Earnings call transcript Q1 2023

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Operator

Thank you for standing by, and welcome to the Yum China First Quarter 2023 Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to Ms. Michelle Shen, IR Director. Please go ahead.

Michelle Shen

Ashley. you, Thank Hello, everyone. China's Yum Quarter Earnings joining XXXX First Call. for Conference you Thank Ms. are call today's our On CEO, Joey CFO, and Wat; our Mr. Andy Yeung.

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

be may in should our included and risk in actual earnings forward-looking results forward-looking in All the factors with materially release differ Our conjunction the our these with from statements. statements considered statement SEC. filings cautionary the

certain includes also This measures. financial call non-GAAP

You our should GAAP Reconciliation carefully consider the measures. measures of comparable GAAP the is non-GAAP earnings and included in release.

find website. call and can a IR webcast our on You of the PowerPoint this presentation

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

Joey Wat

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

new the and hard Chinese all [Foreign to be possible. We first It's of employees. have for our profit. operating want their performance pleased quarter saying, like wonderful work and to start XXXX, XXX,XXX-plus dedication, not thank a our set records will Language]. I to revenue are Without

critical This grew effectively Chinese early measures. low conditions the New optimistic planned period to January, regional on were how Year into the driving we unfold sales scenarios. is was XX% incorporating us. shorter particularly Therefore, challenging We earlier resources multiple in more to for after emerged. visibility on able based Year a of New due deploy for opportunities sales scenarios ramp-up period. will differences strict focused year-over-year. we as and Chinese year, relaxation COVID an had System trading Back

million. Operating profit more $XXX to than doubled

in times in in growth to the better plus resilient XX%. and times our efficiency operational contributed our seize emerge. opportunities is exemplify XXXX ability the also results XXXX past profitability challenging plus to compared is and to quarter. our years few sales when XX%, operating And compared enhancing structure These cost stay system strong to in efforts profit and Our replacing

resiliency, our and with investments, us and growth, Our initiatives made more agile moat, responsive. have along strategy

XX% dine-in, sales, encouraged During basis. year same all the were of quarter, year-over-year grew provides. we convenience Delivery across and the from and to increasing notably, a sales around by tourist signs on was delivery plus zones. sales continue transportation and over accounts XX% year-over-year and Off-premise XX% We for locations. sales. trade as different a of grew Same-store of mobility takeaway, Customers growth regions saw a ago. at delivery recovery, love early same-store benefit

level. these sales were first locations However, XX% the same-store quarter below still XX% in XXXX at to

XXXX slightly value from sales increased sales. outpaced growth. gatherings, with Apart programs Weekend to growth social day since also contributed

Let food me we good is pillars, hallmark. on demand. sales. Good good customer share to at core and signature refreshed several great achieved great We great products grow about our results. experience our capture focused We food at value and value how

whole year-over-year. chickens After doing add whole at-home for Year more New a XX than bucket people in we at option up for reunions, capture We expect chicken, decade, million Chinese To first sold a Language]. around more it family than our trade consumption [Foreign juicy come KFC. quarter, to doubled the the to

sea first wagyu these cucumber Chinese Seafood and Wagyu sold in We quarter. XX% for Language] and became the most days. gave a markets Wrap nearly innovation including Supreme, The Hut, premium At a to ingredients our Beef sellout [Foreign in We our pizza total the buzz like introduced pizzas in Supreme popular perfect, spot lineup, in classic localized the spicy just Beef twist, abalone, beef, of Year. [Foreign By is series leading the Language]. pizzas many all X fastest New Pizza accounting we've choice.

Double Durian Supreme, We [Foreign also created Language].

Durian pineapple to lovers of were love combined tropical flavor. For it. with [Foreign and [Foreign an Language] types and two Language] durian, grapefruit durian explosive supreme, create

drive continue values available make these [Foreign our in segments. More, food continued and Chinese New Save More to to Thursday KFC, even promotions, momentum during Sunday's Year. Language], offered Buy year, great We great we At value. sales at Crazy good its This

our and burger lowered choices attract combos, drove revamped new value of [Foreign just Language], combos weekday's to XX.X. with also combos customers X-items We frequency. more select These and RMB prices

days. We or also pizza significantly options. item The Pizza campaign one, purchases sales in by encouraging increased popular within expand to repeat buy their free during free can the our get next include the period. immediately Hut Customers steak at redeem visit one and XX promotion campaign

riders Now January, At let's as stores with and keep effort or portion open operations. peak, our from temporarily significant people services. talk we about were X,XXX resume of normal employees efficiency. a limited early over closed recovered our every COVID. gradually made to offered year, the COVID, infected last By and stores our were only Late operating of

New the planned based period. scenarios. We and Chinese Year We on got optimistic ready for for the more crews inventory

and differences our to improved based provides plans on opportunities development for to further expand also shortages. fine-tuned talents. regional and initiative program continuously We learnings. We minimize incentive staffing manage store career across management and teams enhance It hiring also stores. for we productivity, our our regional share labor young accounted To multiple

you Now let me our share with digitization. about

face AI campaigns peak migrating YUMC's our spikes Smart like leveraged private New efficiency. Thursday. orders. our and These while traffic important management, inventory reliability infrastructure have key that's season digital Crazy during particularly Year. significant optimize we during of to a our Language], We especially Chinese It's We food like operations. production. for off-premise enhanced the streamlined forecasting, to the when Also, cloud capabilities also are important [Foreign operational built powerful system, ecosystem to dine-in innovations and the scheduling demand preparation order crew instrumental enhancing

New Language], Chinese flexibility. Year the riders, delivery, sales and Last with even to dynamically for our These [Foreign to dedicated daypart. to year, capabilities, delivery and delivery peak by us continue delivery coverage upgraded system orders store each improve the we capture Smart allow coverage season. adjust fulfill along during more

orders points quarter. members. sales of first We engagement the XX% around digital account continued touch to improve for for Digital in with better

customers. Our privileged invitation-only [Foreign with subscription and loyalty million actively to program insights XXX is K-Brand, million for put gain core crown steadily an sales. customers. us programs K-Brand contribute a improve engage We received most loyal stores. in to valuable X the and This and on top drive about plans. when members. help frequency royal screen Members service all exclusive exceed XX% coupons and members ordering for loyal members our Language],

quarter up, our we opportunities. performance. to agile enable deliver pleased capabilities, strong products To capture scenario and along chain sum market value Multiple us with extremely campaigns, digital first and innovative planning, are to supply

evolving stay through the market conditions. nimble progress we As XXXX, plan we to to

sales will building store network focus and we momentum, expanding on moat. our our fortifying ahead, competitive Looking

call that, to With I Andy? will over turn Andy. the

Andy Yeung

Joey, and you, Thank hello, everyone.

me share you first quarter our Let with performance. now

fourth We made sales the the to from reopening significantly rebounded sales since tremendous by offering innovative quarter campaigns. drive value quarter. efforts compelling food First and

highest XXXX. XX.X%, margin Restaurant the since reached

driven Our recent and our from operating leveraging, to efforts temporary structure margin rebase COVID-related investments by was years, networks. relief improving in expansion cost sales government in efficiency and

financials. Let's go through the

exchange negative X% quarter. in impact approximately of a had the Foreign

units Hut growth constant In XX% achieved First fewer quarter grew a COVID-related of significantly sales Both $X.X System currency, was new growth. fueled temporary same-store contribution total system sales store KFC currency, year-over-year sales increase. revenues by XX% growth were increased XX%. closures. billion The and X%. The constant robust from currency. in reported and X% Pizza revenue total in year-over-year

which grew Pizza year-over-year. to strong X% grew average sales same-store traffic average Same-store drove KFC X%. year-over-year. and ticket decreased same-store X% activities, XX%, sales Same-store traffic brand, X%, were successful traffic and promotional grew average. X%. the These due Hut lower grew ticket results By and ticket grew largely

factors. prior Sales margin higher Restaurant margin was key leveraging productivity expansion. year. lower of XX.X%, costs the approximately occupancy basis XXX half gains were to contributed than points and Labor the

promotion to government with benefit policy the COVID-XX. to We deduction, VAT offset expense. posed by These thanks cost also are enjoyed challenges help deal the additional and $XX inflation partially by million from businesses increased

Cost me prices XXX of go key items. innovating prior year. menu. prices and the was commodity through XX.X%, locking low Let efforts tremendous lower than in sales We points through kept basis the

traffic. by headwinds low through XX.X%, crew-sharing better of We lower basis activity single-digit benefited prior Gains improved further VAT initiatives. Cost team also inflation. reduced labor than wage offset was offset labor productivity higher store and management than were We and promotional and XXX leveraging Sales wastage to more productivity from increased year. from drive labor deductions. the points

was others was new and Occupancy driven by expense saving than This store initiatives. and due the and store mainly XXX terms sales as leveraging, for XX.X%, lower rental year. Rental improved prior favorable portfolio to basis other rental points lower cost obviously more optimization. expense as well

activities. Operating sorry, additional COVID XXX% from also from release currency. XX% performance-based was rental currency, increase in million reported as the $XXX with as surge in currency bonus well merit and -- last G&A $X We in expenses related business mainly constant constant increased of million resumption [indiscernible] expense year-over-year to reported increasing profit year.

tax Our rate effective was XX.X%.

our committed had rate end was capturing in $XXX benefit an and quarter, cash billion of better XX%. of operating in $XXX to around shareholders We to was Net in another XXX% At flow investments short-term expanded million currency. would increasing XXX% repurchases. expect $X.XX, full be effective billion year million we In in to we income EPS cash opportunities. in generated $XXX long-term and We first $XXX from year-over-year. in interest around million first and flow. in growth deposit, share increase year-over-year the Diluted cash reported quarter, network remained which the the dividends $X cash million, and tax We free future $X rates. store returned

labor well faced contract the as we stores. quarter, building permit an we new and first the first quarter, in delays net XXX infection the and to as due New deposits In shortage opened in quarter. earlier fourth widespread Chinese In signing Year the

our X,XXX stores and are this opening goal year. net new in have However, confident strong a we reaching of to X,XXX pipeline

years Hut. well. stores period We've a continue Pizza new years to Our and X of at perform at paid KFC X

We on in disciplined manner. will a store continue and to network systematic expanding our focus

Sales post below turn team's travel. by Chinese New the period during to were our New to We're at demand sales Year outlook. same-store pent-up encouraged by trading first has Year Chinese performance. But buoyed quarter Let's level XXXX. remained

early still the the recovery. lingering. the challenging, and gradual conditions stages of be likely Overall, in global macroeconomic of remain is still pace to and the are pandemic are and we the trajectory recovery The Now uncertain.

so attract still we are crucial. are deductions fact up. inflationary In our conscious, priority the So coming gradual for sales. us traffic pressure, driving investment benefits is we promotions the and Consumers value VAT sales pace in more release quarters, and -- anticipate this the rental the to additional to expect so from that year top and

our manage opportunities the capture in downside demonstrated We bad in ability to times times. have good and

mode strategic cost scenario in for We operational structure to We strengthening remain environment. uncertain will and the seeking shareholders. China, value and utilize navigate growth creating extensive continue investing planning, in to to our opportunities committed long-term flexible agility the our

With Michelle. will Michelle? pass to you that, I back

Michelle Shen

Thanks, Andy.

starting XX. us like September Before can't Q&A, in Day a we share webcast Xi'an, have in XX take XXXX the those be join for we'd event The and to on will to China, it up place scheduled our also person. will Investor who that head

soon. more provide details will We

will questions. open the we for Now call Instructions]. [Operator

please start Ashley, Q&A. the

Operator

[Operator Instructions].

comes with question Sachs. first Goldman Cheng from Your Michelle

Michelle Cheng

the for results. on mentioned very value strong now. Congrats content is the you question about the My call just

been with about on through have you your product our us so [indiscernible] we is and reopening power thinking share still see the we going mix? since the given past for consumers' months of is quite strategies few this the challenging, spending trend what and the So can

And about cost. to food question related this is the

But the on that it if cost improvement much lot did not Pizza decent see food the paper quite Hut pretty Pizza a we benefit. KFC a savings. benefit look like versus cost Hut, savings, into these on see while looks we KFC So

value and So can also us adjustment how for brands cost? impact product mix the this you campaign the X share with

Joey Wat

Michelle. you, Thank you. Thank

campaign Let value with quite me consumers here economic and pillars comment follow key cautious. are therefore, on comment. the can good then There value food and value of the food challenges must not get our They're value come -- now. top One to Andy enough. question is order right The campaign of X-pronged value pure cost is the benefit. strategy. innovative is the what food testing the And focus with campaigns on menu. campaign are X because up strategies? on really We in The our are

new very was the is that see Chinese after Year well. that will and value campaign And you right Language] New product. doing So [Foreign

value, is good course, important. the then And of

of that, the So we see now. then value of these [Foreign have save value Language] combos campaign KFC, Crazy we have of -- And were since last Thursday. top introduced you middle year. the Sunday well. can right And And quite on all we we campaign,

working been not let's Thursday So because, that sometimes has we'll continue -- Crazy XXXX. on since to forget, work

So it Green takes many well. which that Pizza have quite build this been has a as Wednesday, Hut, then work to years' working hard we And platform. with

good have lucky now, delight a good of good to value, some toys right cetera. fun even or even et top customers food, fun. On we We, Maldives, to with trip draw

first the of that's So pillar strategy. the

pricing. When prudently. margin. design and we the very, carefully trade-up average raise is also it price, we carefully very Second ticket protect And always options to do and we

with So the protect able team shareholder. and selection to you campaign, top price the while margin let going has products point for choose. value entry we see been price customer for each are heavy introduced And of that, we the good management the range, including on can

to competitive the is cost keep the inflationary The of third pillar strategy in environment.

to product Our supply secure at been scale. doing supply work and innovation chain has amazing

the And food without lot well, strong that. and rents lowering we customer. also including amazing, pause to the in possible also campaign, they value the to save comments related drive and Andy to these a then here while I'll not pass savings cost. from operational to staff So sharing, marketing for amazing money these the pass are of waste behind are very back order I'll but then pricing campaign efficiency, seen

Andy Yeung

the look yes, Pizza very and think we're with Hut, encouraged very at when so So you happy I results.

but like we If same respectable. restaurant you We XXX saw saw have and store Hut, itself, same-store if operating margin growth. at you basis, X% on then see look same-store basis year-over-year also double, increase XX%. the growth look profit margin which EBITDA, Pizza less And is acceleration expansion. for you At look KFC, than if the point grew Pizza Hut growth almost XX%, almost seen the it expansion. on And still at highly XX% strong is at in openings. time, a overseas it's also very very which we

also item a way they X that they when at line on use. the I slightly we the obviously, look basis, operate And are think cost the business structure and the in different material

dairy when you at the impact have product food et look more cetera. products, cheese, beef, So KFC cost, obviously components,

value very then And at very they sort pace growth. X have if Hut, store activities. also have of traffic also strong for campaign, you Pizza you of different promotional and And drove the strong brands, look like it

at And so Pizza strategy, the the X and are different KFC. Thanks. think well although Hut brands, for slightly I quite working both

Operator

Stanley. comes question Lou next with Lillian Your from Morgan

Lillian Lou

on And year. we and strong benefits the My significant Andy Congratulations again, the results. into margin and Joey leveraging. I -- to and there think first Andy, on side there are at cost last for because the that quarter, did improvement details, Joey I actually from from question mention savings think been significant if the look amortization is the in sales some cost has depreciation aside look compared especially, rebase the

and of full of with in -- also forward, significant out what's the the cost given pattern cost expect on So the margin Are can basis? going savings year, understand, on the release the phasing quarter. for the first operation a -- depreciation similar aside decrease guidance put my the outlook we year-on-year from we your

Andy Yeung

me It these take seems like so question another I questions. for will

margin we So first we Obviously, internal have at sales, as sales expected, we're look margins, I with going improvement, the to very we're when leveraging. see increasing think quarter encouraged.

half improvement approximately from the the So are sales leveraging. almost coming

efforts the rebasing benefiting see some are the of as can Now structure, [indiscernible] cost in structure of there that labor productivity, that cost our into put well. we terms overall we the

initiatives. the can then that restaurant management as mentioned and also team mix their we and prepared remarks, they're you we optimizing scheduling So see labor crew-sharing have labor initiative on and

better benefits would sales And inventory also that wastage because see we and think forecast visibility. less then realtime I you efficiency from the operating on have side,

benefit in that's in of investing the So digitization. technology,

installed utilization, We usage. better some smart the also see in so have utility smart devices restaurant, utility also we

have for our In stores, and rental portfolio more the terms depreciating also help for a I there, up if O&O optimization. terms we we And store, our I well. also will in long terms have expense, as you also in is think the of and have benefit investment -- of favorable some mentioned, before, should of rental our our store at that That then new overall new ratably bring term our terms in us and look depreciation, as depreciation. that mentioned expenses one also you we investments expense

benefited we Now first some also quarter, in relief. from the temporary

help deduction, policy that As rental about to last I we that how will mentioned, which government see $X policy and from long million we from relief COVID additional from with did a surge, would VAT challenges, COVID continue. that also year million deal $XX business then is and

to thing think very emphasize I In as a factor overall on our terms is want outlook, important one sales that, in margin. that I determining I mentioned, of is

And should sales we year-over-year, so leveraging. with sales see improving

However, I and Same out January quarter want point sales quarter we for seasonality do is with sales. a solid our have margin. to that therefore,

the cost sales is and that you gradual recovery, pressure their of the the post gradual of building, commodity prices, recovery. of some I stable as if of compared although to already think at we're we'll look a And we have mentioned, seeing more overseas. on we market -- look but the much one pace still, spot other post see sold, more The cost pace our a [indiscernible], I when of increasing that goods -- at rapidly with like from

also wage to mid- Currently, normally, digits. to digits. the likely single single We're at low through we're see year. high inflation see And we

back recovery to normal So I continues. as think trend we're going to

way So we at that's like look the lot it. a

sales share think, For to last margin I improvement, the decrease leveraging. degree, by

cost rebasing initiative. the costs think structure I

hold, go the somewhat the take of rest away for relief would to continue temporary We year. but

Joey Wat

comments base pushing been Therefore, particularly ago. current Last we And have result on few want showing resilient than the Lillian, years cost Thank difficult, really have to right you, X certainly more cost. a just now. years XXXX. lot a been rebase the challenging, is is the question. add X I to The

Let me give you some specific examples.

the last rent been stores stores the some portfolio the low-performing structure. prune to decade with for our X better. over reasons. better able were because new X is XX% about our is years. it's the built built better For stores store rent, have last in in of we while It's best actually rent Think One much

last improvement is For the CapEx just to X new even XX% we store years, just add If in the for XX% by for up our roughly for depreciation, the XXXX, down XXXX. is more. improvement

Well, is also per the week sales coming BPSA, down. the

improved. margin benefiting the not about of benefit Think is profit new maintained even side, lower or sales the benefits And opening. It CapEx the the However, store only depreciation. also Lillian.

the not With lower will to store, stores the But able lower to were zones to us CapEx have trade are still CapEx volume be able we flexibility more and stores open in in we open open the -- allow we that past. to profitability. not open maintain

third cost. And labor is the one

Andy I process, mentioned, crew working you, on. think well. staff an the ongoing continue early initiative that in something moving starting have delivery it's and we'll rider is And this quite we as with we'll with but to Thank But that as the is now still on that. Lillian. challenge. store work sharing, And to continue

Operator

comes HSBC. with Yan next from Your Lina question

Lina Yan

want the pattern first XXXX quarter I sales a first versus XXXX. So same-store recovery on basis, to compare quarter

recovered, quarter in XXXX. mentioned in first your in see with So off-line still as delivery. This was you what actually growth happened you from different presentation, positive traffic

Actually, versus our sales. post-pandemic a like to come this a due traffic have Like grow dine-in spending year to of actually the potential and means single-store grow pattern we So to like a service. Or is, never like it in bigger structural the more off-line in XXXX delivery XXXX to level? we growing with dine-in have might room still was question age, our shift my consumers?

hope question. my I explained that's So it well. I

Joey Wat

Maybe, your understand you ahead. Andy, I Lina, go question.

Andy Yeung

Yes.

Joey. thanks, So

XXXX macro obviously, the COVID think, today, of also recovery. I So it's and environment different quite terms and in in overall

the is it's have general, grow if So XXXX. comparable pandemic. I the at delivery, XXXX at pandemic that throughout and times not sure versus and delivery, look continue different can different at in you before place. so off-premise, What to looking been -- we're say I'm growing just

do we but in and also delivery mentioned last see with in we remain expect that As rebound dine-in robust. quarter very to the traffic have delivery reopening, we

we're year, to think the at last I of looking about sales. the last delivery spiked because at end year, our XX% of pandemic sales overall

sales. Now it roughly about our is of XX%

I up that expectation. think within is within down [indiscernible] XX% and our

overall the Now we from and that our we off-premise get dine-in, restructuring. benefit network whatnot, not but also enjoying the from consumers obvious the continue the convenience also, favorite to benefit just benefit of and benefit store because also

You that. can think about

mentioned already over that past catering of We more and we the and that within delivery format with more the years, store have continue stopped, entities takeaway city have we couple to have the build business. that towards

some seeing are from right? we'll effect network benefit we there, So so And that.

we if And riders allow in for business And way service a delivery good food, when rider look to our what at deliver, deliver have us Year the shortage the we quality, deliver labor to we we Chinese perhaps then importantly, than unique [indiscernible] not. that will it's that dedicated also, then food last ability And have may kill -- you provide have or to like good our model, timely in were month. in consumer to ensure that very to services delivery do manner. -- New more

know to zone. we I also improve continued our trade overall, So have

invested routing we [indiscernible] efficiency terms for have delivery and to our help terms manage technology in services, effectively to more on us also food delivery our process, the for side mentioned, production As trade of of we both in and in rider. zone the also our chilling,

we're may in So think anything Joey, have forward. term, you do for dining. to very to confident traffic, we Thanks. I a important the Obviously, change and But off-premise driver I will add? percentage be think with going pretty we're in see digital rebound continue growth delivery long -- a fluctuate. us store

Joey Wat

Andy. Thank you, it. That's

Operator

Bank Your with next question of comes from Chen Luo America.

Chen Luo

results. year full the on again Congratulations

is to the more So like on growth same-store detailed as related also color test I my question to QX same-store get sales.

level. of announcement level was CNY, So our first of same-store teens our XXX that actually all, by below mentioned the result sales

on sales is there be better But some in the if to in seeing year-on-year other on middle are we started from same-store basis, growth that March, as actually, it hand, or we could fair year-on-year sequential say that it So XXXX weakness. lockdown a [indiscernible]. March Shanghai actually compare with of the the level, seems it even

city seeing in growth? such parts seen Are have And even and Southern Tier growth or we in in Tier actually secondly, cities? tier Which better by which X, X we better Eastern part -- China? which the or actually have as regions of regions, even have lower tier Or regions, registered China cities better growth?

we And previous the also dine-in, was we decline for stores sales too in the cause versus many have Is of that we new Apart these the observed our how XX% to markets, other hub there same-store any do drags in there going lastly, when that other see cannibalization? traffic? issues the improvement to level? drags? we to still it because by our of Lina. are XXXX, question any comes the dine-in so which mentioned XX% further mature the also and to from same-store at stores locations focus dine-in terms sales in are And are fact it Or of can transportation that of address tourist which that may

Joey Wat

my remarks, the plus opening versus system the the is because I'm for perhaps at XXXX. sales Chen. to versus versus mentioned me XX% look also address but XXXX to XXXX, sales is XXXX. equally same-store I But the XX% first -- same-store growth, there's a to OP you, of sales, our let from going and number quarter also sales compared on gap is Thank emphasize system as

it's the store we also think to the like focus I the on same-store years. sales, opened portfolio equally last and new important So of stores note but better in to X impact

bit the We XXXX, a and of breakdown then sales grow dine-in we through to year-over-year. compare go from same-store comment. color the to rebound it X quarter and strong going I'm more see

I more in staffing. scenario better-than-industry-average we months -- we Year we But New that, from staff have ingredients and have multiple invest X for heavily and Chinese believe in demand the than we pent-up benefit planning, a Therefore, First both results. trouble. QX,

below it Chinese same-store continue But the into to remains good grow Year, New XXXX. After the yes, the since continues X. year-over-year. momentum But quarter sales

the nicely. from I catching can up picture was you XXXX, holiday, vibrant. digits single below see think X it's May trading So all Still but quite of low the

growth know that encouraging important. sales The sign and Pizza KFC in year-on-year is in led absolutely is you both our transaction is business, Hut. the by growth And this

the As already, much gap, same-store system portfolio. store And to But capture because I pruning with redesigning resilient adjusting cost improved despite larger been investment, new much and stores mentioned format off-premise convenience, store network. are the sales because we sales by Andy stores also, the store store with as significantly mentioned more before, the have demand network, older less are more the accessible structure. healthier

portfolio. it's the store net-net, So resilient more --

let's city So brand, more to on move the by specific, by region, by tier, et cetera.

The KFC. XXXX It's same-store Pizza higher X. Hut by But versus versus is minus XXXX sales Hut than sales Hut is is Pizza interesting. minus it's -- same-store KFC Pizza XXXX, KFC versus and similar. and brand, So is X slightly

transportation a since KFC its But good higher because So program. it's in has had partly improvement that also shows it and stores ratio Hut tourist locations. Pizza revitalization of

improved than KFC. growth less the by Versus years. because economy. Hut more X, has number few competition. Beijing Therefore, Olympics. other outperformed China KFC sales plus turned remember, because all Eastern Pizza positive. year, and stores it's Pizza have opened new in subsequently, By last for it its China the we've we system Hut markets past quarter higher grew except KFC region, XX% because for for year-over-year, vibrant March, Northern very because of outperformed KFC regions Winter But XXXX,

Tier like for of quite domestic tier, year-over-year, because year, control well year, By home lower Our people returned tier a on strong. because we China Chinese actually Pizza city performed in well it business Northern cities -- the also And cities tourism as are [indiscernible] of X is the Hut this New getting helps performed cities benefit the tourism. control out in last impact strict lot. COVID Year. the

see improved obviously, momentum, May hub. the Year-over-year, holidays. mobility. during The substantial improvement with Transportation further increased we

of color the -- think I you same-store angle I different So sales. the of hope gives some that

It focused sales not change. And increased Pizza than the take COVID because just terms mobility to business on In improve And It's after dine-in, KFC improved. the Hut for see dine-in for all continued more on of dine-in, only it Hut. to away, one. we rely have of it's delivery improved or policy more we same-store course, for it important because improves. Pizza whether

XX%. But business hard as us like And still get took do off-premise impacted, to we sales. our able resiliency. the of other which as side I significantly model when a sales and work it the high at to to ask because resilient you the a are the lot to is business that means business, even were look in and very would to KFC, bring of XX%, dine-in it's determination

Whilst now XX%. because Hut the XXXX for By improved Hut a is XX%. was business percentage to only XXXX, that the off-premise delivery. Pizza ratio through takeaway That's Pizza of also lot XXXX, But back that It's is between would resiliency takeaway the thing. of for be because and a to to we down the of improve ratio XX%. delivery Hut good But the improves continue it very business. if Pizza ratio good and

dine-in some that versus business of hope I others. the our you the color gives thinking of So

and have I always much to we and analysts threat? demonstrated have what other seize also resilience during is any always Well, during have can't the hope scenario opportunity our I to predict demonstrated too And we have planning, well. there macro environment, quarter, the to are years, deliver bad the past But also like in multiple our we uncertainty. our forecast, in X last times. Is to have there during good we can't our times. Particularly we would remind the ability business ability

Not opening our point Andy as well? disciplined and and store many we sticking of as of new have mentioned way very view. are opening from still to guidance too we new our again, because, stores really, stores. again Therefore, systematic new Are

flexibility a the business but efficient shorter convenient the And are customer. is our of investing too a investing like customer to to it's network and smaller, a forward more of stores to money it the one Chen. also because on emphasize operation going and store the lower -- instead product the a Thank in between investment important very lower mention thing you, network the when but more big to make and would I distance of to is we stores, to store, portfolio with much stores, agility new and because deliver the also for lower and shorter is Lou cost cost it's for the delivery closer is customer

Andy Yeung

a sort Joey, look compared mentioned But CNY, see XXXX look couple One like we X quick of when if there. during New is below gradual also more CNY. And and the that period level very you add I is store. that see at we reopening we XXXX. low to Chinese think recovery at I we want after just a like say at sharp we're when we're -- what thing level the that main teens -- trying recovery of the to the is post ones like then saw we to Year recovery

comparison. we other is is mentioned one in The SSG what

closure. excludes calculation temporary the SSG our store So

include and sales also growth. system new our closure but net -- same-store Correct. so store sales store growth, And temporary

when So need temporary the compare SSG closure. number, investors impact store factor and to in of they the analysts

about quarter, SSG. this store example, few a X% There's point closure. from we have temporary For impact

that improvement. add you then you will So double-digit SSG see probably back there,

sure want from to of peers. SSG make a that so that between people us just slightly And don't way different comparing our forget and I

industry probably and the overall at And so Thanks. growth, we're going dine-in like the to industry. if overall you look

Operator

Your next from with Ling Jefferies. question comes Anne

Anne Ling

But cost Excellent results. have side. I the questions some on

seeing Like this you the Regarding the little benefit, will VAT what a quarter? of maybe which $XX bit VAT, nature million And next the would this contributed like nature? -- like, elaborate is and the more like or like for or So few goods part. packaging of to I know product? little more What Based bit particular be something on? quarters commodity will about would cost a on based it is similar? that

going also, to same-store And sales number. back the

fact talking that in or same-store So year if especially same-store to -- longer to recovery about say actually your the like bit is fair Tier back sales cities, XXXX? density. are X it growth sorry, store might recover a that Given you take we increasing sales are to

at should the than like Yes. like your So we store same-store your growth that -- sales looking meaning store fixate be new rather number. on

is this my question. second So

one third little bit I'm my a confused. is And still

the whether know back-end I expense about store But like depreciation down not the of of CapEx XX%. decline versus in about mentioned, about a do XX%. You the in Lina period, terms per is the CapEx on there's was as course, CapEx. any this any -- just during mentioned front actually difference like basis, mix But store

maybe excellent side. like can help of you your So us savings understand little this a on bit cost more

Joey Wat

new and portfolio. new the CapEx -- also important. very a the save lot CapEx, XX%, then make of store store can a pruning down comment that's And CapEx, we but you from quick I'll original the for money And the Andy, continue. the on

helped. So store and both new the store old

Okay? Andy, back to you.

Andy Yeung

Okay.

So try VAT me the address let deduction to discussions.

policy, covered XXXX policy it If rate rate look of reductions in some input. came the Chinese the at government for and the the reductions, you out

of able be in years. policy may because has extended on the policy it depending be the going And deductions. year. the how And be the additional now over expanded the be couple business benefits this be may the from various VAT to COVID-XX, of to a situations However, it is to continued benefit past -- operates,

join so And it But be the extended as year. half able may stands benefit right to we policy, phase now, level that may the this the currently, full to out. same of of is

good do VAT to have the costs with input You and value how is. how the

bit the the can a little VAT from website. it's the So talk study it to about government Chinese on complicated but call, you conference policy

the I about, different. -- think the about amortization one and other The depreciation cost

to that. think emphasize want is to One thing there's that one components the depreciation. that, is I we X

controlling so. the we The is it's acquired other Hangzhou, or acquired we -- the amortization, amortization. from there million franchise have have $XX coming we one when that years past as we roughly drop a rights. quarter, each mentioned, -- about in The also like And is big taking

that's so expired end factors And year. one at basically of last of the And big that there. the

that's why that so see amortization. improve depreciation we and suddenly And

of SSG terms recovery. In

only in I the think recovery. of quarter first we're it's --

level So gradual going likely likely and the overall pre-pandemic planned recovery it's other to would pace uncertain. mentioned, be we that certainly, of trajectory and be countries as and based will the experienced, what on to be And uneven.

so to the after we'll any level industry itself reopening. -- also pre-pandemic rebound And quarter restaurant you to the I be see large will the first at immediately in like look surprised and if think, chain the

in that then we demonstrated and at the market But in planning, we opportunities we time, there's quarter, of a our Chinese we're XXXX, a team's infrastructure, are to the confident, first presents New as because capture able opportunities and our when In as Year, those it uncertainty itself. rebound. have digital capture I think of have despite to investment able back when agility we're opportunities our lot

Now deal our resilient and that obviously, given we what cannot in and are flexible but mentioned, rebasing predict, We market, the as any structure this also initiatives, we recovery. business potential during more cost uncertainty model. also Joey can are we with confident

again, to we're pre-COVID recover and up Thanks, level So -- way, will some take and I think some will thinking but fully but we're down, either that the confident we to recovery, time, expect should be Anne. good. I'm

Operator

next Peng comes UBS. Christine from with question Your

Yan Peng

just the if Andy. ask by Joey most depreciation think addressed of already been can and But a question I I the questions on follow-up side. have

more depreciation asked I bit is why drop such just I there in expenses? but of many big terms have already want this to think a understand a question, analysts

by million. a $XX If a rights. you USD dropped Hangzhou XX on around million calculate from was it you franchise basis, the there year-on-year impact mentioned Andy,

-- aware we year? while depreciation So we recurring investors USD expenses consider than are full for about that, other the of? depreciation that Or in should be the expenses full there tackled year should this XXX as million any factors

Andy Yeung

yes, then sorry, as almost right? address for $XX mentioned the that. year, actually million. cut full I'm me myself. franchise, I before. It's Christine, We quarter, million we And per $XXX let it's acquired

China assets then exchange. our X%. expiration with the almost China. U.S. will dollar impacted be is, in by you quarter, value based obviously, and other so In one And the the was it the depreciated is And so RMB impacted got to amount currency in against by remember

would And depreciation and that the so sheet an as of translation balance the also have impact currency because well. on

as have of we And more finally, And optimizations mentioned -- during and we done store. out challenging the before, also the obviously, then some we store work. closed some pandemic, store designing we

amortization and the an on And impact so have depreciation well. that as also

all, then you in think all it have by so So million then million also $XX foreign you half-half, and our optimizations in from can and store overall exchange like portfolio. about almost $XX

all depreciation this reduction $XX so and amortization. million impact And in some [indiscernible]

more have our will details We XX-Q in statement.

X of depreciation more, So were in X if that's you key that the guys are interested cost. driving amortizing factors and

foreign and analysts the their pretty mentioned, X% volatile foreign RMB of has of that forget don't impact been exchange. And remind negative exchange as the had of to investors want impact I year. a foreign past The over just because exchange depreciation. I

impact So on an Thanks. sheet. that the P&L also and have will on balance

Operator

I'll Thank for is you. Michelle we for remarks. all have time That questions now the hand Shen back Ms. today. closing to

Michelle Shen

for you joining call the Thank today.

out If earnings contact through and Thank you website. reach have further questions, in please release you. our information the on our

Operator

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

disconnect. now may You

Yum China (YUMC) 2 May 232023 Q1 Earnings call transcript