Earnings call transcript Q2 2023

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Operator

Thank you for standing by, and welcome to the Yum China Second Quarter 2023 Earnings Conference Call. All participants are in a listen-only mode. There will be a presentation followed by question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to Ms. Director. IR Shen, Michelle ahead. go Please

Michelle Shen

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

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

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

This call certain measures. financial also includes non-GAAP

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

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

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

Joey Wat

everyone, I'm thank second both today. topline Hello, and in delighted to for us line. the you outstanding performance quarter, and bottom joining report

which in the are downside times. results Our office times From doing and lines, teams a the in to in are business, testament to job. great protect bad our back our resilient capture upside front good the anti-fragile allow to us

on we the new During fronts. heights reached quarter, multiple

Labor billion set demand around quarter, holidays. First, sales Total System holiday year-over-year. observed strong new and vibrant. XX% Day We Xst revenue was of given same-store record Trading for XX% performance. the second the grew the $X.XX especially sales rate. exchange sales May grew for

attractive in in and momentum traffic. However, regain June. softened demand We adjust a actually campaigns nimbly with with customer afterwards dip sales

our plus team, our Thanks to a single a X.X record hit store every equivalent portfolio Children's robust to transaction in location campaigns for that compelling Xst delicious, in with in June our result money. On we digitalization chain. ability operation during transactions the Day, agile every compromising handle food end-to-end amazing XX,XXX minute across day. equity customer and and The value brand innovative flexibly connect customers demand without with demonstrate quality service. the spike and and supply We million to

months six year, new net record. stores, Second, new store setting opened XXX this we first In expansion. a the

We X,XXX first continue in regions over Shanghai stores. to its China. X,XXX cities. became in see vast across city to aggressive and Notably, tiers expansion, reach stores XXX our KFC all city hitting KFC continued opportunities

Our Library, the store XXX is Shanghai [indiscernible]. Shanghai in

As employees part of special promote Program in to kids, The needs. reading commitments warm dedicated the to Restaurants with area It China. KFC we for social a our children. Angel love and of Book one communities customers also positive features the it serve. restaurant Kingdom It's our offers space showcases for reading our XX of inclusive impact of a to

us year, opened give XXX new in program. the store record the by payback Hut accelerated strengthened of growth. through half for supported a new first Healthy Pizza stores net revitalization the fundamentals confidence

Pizza Hut stores In China, chains reached restaurant addition, a that can claim. in milestone X,XXX dining few casual

store is in China. holiday This [indiscernible] destination X,XXX a in Our both patio seaview. popular beautiful resort with stunning Qinhuangdao, a Northern

energy an built system. was addition, In eco-friendly it and intelligent with materials management

profitability. is Third

exceeded the already year capture achievement profit to our first reflects entire our ability structure. rebase has half and of XXXX. operating the of Our cost XXXX for This sales

X%. the first past decade. in the ratio [indiscernible] is was This half Our best below

Now let's talk about KFC.

generated platform amazing sales value Our results.

Thursday [Foreign to than other the tremendous more driving Thursday, Crazy draw sales a XX% Crazy First, famous Language] weekdays. continue be

consumption doubled [Foreign year-over-year. more Language] this Chicken first product than Juicy [Foreign Sunday energized with a Whole Language]. We million Buy and Sunday Second, More home in half We itself of sold XX our sales. the captured Save More

we our our entry the innovative for We fried Third, Dragon KFC. price to the Customers Language] to the our combos, customer quarter, sizzling just offer generated our and [Foreign love to combos. in In new existing Jian utilized enrich see are for new Tao San added offerings strong wrap chicken pizza innovative, value Language] weekday fun, delight make more burger We our the great Language] sales. Delicious weekday gaining point OK used a topping. introduced the US$X. value We in a popularity. [Foreign This time that from second [Foreign food roasted on popcorn K-zza future. Twister as chicken ingredients. limited K-zza, the twist creative variations thin-crust and potential continues

with XX% second grew sold quarter. sales K-Coffee cups the million in XX

the use with make this Lemon soda Americano limited best [Foreign time fountain K-Coffee's Zesty our machines the drink drink summer Sparkling store. is beat It sparkling without Iced We perfect Language] the become investment has Our ever offering. in to to heat. additional

marketing children overwhelming and talk such affinity. part let's we sold brand and sets important Around an as with million Sanrio toys strengthening with Day, This families our success our Now Children's X about is campaign. of adorable to partnered Connecting Kitty. nearly Children's meal campaign our Day. contributes Hello with on

well. Of popular for well also very course, this toys adults as work

Hut. Pizza

at Hut. products value. Pizza innovate to continuously great offer to move Let's We better

launch been from accounting or new either sales. of third success strong has Our Pizza big our upgrade is items in of sales half one a year-ago. for Over are menu drivers. May and a new over the category, biggest

Language] especially Super to has continue become fortify because Durian Pizza, of [Foreign pizza Bolognese a toppings. children. Supreme familiar introduced pizza new [Foreign and from new upgrading We existing like Apart among taste, is favorite, pizza and our our products by we Language] image expert a beef a customer spaghetti introducing with pizza Signature and it

store quite existing ingredient a bit Of operation as we fresh to course, the ingredients and well. the keep simplify to use

to Most choices of Hut has XX% which accounts stuffed In other addition, nearly customers crust pizza [Foreign Pizza trading its stuffed customer crust engagement. proposition sharpening are many compliment cheese and and value crust up launched stuffed our Language] cream sausage. to sales. been and pineapple recently, we pizza, for

successfully choices to US$X. we to sales Wednesday, rice pizza, meal price and different drove attractive of Our value appetizer Scream steak, growth. and traffic platform US$X Wednesday offer from Every pasta at

for gathering. and social meals person one for choices are There

value boost many million young for attract continue campaign year. campaign numbers. with customers. We collaboration Impact, significantly more help saw and sets us with popular We meal tripling last Genshin X over million new recruit X This Iansan our This members. than sales accessories, year's the steamed second

Lavazza.

Lavazza. switch forward. XXX to we to make continues In Let's July, good milestone. the store crossed gears Lavazza strides

In coffee to sell Hut. upgrade beans business, and addition we and to to the the happy Pizza hotels, Lavazza we made start with have channels. beans about coffee capsules coffee and at also opportunity. the supplying restaurants, premium Pizza I'm growth shop Lavazza Hut excited other the progress coffee Recently, to

Digital. On to Digital.

their plays potential and sales unlocking crucial ecosystem role recruiting activities a for digital and and members, performance driving engaging Our in us.

a sales XX%, XXX setting million increased to new Member record. Our loyalty programs exceed now members.

as had this a exclusive offering pre-sales introduced exclusive Super-Apps earlier We a update our draws our major interesting tickle member Our lucky and customers utilizing product customers experience. points. such year, better to member new app, perks digital

expand In platform reach. addition, we third-party with have to our online been working

popularity and discount have been gaining increase By short existing geographically new spending [Foreign vouchers of we example, platforms. For Language] offering customers. prepaid deals, on specific attract video members effectively

unleash of our digitization Manager, RGM. potential great end-to-end Restaurant General Our

stores. Select team KFC time is history management our store Our for manage Hut. sharing now at can in initiative RGM multiple progressing and first the well Pizza

further help Our integrating AI-enabled and visibility operation RGMs relieve our and By administrative streamlined store a stores This management, systems digital tasks. address of the will effectively while repetitive to to upholding bottleneck analytics. for enhance operating more driver multiple center. tools work system, store This empower cross be our opening. store store our data we new RGM have our store management of costs, also future manage of

progress So more we are forward. going looking for

peak our we season. season, summer we trading as peak entered speak, have Summer

solid We are but ready It traffic translate a us fried menu to have better At crowd well, by we back for capture with is rock holiday eye trust a catching it brought summer chicken operations. tacos with up does KFC in back our our China. KFC, customer ingredient [indiscernible]. not items new pleasing

product, At with popular Pizza in peak staying surprise, Coconut planning. up To Pizza, extended Pizza crew with season, Language]. are demand we [Foreign and new handle vigilant our securing multiple Durian increased summer Lava ramping Durian scenario the Hut, resources, have we a

I'll turn to With call that, the Andy. over

Andy Yeung

and Joey, you, hello, Thank everyone.

quarter record representing delighted year-over-year $XXX share report Operating I'm record performance. our second $X.XX achieved me our XX% We profit to robust of with Let quarter. level, openings. We million year. revenues new a XXX of resulting second new accelerated opened new in record. in performance store XXX, billion, now stores, second prior of the quarter the new growth. you tripling net a We than reached also that setting store more growth of

scenario weakened Xst planning, second value and after pre-pandemic in remain attractive operating quarter sales COVID in environment, late accomplished April. below XXXX while offers holiday. Consumer same-store leveraging the compared levels, all though our and the in growth swiftly Even profit But drive uptick multiple Sales saw to of sales. volatile by in continue conscious. responded XXXX. started growth a operating this May in to the materially challenging We XX% launching in levels we XX% an we to be infections revenues

subsequently sales were in improved quarter in multiple more lockdown. June. To context, cities the under provide year, second last Our

We are relief. lapping austerity last and year temporary measure

financials. Now go the through let's with that,

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

continued The in $X.XX sales year-over-year sales The constant Second the revenue increased while unit of growth rebounded last year's roughly lapping grew XX%. strong and can System equally In split same-store quarter of year-over-year grow. from sales billion reported XX% XX%. currency, to currency. year-over-year total was remaining Dine-in revenue contribution XX% closures. new delivery increase. constant between in were growth total a growth mainly be temporary significantly currency,

promotional of By the XX% year-over-year, at lapping has traffic Hut the traffic driven and ticket lapping Hut average in which ticket purchasing driven activities year-over-year. lower a X%. Pizza orders. average by the decreased decrease. purchasing mix of delivery, same-store dine-in. Pizza traffic orders partially, XX% by decrease driving offset ticket same-store average large and delivery than successful brand, average and dine-in average decreased XX%. than Lower grew grew the same-store It mix. ticket grew sales XX% community ticket was successful has Delivery KFC was community higher and grew Same-store XX% promotions, It of sales

due prior other XXX wage derived sales and and efforts. measures, promotional was from benefit XX.X%, margin was cost Occupancy This than Restaurant activities significantly higher higher offering year. inflation. lapping of partially structure year's increased basis leverage points offset improved was ongoing austerity This year-over-year. rebasing last and the by primarily to

We low basis the drive to now traffic. kept year. Cost key me of lower sales increased point our XX of the than prior activities cost despite promotional through was sales Let go XX.X%, items.

sales ingredients benefit austerity of to lapping sharing the Our lower driven measures operating from prior of rider XX.X%, Cost was and more year. supply of and work cost lower than year. low growth, from This temporary inflation, delivery and sales mix initiatives. small last the wage management than due leverage hard to offset use relief pricing. commodity was points labor XX basis team's by contributed chain This innovative favorable affordable the

and improvement. was leverage and Occupancy Rental contributed points prior new expense than and store portfolio store year. and favorable XXX terms last measures rental higher depreciation basis This other all the to sales, year-over-year. the XX.X%, improved lower rental more lapping relief optimization by austerity year. higher offset was Operating from

incentive from expenses mainly currency, XX% than merit year-over-year $XXX higher more was year-over-year. constant performance Operating increased million G&A profit in base and increases. tripled accruals

rate effective Our was tax XX.X%.

full-year tax expect to our continue We to rate XX%. effective be around

million, free billion million short-term in XXX% was investments million returned quarter, Diluted to cash and interest rates. EPS from we $XXX around $X in the reported $XXX in operating generated second $XXX We the increasing Net long-term and better currency. At increasing was cash repurchases. shareholders in share and $X.X currency. We cash and XXX% in end billion in and had bank $X.XX, another deposits notes benefit flow of million flow. cash in dividends reported to income $XXX

quarter. sales Now let's our Driving priority. third our top turn to for remain the outlook

Joey have we stepping compelling promotional As food mentioned earlier, activities great up values. offers and attractive with are at planned

holiday also capture exciting We those and up support campaigns to summer resources sales. initiatives are to lining marketing peak

X,XXX In store pipeline, robust the healthy and economics with terms new full-year. store to opening, we achieve of X,XXX are confident store net a to in stores

the in XXXX. CapEx developing more and tremendous lowering XXX favorable half new lease opened Our into securing terms. effort team store multiple formats, first put net We of stores has

new three and for regions. KFC to confidence have Our expand two Hut. Pizza for a us payback years and store maintained different of across healthy city This years gives tiers

and average drive of leverage XX% sales capture new expansion rebasing network are store With the over reopening. few hours. and five after one to the our margin, years, store opened positioned store XXXX, current well structure efforts, cost an past us we opening operational our both our since every Regarding of

market store is suited operating Our efficiently well the portfolio to in condition. evolving

record long-term. in austerity to in We high quarter and And third to the $XX prior we the last year. a expect rebasing of efficiency relatively benchmark million improvement cost measure profitability look our at temporary our efforts relief due and year's structure to set restaurant on continue benefit margins

hiring low-to-mid half. expect also We second to some in normalize of measure the inflation more single-digit and

in in bad multiple well uncertainty to positioned volatilities capabilities agility Now, capture us and times scenario despite good macro the and downside in the opportunities our times. planning near-term, manage and

We operational in improving continue long-term supply chain efficiency, sales, to focus and on digital driving investing and growth. for

Before our Joey, September held myself, Day strategic Pizza in upcoming to manager, our highlight I priorities. Xi'an, conclude, our Hut on to like share China be updates China. I brand would along KFC leadership team, including and Investor in we will with Yum

center. center We tasting restaurant, have our food planned and logistics digital during also to visit

in the and Now, analysts our through this we business, market event, Xi'an. investor you gain forward insights firsthand into so look and hosting to can

Michelle. back you pass I'll that, Michelle? With to

Michelle Shen

Thank you, Andy.

our the person, Investor team. in in Relations If Day out you attending Investor reach interested to please are

call more your a people to chance ask In will limit we question at open Now to give the please to time. order one for the questions, questions.

Ashley, please the Q&A. start

Operator

you. comes from Please first Thank go Your Sachs. Instructions] Michelle [Operator with question Cheng ahead. Goldman

Michelle Cheng

for and competition. the Hi, results. Joey, My Congrats, the Andy. strong question the very about is promotion again

mentioned, also you still as players are coming actually the some we smaller very hear back. promotional So market and is

is with one still on you it the food specifically have cost pretty on side. on competition or margin, Since, on more in the value about can working side, control talk quarter position manage been we share particularly So decent. you like Hut? discuss see can Pizza your the many pretty we years, cost us this observation for And and but looks well margin this the food

So cost? also pricing food we further this how us also on Thank can should with you share and think about the strategy you. savings

Joey Wat

about enough has on same talk promotion promotion focus on not I'll the the at just focus promotion. sure, are if be you. it's It promotion And cautious food. handle for and competition. very thank effective focus Customers Andy to is promotion good margin Michelle, value the will but very time, fun, our to platform. we – few question.

famous the there course, Crazy very, So ones? days its is is generated are the user of these what food Thursday very content and fun, good.

new but spring normal skinny smaller, some the not roll, roll, roll. have spring food we taste only is spring spring they like roll better. So actually When

KFC You try roll our with can it spring on Thursday. Crazy

on very great on to Screaming Hut Again, great Wednesday. powerful Taco simple with focus order message, and And taco Pizza then but focusing very steak message, pizza. to And is food steak. from Bell,

to So and the we only start promotion from XXXX. Thursday remember little promotion, but back just not people again. Crazy random focused a very takes effect and again and keep to have doing time to again because It build do it

but for it More one it's chicken And has the to So sell on Buy build clear during continue called XX. times worked Sunday on product mechanism promotional the familiar new by normal be will XX, for that know-how, focus KFC, whole beautifully. we sell that very course, and And the new a platform chicken, Save Sunday. More of a weekend

So only it's promotion, grapefruit. but not

some people how also think, driving from this in I necessarily differentiate our correlate, what we competitors – promotion. And

unique nimble sustainable We source, this without of impossible ingredients chain. own of very to a have advantage chain basis. innovate effective, promotion powerful, supply capability and and to all having to Because support almost our on to deliver the kind these supply very is affordable the agile

these push can that supply marketing are to supply it number the many to go who Children's chain, spike, Xst our able come in that system the digital, just so difficult least, did Day, and would And that Well, can operation, replicate. the operation, to marketing the is transactions together. digital, appreciate terms running handle the the all the be and for we but top while operation million difficult of to amazing. to probably fact operation. peak the IT down. And it That's not the core we handle continue stability in we it's promotion, capability, competitors how Last transactions system, real our it's and people chain, team. able the efficiency operation are June restaurant be replicate but of X.X the not a day. team not that huge is it's very can campaign, It's achieved and

here to pause move question. I'll and So margin on

Andy Yeung

Okay. Thanks, Joey.

in over from few think in the one years. margins, improvement of the leverage overall the margin quarter the higher look portfolio sales. driver second I benefit terms also, number So the continue our optimizations operational you if it improvement, obviously is And from past to at

environment. our to look in to geared structure we cost working you earlier, portfolio, our XX% couple over continue rebasing they're XXXX, are currently much that – very past years. initiated mentioned of from I after operating current efficiently if our As Also, the our at and store benefit open we the

are those key so long-term well us for And to the operate think for improvement. efficiently. And it position I driver margin

sales, Certainly, commodity lower second being pricing particularly if look was slightly at the commodity inflations you of but favorable, with chicken with we I continue in on extend stock overall quarter favorable in that cost to the contract, think, price the expect quarter and second we upward to the And actually our into experience an given the trend. also quarter. probably third price overall

few balancing proposition well, to to for try we brands, think pricing addressable some I the to savings consumer. years, can generally commodity expand expand sale consumer. continue past range our the manage we so price their as generally to balancing return customer also the that very to both and And base So and the of they our over value

second the have of again, that the mentioned, cost And that driven basis single-digit experienced. help that continue rebasing it then And the have. O&O, over labor, improves contract. than look you offset initiative more to years, also low at as XX change Joey quarter management also And we sharing our we like at quarter. the then, inflation improvement continue past in us we our if biggest it's store mentioned, efficiently. as labor by run we look to the we few structure the you And cost if store So point rental structurally in

lease, rent right, components more that we as at only, term, overall rental our Not in current decade. of have levels but also the best variable a revenue decade

so energy benefit we of our store, change that also very at from leverage. our in depreciations so we A&P I down then, continue in benefit work investment per capital is some – and will those also that's And also initiative sustainable, seeing I investment to also our technology in as and our think And look structurally think. savings also and terms

that all contribute so And improvement. to O&O

So I it. look at think that's how we

was terms the of in exception think, think we're in like also to bit low program. – Obviously one again is received special alternate a In but outlook, have with some as to year. I like generally thing with inflation, next last And we term I at year. mentioned, a of half perhaps emphasize we a mid last single-digit quarter. million In commoditized situation. looking that it the of one-time relief second little Again, this cost situation we year price labor to about chicken I due $XX then wanted favorable COVID

that's it. Thanks. So

Operator

Thank you.

comes go next ahead. from Company. Your & question Please Oppenheimer with Bittner Brian

Brian Bittner

XXXX? right with witnessing trends are in perhaps sales just verse in you then forward? consumer regarding, Thank perhaps some you. the regain the ask talk saw that add now, get mentioned your want trends. you're help on you else Or in the May us page but just you step context Could sales moving to back all same to you about Andy, China I that underlying here? just modeling where anything Can momentum demand June. trends, about environment a

Andy Yeung

Brian, questions. Okay. for the thanks

the reopening. are early second the This I think, since we pretty still reopening. as in you quarter the is mentioned,

whatnot. economic April. COVID, markedly you obviously one we've to macroeconomic in situation in volatilities then probably uptick going end with come the when that is So of softening to see in April, decline couple some we at indicated data the starting And the do the of but – challenging. going some had to the or and other of – Obviously is have still are at an of the seen and in demand end like the and May things, seen

obviously three-year to to consumer So likely some regain and would have the time confidence. COVID going some experienced take of

right have always. now. we that's as so multiple are we we And mentioned, scenario But what planning as seeing

change So we as we consumer quick the behavior. see take in actions

opportunity We again, the momentum have campaign, respond when be sales uncertainty, well challenging. bit to going but then we some more near-term, I successful positioned it's I in situation little become we offering the I we to emerge that and very should think think, think June. revitalize in and are volatility strong and product And the like, quickly, to able as the a mentioned capture

Joey Wat

Brian, you. thank

the business a look XX% with of a give compared Overall, but investor enough, pre-pandemic. that really obvious of the not me business sales We might help of Let suggest business pandemic. the right now to now because as understand fresh did trend pair well. different would the our at not rather store overall eyes strongly and might before picture is to I be analyst exist our current business

the with team to less in apply XXXX, because very different than stores stores of pandemic And only really now sales before XX% those the same-store because exists desirable portfolio business to opportunity that prune management the has few economics. of particularly the even the last half business our new. taken portfolio, the the for is a bit years too the So are more

portfolio On with et we even but the pandemic process, you the sort cetera. the bet problem much possible. structure. cost time overall, that, et has big economics that for And much cetera, used we to better, lower we the as So top as the survived of have have, rent, store is them better historical the pruning that replaced out are the

digitalization digitalization and end-to-end supply of the chain the also entire We process. have completed

more each but the also is company, store and store. the cost with So resilient, business better for for more economic for structure nimble, the entire

wanted. and the different. same what So we quite growth is that's it's Therefore, good very sales the as and system profitability,

going Going about QX. outlook, terms QX, forward, we're ourselves. of Obviously focus talked in to Andy

growth. on to going are focus We

serve to China delicious We innovative stores and other But slowed month-to-month focus work on for more opening as customers. probably it? too but billion at growth the And in then it's these, not GDP short-term, term, certain we in has amazing predict macro the continue It's very very growth and hard to customers market, China, and basis, to really foods able X countries. longer regional nice. still like year that bad. good. the to a are it's to new going therefore, developed in stores fast, as growing is down particularly then very basket. fast the big open Isn't twice we middle and it's The of And are focus from in what we on call

And in tier cities. all alone is KFC. So in Pizza are that and And actually tier just opening in are Shanghai store stores store only last store China we see of are years, opening opening X,XXX we you we a are XXX. our what Hut? cities, reaching from for KFC, does speed not opening alone store in lower few can lot mean KFC, the to of we

are franchising, are speed rail utilizing such utilizing station, opportunities as and newly different and such works. high and are channels hospital We service it some university channels we found as –

And to in of years good is for and of dining. then surpassed growth turnaround. which accelerate mark scale, Pizza really few quite to a get X,XXX it's to The casual casual difficult after margin terms the is in terms of it store dining, Hut, ready

start and also beans in milestone So Lavazza the reached also store sell smaller coffee to brands XXX are retail. developing. just

our committed, new we and the last store see for opening forward, this can Thank still in at we you, years. net year are that therefore, you optimistic, XX Brian. rate going the So is business record is our are

Operator

Thank you.

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

Chen Luo

My is Andy. well. Joey on as you, Thank and margin question

half first a XX% combine at we if actually restaurant four second the imply it level. and a last year quarter, year, a of would to with close margin So this half full

Thank now particular, here? know many reference. long-term How ago, remember a are of as we high that and Is are longer majority previously I margin no upside to from sales come longer say of no from talk from now the for as margin talk mentioned at QX, same-store in the XX% almost are about the usually I normalized going going the will starting The restaurant future? on, you. or we see Andy lapping from is still cost fair long-term see about the to we leveraging margins. market we the we target. there. fruit low from But to So industrial look hanging pretty much XX%. expansion rebasing In will it years sales

Andy Yeung

our the Chen, you, for after after, It's right. you mentioned, have rebasing you cost thank performed as the your portfolio. wonderful stock Because deal a to mentioned also it's different issue over and those almost with, Thank that questions. then the we and few as question question one-off reopening, Joey change all after portfolio restructuring past entirely structure years – entirely different

not if at high think least years margins. all time at I obviously internal five at multi-year, now are right? We

even, efficiently very at are the in near-term offering offering this we challenges as very volatility despite And we're efficiently. So and point. mentioned, the market,

And so to mention. I couple that want things a I think,

restaurant as we very and we look of also cost fundamental at itself. you mentioned, rebasing, If the structure cost our operate change how in terms the those structure are

it terms you that, quarter, average I'm And XX% the is focus in hour glad I We doing it mention you past to but so when Now of over margins, past did on do continue sometimes, on mentioned don't four more two, think year we over we margins, the just that. we give or but there. right? guidance

with of terms confident structure that. rebasing our in cost pretty are We

economics new and our performance, I our that offering guess the store multi-year, confident pretty investing new are store We level. at in multi-year

as portfolio we confidence open so more moving in forward how And stores. our give that us

continuing. So that look we forward to improvement

at look always innovative reason a maintain to to volatilities there. The help generally that because prices. cost us some is in that we of very the can we that we try as sales, we capability mentioned, obviously have However, of commodity do why team mitigate we

efficiently also product our We have over use that we the years.

years So coffee for resources – were about chain’s last actually lock food, and ability long-term long-term then also chicken, couple in our supply like to example, bean fully beef contracts. utilizing to three-year contract, tremendous able the over

However, we quick increase benefit we and price that sure also from always and consumer pricing that value our is cost reason saving very to from enjoy because want and cautious continue to make about been food. our

So we keep generally try to stable.

think to improvement. I continue initiative labor productivity improve we have

right? store initiative in cost continue more deal enable As over in labor inflation we have is with ongoing, the sharing at the labor We we mentioned, also our got technologies our invest fight But so work and and in the inflation industry, to to team efficiently member a have we time. to to always look restaurant. management have

that So try stable. to keep we obviously generally also

Now, as last even over the years. but in couple the mentioned, O&O have only not XX past and years improved years, over five years, the

And we at, mentioned, for we pretty, continued room as But improvement. we pretty level. so are see efficient

generally think on the the quarter how so, will last there trajectory. look or and trajectory next austerity at Obviously overall, with Chen we temporary year our we of Luo. something relief be a basis that's anomaly overall right margin. So I program. But year-over-year because Thanks, is

Operator

Thank you.

Ling Please ahead. comes question from next Anne with Jefferies. Your go

Anne Ling

and can without the Can margin be in on I of plus, for like and high Any you very would love see for much my this? is in the the delivery strategy taking Hi. normalized mentioned on would the we you. increase last what all facilitate are for be KFCs previous time success the it restaurant the the on more you store like – as the in to And Joey, more network – it margins, scale restructuring. can restaurant What sales it first the Pizza the further normalization? that over business would Hut or that's also XX% as Thank improving like time? be the the have it like naming be call drivers? whole Pizza like per of if call. driving Thank question side. Hut further that, case that Is

Andy Yeung

Yes. Yes. Thank Hi, Anne. the for questions. you

the very Regarding, happy program result to Pizza very have already. over the see Hut, two revitalization we are last that strong quarter achieved

value at pricing Hut we that resonating consumer of you continue great. campaign, to sit And traffic years well continued to brand, other We customers. mentioned, well, growth, very connect continue the improve And consumer. with stable, the also, coming product its have Genshin then from Joey look over see new especially growth. with really Pizza kept as few value as proposition see that and we to really fantastic with to the The as and past strong is out that’s our some and Pizza Hut have sales strong

of think look I X,XXX more at at to we So proposition. this great transformation now, stores. I market, Obviously, the it's couple are now restaurant they at grow we And make level. in combined. right? you store opening the think probably you fact, value to the look like their last if range pricing it's more It that wonderful opened have addressable improves drive if years alone, right at in store that continues because opportunity So level. record in And than it quarter expand

that build their also, think continue – done then KFC And tremendous have as I think see especially expansions, then and to couple last to format, driven store margins satellite and continue improve in And over to so I hope positions. that's network more smaller the of progress. time. value quarters store by we they And to

not normalize, say but continue higher trajectory I until you don't is think, know, being normalize, margins I when have I you normalized, for think the you think So now right when sure. right XXXX. I even

Joey Wat

Hut question necessarily And is only the margins. ultimate not for Pizza about

And want and – going So on around, resiliency mode, without our too course, is thinking not resiliency for next to the to continue are forward growth work goal consistent with growth of around Pizza RGM. very turning turning growth. is its We after most strategic after it? is Hut resiliency comfortable. then right? the step Isn't growth. growth. that's what Because and But Our we

the the new been the unlock Well, more how get to to the the our of What's resiliency, which we payback. there. manage to and store on, is key, get the to store get the look is question at profit key So short-term working to the in we sales, of and model. long-term? satellite the view to investment get have result Overall,

It away-driven, is years. Pizza focus and may The four which away smaller and which do menu from in require is the stores years on the Hut move really three investment. payback store deliver, delivery your a these store and And the two they very is need satellite second store delivery, satellite less to satellite take because and different good. profit are requires the take trick years question.

put together, we satellite So three the and when years. store other is the store payback the overall

So we have time just the satellite city the need lower and more found We store. more and the key, top tier to tier is which to way more city. build more and from all

X,XXX Pizza only X,XXX China cities in And cities X,XXX Hut difficult not XXX China. KFC stores. only in And the in Pizza to stores have is with in Hut, we growth understand. XXX, of story

cities than has have does have Pizza has Pizza Hut more in X,XXX that's China does not – Hut. that a that So not KFC,

quite resiliency. terms potential self-profit confident So see you, in Thank of growth you we about why of can Anne. the are pizza

Operator

you. Thank

Your comes from ahead. with Lin CICC. next go question Please Sijie

Sijie Lin

a Thank question you, Joey follow-up Andy. competition. I and promotion have and on

OK value sales that we've recovery. combos promotion we've value to seen money our resilient for But increasing seen San So leads insistence also and like on very more Jian Tao.

cautious think people value or economic competition you. sales [indiscernible] only other and intense all and ticket from do more Thank and competitors this this relationship per environment from how also this impact So because with under is average McDonald's, we has our store? this are

Joey Wat

Thank you.

In What delivering not introduced new new. course, about that did we Jian is, mean? a customers to of now cautious. are is at thing sales, we sales particular, the past, XX incremental It's most the terms sales. low single-digit not very doesn't up business same-store fantastic. like, well, here open it's price thing price the we that In combo. OK looking So to Right it, is critical of are It what The for for San is does as that When us. hurt Tao key yen incremental have range. mix. in

city then because cities. tier terms for the not what call better tier, is the well functional consumption works Actually, its It well, of this performance lunch. across we top low think worked tier really. in for very And it balance city in more people might in that

for better tier still city consumption. works cities open it give low So the capture more top open us can we insight. tier tier city. more that functional lower can to for store stores, We But in actually

happy with affordable price in supply ability Jian ingredient Tao solve key that. are point and whether again, this, team reasonable that you. to a chain, And San profit. Thank is our unlock it. And to did such we we the deliver still OK So can

Operator

Your next question comes from go Lillian Lou with Please Morgan ahead. Stanley.

Lillian Lou

questions all and have follow-up Joey the answers. growth. for Thanks, I Andy sales on same-store Thanks. a

Joey from store different So network mentioned is our now pre-COVID. very right because just that

XXXXth is tier a or the our or it underlying been of like for certain normal? actually to below the Pre-COVID, does kind cities mathematics was below XX% level, compared sales stores quarter traffic to adding in That's So period that the growth sales more certain sales of store we're even same-store operation longer same-store more also smaller mean already growth close that normal area same-store our second on But below. though in if holistic when will be lot. problem because at or format? question. – time, our back XXXXth to the in and we what at a perspective, still of i.e. particular, growth dragging level operation look look we more basis has And stores, level still Thanks more is in

Andy Yeung

try Lillian, to this. so let me clarify

XX% in our if same-store then, is growth adjust time be year, closure same And the of temporary – XX%. sales you system systems And growth people for lost our growth about year-over-year, use then impact last XX%. sales store -store XX% of Our sorry, that the was would system industry year-over-year. our

if like sales So adjusted growth in that XX% to would look be at same-store year-over-year. our close you

some the in same-store So even our of sales were we down fact, and in strong. growth think very mentioned period, the May I slowing robust very

robust loyalty mentioned. then we it's recovery Joey domestic only space. TMT hub at you level continuing quite faster. different for look TMT well. doing are the major about grow for domestic us, Even tiers space see genuinely are at the think, tourist high-tech flight, will the they the And continue driver there. the And to mentioned over important to for series And obviously you very improve. for slightly different, I if very well, transportation quite locations, and for and probably The travel as

little flight schedule international obviously travel, sought is trajectory [indiscernible] probably got would that flight is softer travel think longer and time out. I until take

And pretty I terms in sales think our growth is robust. so same-store of

I don't have to anything Joey know So mention. if

Joey Wat

recovered behavior coming like holidays. that hub well, and tier the the back that. it's cities opened the the Andy just XXXX actually by amazingly between, two location, the that's manage really, of mentioned, have during before There's For a May way, during now. And transportation festival sort tourist Xi’an right consumption consumer the the program in more it's bit particularly holiday as existing whatever. and another particularly store well, for during we depressed, have is but actually to But really and in and

to So level are already. tourist really of these sort back that tier destination pre-XXXX well cities two doing

rather the good. But how stores continue same-store smaller when is and to our smaller, and new goes and store? And require newly same-store Well, therefore, sales answer the Hut. holistic but delivery to silly, particularly stores ultimate CapEx the to not KFC Pizza smaller are sales, the is less not question take-away. drive for both sales. your how the other particularly And on smaller to important why growing same-store is to the the grow important emphasizing Well, outside it's payback and the off-premise Therefore, been it's and question that about the retail. our open I've continue the grow it sales getting because one, to

window store whenever and we at or up you it that and And do New tough How single-digit the more Day, to need will scale or you more snack specific even KFC. very – ice improved And customers If are during nice have more need opened you a you small. even don't to could. see get at resilient store? KFC bit our doing to Yum store to about so Investor let convenience more is time. the still cream the bet me low a the your we inside don't is provides And go number help. driver, coffee sales that whatever or particularly the not China have outside retail do compared during China come meal. absolute it we But opportunity, be entire sales. will particularly to It

will compared by it coffee XX%, lovely. sales low. our too In last we location anywhere if but the this without Well, to coffee then coffee. investment more system or see only truck And tourist okay. so not the trucks it? cute. which is it's location, any It's And you standalone year, or KFC It's coffee growth is look fixed Isn't at bad. increased nicely, a

have to So we right only we're now, going have about but more. you bet XXX

the new, it during stores a during we festival something too. about of Well, and festival, for now We and stores. lot then holiday actually, the And popup work New Year, Chinese right and talk do not just don't holiday enough they're it. popup it's

So don't because but it doesn't matter, store outside. limit growth well, same-store size to our a we the can we to certainly matter, of want the go

convenient store, to more the will pick more Even works from bringing breakfast it and et et days, these though convenience cetera. both already station, for our to breakfast improve around go further up see Hut. more it You Pizza subway kiosks cetera, that KFC very and by the is and the we breakfast

drive stores holistic are despite we our you. that sense things hope getting give about you the I a Thank smaller. So how

Operator

next comes Peng Please go from question UBS. ahead. with Christine Your

Christine Peng

management you, presentation I well answering of most as investors for the care as Thank the questions think about.

the regarding very capital So allocation. question I quick have a

been compared cetera, If at that repurchases, et you free first cash pick period. accumulation at – company the dividends cash the very so cash strong. the for of half not really as suggesting up we was the basically share has the images cash flow big pandemic XXXX look the a But suggest look with it and all

you. understand in more cash investors? the terms of just what's and behind to I Thank distributing was the towards future this trying So what's logic

Andy Yeung

you, Christine. Thank

allocations our I couple capital organic focusing growth. as is always driving is think, and that on things, one

of than we also digital remodeling our X% it to supply sure we and is And continue different so brand run so opening, is accurately, that And make we can into effectively, new efficiently investing more spend. also uncertainty. that then also on generally and CapEx to look on and store deal our store with capture chain operations that obviously

obviously, that we chain. capital at come for is supply both want with we Occasionally, one to other in our balance and sure install investment look any contingency sheet up. operations may our boost especially capabilities that allocations, investment, make strong a can our The in technologies, will opportunistically, that we deal to the have

are very return We to to capital committed shareholder.

we obviously If you number depending very more as of to returned early strong X%. at of excessive that share the on dividends the hold raised to this million part have done Dividends, have first have repurchase return commitment we year, this in vary we shareholder. quarter, the think in than cash so pace would factors. $XXX quarter to year look the I by The we shareholder. almost X%, of But

obvious we revisit policy And board year. so when dividend our with quarter every and every

good the performance quarter our cash operating half the And in and very good flow and but year. cash so again, glad in second strong are operating first in we flow – generated this free

to so Thanks, Christine. excessive continue shareholder for sure. to cash And return we'll that

Operator

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

Michelle Shen

call Thank you for joining the today.

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

Operator

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

now You may disconnect.

Yum China (YUMC) 31 Jul 232023 Q2 Earnings call transcript