joey. That's very

Operator

Thank you.

question next Brian CMS. Wong comes with from Your

Brian Wong

Hi.

I question. actually, So basically one have

So will talk to I number. understand your

Joey Wat

you bit? difficult have a you time We would mind speaking hearing Brian. up Brian, very little

Brian Wong

you. Well, Can sure, hear you thank now? me Yes.

Joey Wat

Yes.

Brian Wong

you. sure. Yes, Thank

So will Thank how like of of in your how basically, to by of say, different stores and them brands, increase, store increase example, counts for you be example, number plan And number understand, And Pizza you down to also breakdown the Say like Hut. break by half? in of so for my that's your the there a your plan increasing to tier I stores question. cities? second KFC your and much. do

Andy Yeung

Brian. Hi,

opening, disciplined evaluate and where and store those the overall and new always deployed about they Our the from the a one site, our special process, as to different site. I market conditions, And think, have financial sort market think mentioned, methodologies implications, bottom we the return approve usually, propose some to models, the we opening. of to financial to appropriate to one committees up

think I change there's process. that any we'll think I to -- don't So

Pizza with well. seen new then as in opening the to opening. good, new so will within you our see, account like and majority is be of continue the of the our can terms to be by this very brand and have and lifestyle, Hut, brand likely obviously, especially the for And portfolio, last store year performance to continue KFC the store accelerated because largest store year, you as also

you think, also can I So, that. expect

will In percentage But terms Bell But continue too, it think, opening numbers, Year, before for And in will there small. best. terms some Taco still franchisee by business, there's a cooking to be opening wise, absolute in New store. start regarding smaller brands, opened they we continue can for be other Lavazza, second will portfolio the be to think of and so, more they're genuinely also expand they will in I Chinese will I half, to are there, of although example, cyclicality example. coffee, then, of store Chinese expect

again, because little the bit but like potentially that's restaurant COVID it's so, for this And situations, more more, year, operator. a challenging

cuisine market, enhanced. of in concentrated was franchisee, like, by will situations [indiscernible] Chinese how continue see monitor business have to localization northwestern China, the But in given so business especially we our And we'll part so that's to the brand.

we of more of past couple and number multi-cities majority we of store store over terms are our to these concentrations opening have this key years, open. the as new see have will beginning opportunities accountable, seen In the cities area, in or in the more now

one, we I cities. trend tier densities the general to and the in continue our see that network will obviously, Now, of the to And two continue. think tier opportunity store increase that's trend the

Again, have that's often opportunity we help that we we the We're have to look strong years XXXX strong that store store also Brian. target them lines how profitable long-term. year, this the have pretty we that have net more store opened this good us XXXX new grow and a to recently. confident genuinely past as given that, So of can seen give Thank our open we have, about couple economics the that of in mentioned, store new the can we will in like our opening. good over and you, at facility

Brian Wong

Thank you you, so Thank Andy. much.

think I So is very clear. this

So actually, have one more question. I

to landscape, I of say some and competitive there because are and then are that, kind cities, they like are version, cheap price three Chinese kind tier the heard like so the tiers, two so low similar someone tier of KFC, they in So [indiscernible]. version,

cheap. is seen because you and do I've manual actually them to compared their think, is manual strengths So quite your how the

them these how you tier cities? lower So compete in plan to do with

Andy Yeung

Right.

been that value I price, consumer to the means do for food we price they be cheap best we good were means, the are just or think, can enjoy tier good value see can give think on it. until values, we not so competitions, with at lower is that that always they thing to and or having quick consumer, that and cities, cheap, cities both focusing high we but

our fun a comfortable -- have of very quality brand, products, very delicious we brand customer mind to our brand, a great loyal have our We identity. fantastic environment, that in put

fast mentioned, Shanghai, of lockdown period look example, fried during at food, by I during epidemic as the the indication, mostly that some So, you for time. was you in think chicken KFC if and

each working consumer, for food brand, can our see, with and products, And brand, fun to with And you mentioned, well new with so way, our in food great culture very think, after deliver continue consumer. values. a to innovate great I you we continue

on in thing advantage. the do are propositions, we the is we compete focus the structure most much what costs consumer. a that's cost to low mentioned, to is important and and we quick have reason As order costs, controlling so And value really that in and why try value

Joey Wat

manual, chicken, tier To differently at entity it like least have slightly to we like in be have cities more differential. have start is to lower menu cities. with. Well, would X specific, in fried might felt could We in way, later we different do tier other the something for but that we pricing tier on, different slightly tier cities, different do or cities that, sell which lower targeting compared we the top is three we slightly and

store that the different and manager it incorporate We run promotions, certainly also certain we flexibility then give So model. promotion. our to

of could slightly we up lower, of in tier So Andy city have stores and doing the these mentioned lower it. a way building slightly cause different be is investment

operating blah, slightly be So will the model, different. the blah, blah, kitchen,

is unique in you of the very, years. northern lower last give last ones. our impact northern of business China, the pandemic, XX children more which are which cities, very or tier is part despite something the an on of the business China, us we three in most eastern in So in in focusing of the years, part the part is part to of example challenging two very, still very the To even difficult China,

more alone, XX,XXX children's run we summer than have For this summer events.

events kids manageable summer. still for during organizing they're the So

can see different sites, different we you have model. do So

Of opportunity business different consumption, in university a analyze customized customer tier you lower the course, and the these and different different station, in many have to cities, like the this so name groups catering can and different highway we days, it. hub, of other sites take remind transportation more region models occasions slightly

pause I'll here. Okay,

on to the next move question. Let's

Operator

Thank your to limit one you. person. A please reminder to questions per

ahead. go Citi. Xiaopo with Your Wei from next Please question comes

Xiaopo Wei

for Good another morning, Andy, result. Joey congratulations quarter and resilient

share the again assumed differently to China presume I base Yum being great reopening you being if you could new opportunity But how think learned But in et the versus agility you the also the new offensive had same Joey kind switch can touched view, only If pre-COVID KFC, about in being in we arises. ideal past when continues, operation of means reopening cetera. Pizza cooperation in you. which of that offensive what years? defensive. China mode two the few in years, have defensive do scenario, with the could operation. back be a how talk Hut you of you opportunity, past Thank about on operation brand, [indiscernible] retail I

Joey Wat

Xiaopo. you, Thank

share at and number our about at so has two, XX%. me the Let we same same-store just become my thoughts sales sales for looked the business quarter more system here. Indeed, XX% agile, is

profit. X% deliver we However, still

we I normal the business, technically, at to about point our roughly even break mid-XXs. guess, So break reduced And the about pretty even point have in to XX%.

the reduce it So our gives things. us do XXs it to to is to agility phenomenal, ability this

when quarter bounce able and our can intact, I when forward, fundamentals things you bit what COVID back for relatively can even stable, situation two, see think to That's quarter rather say more more a Going though is even are are two. for stable, quickly. are we even we

XXXX different strategy be last resiliency, the that's RGM as for is important still the we bit and But any going how become grow a to but few same. is, we're although certainly resiliency be sometimes market a now, it still in hope Andy say do still is that lot both. to of things we So moat. quarter even might uncertainties situation. that growing now, can long-term, We think mentioned, shared challenging It still that still can I in the of years a question, your committed the we see are even there, we than more the is strategy as since and not we're might there's But right three, it's what faster? this we better, is and the but If from growth faster, store. have strategic difficult in right the is to the very optimistic when landlords,

with resiliency. for And great our costs. then stores. capability, grow and ability our Pizza digital our We growth money, from value brands. control have more our come product, other we'll the innovative Hut continue here the that And we'll KFC, with with with to And emerging

We sales to the at from for very what and good are increasing off will do opening stores continue also premise. we the

without KFC the quite XX% delivered in see sales, now in a that about high all us And our of won't our because deliver and we the the XX% Pizza percentage these -- the this to we sales in for be number able for that last last bit move quarter is agility off-premise And off-premise and can years. few gave You growth the numbers X.X number, right Hut. years. both last

We'll continue with So more the XX firm steady, and strategic build then, supply growth do to continue continue basis, greenfield continue. logistics logistics so right we'll to center. will chain will now. moat. And a On daily the center

science we on will commit that We have work the continue the front target sustainability in the We'll to commitment, to all base, the our continue to. to way the back. our automation invest from

hope give nice a a the might you you. that bit we are Thank could sense clear, that up little directions pick and faster whenever I we So but steady.

Operator

Thank you.

CICC. with Lin CJ from comes question next Your

CJ Lin

one on Joey you, performance. Thank Andy. strong the up resilient for such follow side. have a and Congrats margin and I again question

extraordinary restaurant meanwhile, are back a some adjustments since mentioned getting sustain we a measures margin the Andy QX very resilient showing that and trade future, And growth. in we in to have through the So, long-term are effort, control cost we [indiscernible].

like, long-term XX% expect you. the So in restaurant normal? this the under we Thank Would around how margin still targets? should be new our

Andy Yeung

Thank you, CJ.

longer-term profit in is more sales have I term, cost to nature. growth in the saving too. [indiscernible], for the digit we the Day, single to think, turn community drive in on in second and about extend a is mentioned, our situations. as grow depending is high initiatives self-leverage the short-term more to obviously, some goal or year's last also, longer obviously, mentioned, temporary our short-term, and drive And of and profit now is top-line. long-term, we then, we that COVID margin normal bit by, biggest last So, deleveraging of over these quarter, we right will efforts But restaurant terms and single-digit as in our really quite talked drive driver goal And what in growth Investor by high as our level, and

those or think margin. saying, empower, when what to in trying question we in think, was achieve One that's normal, we so, was And have long-term. the return I in new the thing I to also the future, confidence sales, things normal, show not capturing opportunity, predictor and in of the I it's but always us both best and predictor -- potentially although always the say, in that like, history is some of future probably lessons.

quarter more between situation XXXX when you sales at at that's see was markedly full margin our year our going quarter lot you we emphasized that, improvement. to second to see period, and to If the look also, your of resiliency, in a able terms excellent And We're of have what you Joey able significant back times on a period execution. look stable, were growth. drive and take the the third would XXXX,

margin opportunity things capitalize then drive sales that our also recovery. how in us case things help And to on our operations, in so, but case planning get and better, drive and worse, design we in get can sales also growth

and perspective margin some of So longer hopefully, how perspective. term that term in we look shorter the gives also at terms the you

Operator

you. Thank

Anne with comes question Your Jefferies. next Ling from

Anne Ling

this coffee Thank -- thank it one like mixes at, this like if very still it's I management bit little forward, store of it's you a the But seems business, our My like, top. very you. more it's growth versus potential understand opening the a And question my moving on time, will same on peer, I your still for plan, small at that, slower. is call. I be look the that at know Hi, space. team, taking

process or like it like will of that, your and we like that if And out, XXX to So, meaning some is the back-end already with still this out. with in -- sell that, us business testing of are we roll maybe, share once we that support rollout, we would like right pace initially. the your are to find might we investment to coffee models normally, have we type of you stores, the our roll we have like need bet possibly it and model

So, think I an don't in that factor will as us our model. investment any any of in analyst

powder like, if your with us the to investment company want -- coffee just Thanks. of the share will management great. business, be check plan right, or would initial the that So what in some be if can

Andy Yeung

Anne, question. thank your for you

as see of So, we progress. by progress were And they company. the very measured pleased the the having -- I think, same first our be to may all how not

measure by may open of in whatnot. company Our quarter store x hundreds and

some mentioned, as our are any in other there including pauses. some [indiscernible] of have As with fact expansions, investment, investment, we

Although, like to immediately the building going the scale right a brands profitable brand, big expect scale they coffee model before newer that, you With business problem, will because on a like all a be to don’t out you're short-term. them right. up, genuine expect they otherwise, figure

so So the network with right progress significantly expanded last way so far, from quite far, pleased has we're the the now year. very store

even sell same-store tier putting time, challenging year, like stores XX whichever a in package, as sort of sales, Shanghai. and mentioned we retail, product of cities better well. team we in cities, as plus of tremendous very be together than a small would last to job number We done year then third almost last sales, in mainly have had very in now very a it number four Joey tier year-over-year, than a household In more store have have right in the and one doubled

customer our In to terms of growing customer we now, see base, continue right loyalty.

grown member very If you number grow, year-over-year. Lavazza now. at And four its member now, significant then, to number times for contributions continue have look

been business, COVID, significantly store, a this the as of [indiscernible], brand, by also that new their [indiscernible]. number obviously, impacted on of top in So, has coffee large

was have locked so out impacted. and We

us not fairly product, audience, changed I us pastry and community retail, into the to but we reach have a to really purchasing, mentioned, purchasing, whatnot. product some As then they this able package our community through are it help new maybe pivot like initiative. to quickly do were able And, bigger your product coffee, in certainly of and

model. Now, we figured perfect we obviously, and cannot have say, out everything all

the take and Hut I this the rice it for sort in will of improving of fundamental, to KFC some to also of you some take would the think there to a streamline efficiency. and format, while some operation figure product and Pizza restaurant out strengthen work manuals, bowl

with I more still think be patient should we a bit need little that. to

think so it's I we're very years. have lot the partnership with in and progress think happy us. And vertical so, coming But yes, important still so we're And Lavazza you. big with for very the Thank do a work we far. But more to confident a nonetheless, to that do. we

Operator

Thank you.

Your comes Christine from next Peng question with UBS.

Christine Peng

you taking thank for my my taking call management -- question. Hi,

you to previously in mentioned, just in we some I have that the looking some as am actually in updates a providing management asked which sure I and So question, for similar possibly shovel but the post of are have to XXXX. China initiatives the like analysts previously, COVID I recovery about new full want a ask

the chain mentioned I initiative are something you your the this relation -- in Hangzhou more out. given your to that store Is mentioned, think provide with previously to emphasize and I think business I possibility us the cetera? years, I updates more provide of or terms this been updates the but of that's to of plans, struggling stores. Chinese So we in the franchising. of So XXXX you the three of think previously, that, to two us behind initiative know thinking management want in the initiative? in regarding, has remember past first cuisine I when the initial integration initiatives extent about you is what COVID the key is right maybe business. terms franchise maybe about that management check And as et introducing leadership, your more regards management XXXX, And extension supply to can now, can more thinking resiliency one second you provide is plan, initiative

when want the latest check into thinking behind Thank those out going just So, I initiatives are long-term XXXX? you. what to we're

Andy Yeung

a as you it's Yes, in and you Hey, in part impacted been because tight leadership of locations mentioned, nature, northern Christine. Hangzhou China. of by lot then for so -- the and obviously, outbreak, western have are

them strengthen have address is one then business. in Now, so recovery, sales, also the franchisees priority number delivery I think, to obviously, try the operations, for to really particularly the and the

they sense, have in the part in delivery. -- not business So been the have probably big a of

services. being we And they think lockdown, and can quite retail corporate our this good help, the also, the capture building. something like a to and of during pretty opportunities overall sell, cost I that So, Leadership and also especially Shanghai goods in in purchasing business. June is the also make both also innovative, given in able four and do, our franchisee were management to community creative and -- delivery progress lot pandemic, including and

to just to is I and next business year also to and franchisees think, continue business the Chinese fundamentals integrations. the priority win So on trying work the help cuisine then sales for really recovery, drive their

you questions? do to So, Joey, want on franchise comment the

Joey Wat

force Christine, will the continue our driving forward. to going business for be

we XX have However, strategy. do the franchise

to and bit some of good already new station, market, markets long store. a and established also such as stores the along have in market the put now, right the the partnership highway, have thin franchisee for models, strategic we [indiscernible] and business that like then So these very emerging

going pause just the So time to thoughts not I'll more We our will have its on. purpose. given here. it think later And today, general, strategic I detail strategy, exchange have be it's franchisee the could own

you. Okay. Thank

Operator

Thank you.

Bank comes Yu of with America. question next from Your Lucy

Lucy Yu

the more Joey. Hi, is question Andy. question. Thank Hi, My you taking side. on my JV margin for

uncertainty, think while promotion plan the discounting second at and how fighting ourselves. about and So we and Especially time a the to are we're the headwinds in the should we same COVID trying against commodity stimulate half?

discounting we the So, second in think you. half? Thank promotion about how should and

Andy Yeung

you. Lucy. Thank

obviously, third with second though the quarter, the bit, As on into in coefficient as some mentioned promotional volatility. activities. marketing even cut and also second then And we move back with quarter we half the the saw a and in we improve

as is we so, going I COVID for to situations, have sentiment -- activities think these of you really And and is also macro because campaign, and us then pressure. then promotional and greater sales the consumer likely some value key value focus for weak, prolonged more marketing see recovery rapidly because economic after campaigns there. mentioned driving money

business trying about price using like, be inflationary like, to as Thank Lucy. first were of but ask, you, run We it's to a usually And to so, for to do always always the year. increase we in half and try very cautious value cost, our the way below rate. second before we prices. a But by for we small But inflation we say how increased that's and is money price important see amount better sort lower us very increase have always, we this so offset anyway, pressure. like

Operator

Thank you.

Our is from CMB Woo International. final question Walter today with

Walter Woo

was by members and sales. so your Hi, ask another asked question perhaps Joey, hello, previously, about can resilient I Andy congratulation for My analysts your highly results.

it a sales as the but has to system members members So while of grow sales continue of the total very number healthily, seems declined year-on-year. percentage

you mind and you members that is you and reason the those the growth member do strategy Thank and behind? sales the So potentials do you. see going for over And how guys, a forward? explaining concern

Joey Wat

XX experience member, sales, is of We not quality, to to the enough. next million equate, it comes roughly the non-member when the something XX%-ish, cells quantity sales are for the the work us overall the XXX is because then the members the the then nicely And our on is member a stickiness and to concern it member million growing, And I actually, other sales target KFC etcetera, member high member Hut. is etcetera. mean, Pizza total is very member, than XXX around for and is is of more for still for us already which

So I it not much we guess, cannot increase just make members sense. every, strategic for the does

something improve quantity is and we there's do and a quality. part to first can so much important and really us that For of out really, get it. it's our to of business, But still

cross Pizza how And the same and we and we Hut, cetera. with can serve an Pizza customer do Hut, KFC better? give to can example, et sales? Just Little the how what about brands better KFC, Sheep

Walter. for So a lot of now. on experience quality our is focus more Thank to do here. But the you, the

Walter Woo

Thank And just you, Joey. a little bit follow-up.

very declined. So has member the if still healthy, members, the growth mix and is sales

affected have months. means, in customers So new second the that more is the being few we quarter or in past

you So do customers see that clients here? new more trend? new We or have

Joey Wat

population go I mean, the on -- China Andy.

Andy Yeung

Yes.

but not have think like We we large I million sales always base. new we a sales have customers. large of And member. have is area as commercial member I you higher already member Joey urban So have no the already. like, better, XXX% member sales. have are I population very mentions, percentage XXX This mean,

between, sales and mix of the there's member a So new always a members. balance

depending that member some fluctuations will then, there us marketing to long-term. frequency on But and helpful and customers, their out among which stickiness as And in campaigns so so, level, our the on quality costs and is Joey the continue how I -- and think is condition. depend the from sales, really time-to-time, XX% to of driving be of that over mentioned, increase for drive really terms

improve. payback the our customer improvement marketing for continue that, and to So new

number the of are those matrixes. So

one is the and higher, is think better. the them, member I always, not sales of

Walter Woo

totally Thank understood. you. I

Joey Wat

you. Thank

Andy Yeung

you. Thank

Michelle Shen

and day. on to call That you. the we next a great call. Thank the Thank earnings look forward concludes Have you. speaking today you with

Operator

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

You may disconnect. now

Yum China (YUMC) 29 Jul 222022 Q2 Earnings call transcript