Yum China (YUMC) 6 Aug 242024 Q2 Earnings call transcript

Thank you for standing by. Welcome to the Yum China Second Quarter 2024 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to Ms. Florence Lip. Please go ahead.

operator. you, Thank Hello, everyone. China's Yum Quarter Earnings joining XXXX Second Call. for Conference you Thank Ms. are call today's our On CEO, Joey CFO, and Wat; our Mr. Andy Yeung. future which I'd like investor subject statements, and earnings our uncertainties. to are to remind materials everyone contain that events and call forward-looking these Actual statements. forward-looking results materially differ may from earnings should our our filings certain SEC. This also and forward-looking with statement statements with non-GAAP cautionary factors includes considered the be All the financial conjunction risk in the in release in measures. included call

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

webcast can find note this You all the otherwise PowerPoint a presentation today's foreign during our the year-over-year Please of website. of call results exclude unless impact and IR growth call, on currency, that noted.

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

same XX% us. sales thank everyone, record second of period revenue, increased and Hello, for XX%. in EPS profit X% profit for grew quarter. colleagues thank on levels like you the to spirit. Yum reported and EPS of to would for and growth million. operating System China last our Today, XX% joining top innovative operating the hard XXX I work USD year. Core their grew

environment, dynamic we challenges capabilities we and our advantage. We are to competitive a complex our turning opportunities. With our are navigating and see many scale, as the but more industry-leading these situations

them. steps revenue profitability. to and of aggressive X I drive taken to like have We highlight would

look at profitability our We enhance a key operational First, businesses. improve make elements increase fresh we to our resiliency. and and innovations took every process growth countless in efficiency,

results. seeing are We already

food cost them major reinvesting achieving into are and value. We and savings

focus value innovative money and products. and our Second, we held share for market with broadened on sharp market addressable our

second by delivery double sales quarter. both the Our transactions and in digits grew

We will our needs. across innovate to menu continue customer address to

well. business OP expanded These sales models, QX Hut WOW breakthrough working Pizza future strategies are incremental KCOFFEE delivered potential. same-store to profit. our and encouraging most spin-off. quarter profitable incremental initial margin showing stabilized, X.X%. second These great margins are results. and since stores was Third, our They achieved our Restaurant

first talk our organization. operational to drive These all me Let initiatives initiatives about aspects cover our of efficiency.

First, X quarter. last OP Quarter this improve margins Project launched Fresh year, Eye in helped

shooting for best-in-class and We best-in-cost. are

operations to view, our chain major Eye managers' and Project our and simplifying our and other initiatives RGMs place. launched are faster. From RGM assessing in complexity restaurants All words, offices, reducing efficiency. result in we are store our better point from we RGM, supporting end We our burden is now to back of are at operations. unnecessarily on Red still supply The improve efficiencies. Separately, our Quarter X the process of better our

to To goal is spend and them. are from add spend assessing customers' no point that better, value our better for of buy view, better. operations areas identifying Our we our

certain SKUs, ingredient by of better, are select our simplifying from stores opportunities. we menu categories in also examining sourcing certain are uncovering fresh perspective, a sales. To buy parts operations and are day We segment farmers we and from producers numerous our packaging for and without systematically directly compromising

and safety quality. doing are this food all ensuring of We while

our automation play to AI in and Lastly, big will role continue a business.

major automated forecasting and sales management restaurant have We management. inventory tasks to labor scheduling from

in operational China to stores. all our office out in system back generative industry XXXX among processes. integrated food Hut to turbocharge our We efficiency. We in This and quality have to first i-Kitchen rolled enhances AI the improve adopt Pizza AI were

helping tools a are applications, product dozen already innovation. insights, We generated us and These are and including support, few on make more consumer efficiency data-driven improve safety food informed working customer decisions. new AI

making measures. We these with progress are great

fruit. more to results, bear others quarter take time while Some have already impacted our second will

bring structural long-lasting are benefits. that these Importantly, improvements will

love our Original but Recipe were our our is dynamic mashed products, create they KFCs the environment. With for innovations categories. way introduced beef brand the potatoes many Language]. kids Recipe and strategy, the our include In least XX-years May, also we bring at pursue turn measures with enjoy to the product In has Customers growth starting have to on iconic compete let China. to these ordered Recent we way, to these we Recipe with separately. brand-new this energy Chicken bullet traffic. In popular juicy the in KFC. KFC With fresh Original mashed past, potatoes new they the Chicken By combined Burger, in and to in in and burgers value Original [Foreign me a our burger, place, Chicken classic appreciate chicken. China, that, whole

put one we into them burger. Now together

childhood up told launched. customer stores. was KFC many burger one half all sales and for so launched again sold Since June. KCOFFEE we is Its profit. and limited popular, time XX% locations As in was RMB we it XXXX, innovative sales incremental year-over-year. This in popular, available X-days in dream me, just X in billion it a first true. it drove a in come of Since so is exceed out

we this sold year-over-year. up million cups, period, During nearly XX% XXX

our cafe and RMB at the our March, coffee and campus XXX We since tripled distinct dining innovative menu, can number the in we hotdog. have last stores, July. Side-by-side X.X customers year. KCOFFEE in been of our groundbreaking starting stores nearly to KCOFFEE enjoy rollout a area side-by-side feature just late a cafes at accelerating XXX From

at [Foreign model. sparkling the we Thanks continued Americano KFC. We to successful took supply X most Cafe to underserved as strategic to growth we chain cost KCOFFEE while platform. satisfaction. Quarter liked These XXX roll a to and lowered By year-end, maintaining rider of aggregator popular are optimized efficient our on [indiscernible] Orange operations, out introducing flavor to citrus our making mind-blowing. Latte move XXX are momentum too. service capture margins, and super expect and customer sales stores. Delivery profit Sparkling healthy platform impacting segment. winning is quality also we locations, share incremental smoothness, gained select and without This their By Iced at the delivery We next in drove ticket level with we sales market Language] riders smaller introduction We the the fee creamy double-digit the to our the proved margins.

Now turning Pizza Hut. to

This profitable achieved quarter, Hut its the most since spin-off. second Pizza quarter

side, against year. we from campaign were an comp May successful our profitability and sales June, enhancing improved In deleveraging, efficiency. April IT up the marketing sales On sales we a outsized operational last in same-store by improved. Despite

operations. For and example, by we time menu significantly reduced simplifying product preparation kitchen

our automated fried potential. store crews servers and also mark. We to Hut load believe has We deployed hit work the huge make just machines Pizza lighter. Pizza Hut rice robotic X,XXX

no as yet. cities, cities Hut X,XXX over XXX are KFC that present in Now there but have a Pizza

Hut to Pizza new consumer its groups models. expanding is products also footprint, business innovative reaching amazing with addition value, In and

Here highlights. are some

First, menu innovation.

this pizzas price year. segments entry and double grew underserved previously Our digits are addressing

Pizza more the success Quarter customer burger, receiving to Hawaiian attracting one we X, later Dough Our made sold feedback. many Dough month. out this [indiscernible] Burger Pizza, diners. pizza unique on solo we will our burger great This with a Pizza by In new burgers is bun, is stores be dough rolling of freshly-baked all than its Encouraged synergies. X,XXX

is model casual July. variety with model and lighter fast solo-diners, model Second, We XXX to pilot have simpler newly encouraging. marks last good The were stores Initial store It some and this outside. queuing major Sales food just value the value-cautious excellent of our WOW I of in by month. of people existing vibrant end opened over results are format money. stores May, more WOW breakthrough. opening a with model service. Since the features converted for we Pizza customers. young our the successfully operations, visited attract Hut customers store

uplift. batch of same-store first Our new achieved sales significant stores

we results, accelerating By encouraging more are store our than the Given store count. double we expect rollout. to year-end, the WOW

talk me let store expansion. Now about our

long-term We China. growth are in seeing fantastic opportunities

store across and city allow profitably penetrate us Our to tiers locations. formats flexible new

stores Around stores. in new monthly returns. cities. Our Pizza period the existing XX% X-years on new improved held for new KFC's possibilities mini X X-years lower-tier white and steady good unlocking breakeven Their X-months. We small at space time to of model to our on at to stores KFC site is within minimize impact maintained payback focus achieved Hut.

at in opportunities service campuses, like example, locations stations, is and other highway strategic for enjoying store college and on-campus Jiao University, transportation also have new gas Shanghai busy We hub tourist traffic. locations. KFC's identified centers Tong

franchisees are in the to strategic new franchising unlock from second stores reached partnerships with opportunities locations. In lower-tier quarter, XX%. also cities and net leveraging We

target We expect to set the at ratio XX% Investor will we our Day XX% last year. go up exceeding slightly the

me the let Now I away you to take recap X want key today. messages

support First, margin. our to improvements value were we were come. that to not efforts to years for which cuts. deliver took These enable efficiency, actions money They to drive just benefits cost for and one-off invest structural should us operational in

consumer and succeed embrace driving needs growth. we robust Second, transaction in

drive will and that are sales sustainable growth. long-term confident initiatives same-store system We sales our sales

continue to will models in growth. innovation our new Third, store power long-term

to thrive and show opportunities. confident are stronger and the Our working. challenges turn than strategies our emerge QX Great conditions results that companies ability current ever. tough navigate into environment our I'm in in

systems move China. financial Yum played company's to capabilities the strengthened upgraded the thank robust we the his its me would also finance successfully like Acting in Andy transitioning and commitment Andy our Adrian pleased further and step our is establishing critical financial has I contribution for made Hong completion very Ding cost the a the Kong. I growth Please to core up into He team and of its Investment the results, General to to Before will also CFO our acting join supporting moment strength, role. current of areas. best. to Adrian recognize enhancing Officer as in and would Manager led CFO. in wishing Adrian to take strategy. Under Andy I leadership, that discipline on his processes Lavazza. in key has very listing Chief a role am that our like Andy tremendous

establishing turn joint objectives enhance and I'm and Over financial has create shareholders. With to market and was will that, that She Lavazza the business Lavazza Andy. led investments capital over to growth value building expertise, to projects and Adrian Andy. our call confident our organizational instrumental portfolio our the will China. With Adrian for multiple sustainable in in I his the operational the support past strength. X-years, venture

you, everyone. and Thank Joey, hello,

will call sincere express earnings and to this analysts. gratitude my colleagues with last As China, and I Joey, shareholders my to Yum be our want my

the achieved its pandemic, the of together, it have such dedicated with confident and working pandemic talented capable closely leadership has company's leadership accomplishment of been the that the under experience X-years, the accelerate challenges to aftermath. rewarding Over success more the China team. a continued proud emerged a ready Yum navigating resilient by past and posed management team. the we I'm growth. I'm the existing in from and

That's $X.XX. and billion. $X.XX of Operating Now of sure financial the profit given solid our market let's and we performance $XXX diluted EPS second X.X% set including of Operating condition. a numerous turn delivered revenue of records, for margins In results. quarter, to million. impressive current the new

earlier, to margins the Joey off. beginning that initiative of to drive launched the are As last and pay shared sustainable beginning we year in fourth protect growth quarter

impacted While and sales, tough margins current conditions lapping same-store stabilized. market our

grew Our our to how and consumers. food testimony sales cost a year-over-year margin markedly at a affordable operating restaurant second customers and and setting our sales healthy longer more with comparable traffic. Total customers XXXX, grew system excluding capture same-store well even our new restaurant to industry. to broadening transactions resonating outperforming view, a measures. Taking from margin, growth XX% average, was foreign compared product, quality second led thanks quarter. a and in was flattish XX% actually Core basis. We and transactions price XXXX, of for price margin the our X% a new profit grew the occasions compared economy record cost. Despite existing year-over-year, increased by scale It's promotions, operating Operating ticket by by well exchange. delicious with range year-over-year lower brand, XX% improved on marketing attract more quarter offering the

performance. low look system with closer Now quarter X% brand, ticket were KFC X% a let's sales same-store increased of year growth sales second By prior and average. year-over-year. take at Same-store at X% levels, XX% traffic our

the RMB XX term second was longer XX, average ticket average higher in in quarter than at a of XXXX. second ticket perspective, from the RMB the Looking it our quarter

widen capture and delivery range is price paying are the average to orders off. strategy Our low-ticket

meal. tap The and solo-diner price burgers improved went to down our With relentless strategy, and our person and X% drive price X% entry the Hut year-over-year. drove increased entry continued growth of were segment. consumers year-over-year sales X% but traffic. sales Delivery more ticket average value-conscious of Our profitability to keeping incremental sales with efforts with Pizza at XX% traffic XX%. Pizza average. combo X grew year into Same-store level prior a pizzas, to ticket lower team's efficiency. in Hut system

Now let's go lines. through our margin in key cost

us Our in record resilient revenue quarter margins G&A operating of spinoff, and as savings percentage restaurant that. since the expenses our help margin proactive X.X%, second a was highest achieve

year-over-year margin in same than occupancy restaurant lower our plus of labor X%. comparable sales XX other healthy basis XX%, COS the long-term was a a points higher cost XX.X%, was sales. Cost approximately for basis. basis value Our more with on was at in of points and increases year costs XX.X%, or offering offset higher our COS minus last on a despite consistent XX or or and cost basis. piping Savings level We and of comparable XX basis managed range of points money.

our than XX.X%, deleveraging was for last marketing basis in advertising on XX initiatives expenses supply us basis to food super or cost XX.X%, Improved promotions. Cost This efficiency offset comes basis sales year-over-year. lower more allow a Our innovation invest basis. capabilities staff rate lower and chain year's sales comparable the of other Occupancy and points lower increases points driving lower optimization. labor from and and points and year-over-year frontline was XX impact. XX other operational and

gains. G&A drove Our operational XX% decreased year-over-year. expenses We efficiency

ago. compensation X% in lower revenue percentage year this the quarter, improving expenses save on also X.X% as performance-based G&A a We from was year. of a

the keep For full the we ratio G&A X%. year, aim to around

with was tax on the the quarter, par rate period effective year. XX.X% last Our second in same

was XXs. was in quarter full million, Diluted a million, effective EPS also operating XX% second our expect $XXX $X.XX growing year-over-year. year-over-year. rate We profit the year XX% growing growing second to was record, X% tax year-on-year. Core be profit high record, a quarter Operating $XXX

The market moving remain on outlook. to conditions our Finally, challenging.

We to and product for money value marketing to drive continue and in invest step up growth. innovations transaction

are better measures. Our temporary operational efficiency, projects and spend buy better not

position cost Project in our second from and best best the Fresh half. run. sustainable should Project to remain expect profitable in us the our in and transformative We Eye cost changes These well continue Red and proposition to business, in making class savings long value in Eye

same-store Our business store disruptive KCOFFEE Cafe further Pizza WOW growth are model potential. sales KFC, like Hut side-by-side new to and promising

year. a As do reoccur million and in around temporary last expect quarter reminder, to the in this we this not year. VAT relief third of recorded $XX We deductions

remain We total in at wage digits. new expect for our inflation net first reached opened XX,XXX to number single frontline of stores and low XXX record the staff stores. a We half

new achieve net X,XXX to track year on full target are We of X,XXX our to stores.

return $X.X to over This returned We are nearly the X% back of half, also we shareholders. on $X In track share. buying outstanding to million including billion billion, first XX.X shares. to is our equivalent

generation power flow second cash cash healthy At continue the strong return billion had position Our in quarter, cash. we end $X.X the of capital and net our to shareholders. to

remain Our unchanged. X-year target growth

shareholders to to We returning $X are and growth. while committed sustainable driving billion at long-term least

pass it Florence. Florence? with Now I will back that, to

Andy. Thanks,

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

from Michelle Goldman Instructions] first [Operator Your comes question Cheng Sachs. with

strong very congrats also and and and best. the resilient the for all Andy, Andy, Joey numbers

concept. target that Joey, we stores a contributions KCOFFEE position. please economics it's store have business and about sharing is you color of store openings you, we still give months. And by for can format it's same really And these but us and more the question And in the year in those value at more the also given few stores, past aggressive sales also opening have year-to-date. very new thank already side-by-side the my So this end about impressive

should going KCOFFEE and from shall structure cost WOW perspective, and we be O&O are ratio when net-net addition model? And see see about like we few simplified but in next that this we will we in -- concepts new structurally, more by we more offset to higher, quarters? the the will full So think be payroll this in economics, these to see margin also, to the new will upside from the more cost

and It's to then for travel concept, the have of the and cross out Hut. content to feel all WOW. I your recently by Pizza a result focus about on encouraging, very that our about encourage is and question is very the X see I of And we I will have the KCOFFEE the Shenzhen, Michelle. few breakthrough answer a for a KFC of to can side is our other one truly rest the are I it. these you, And focus And amazing good you are it. the border. all, forward. Come is the excited to year And of think, going new model team the side. Thank just analysts on first menu of easiest operation, back in to this way have visited last we'll you and I breakthrough first [indiscernible], very going and Pizza the we initial think we

for then next winning we product, And has is the the very own its KCOFFEE, kitchen in have KFC Coffee And is KCOFFEE the and menu product of the terms it that Sparkling a characteristic food the with is we So product, is simple. menu. fantastic share important. the to normal comes some store. operation of The and also

is is CNY So sparkling in customer, we has then which actually its the coffee for for the value team particular own mentioned but campus. the I shared, offer, area. And with Operation store, highlight and KCOFFEE will one distinct offer -- I remarks, shared. X.X. Campus it the money in a my at the is hotdog kitchen is amazing,

way, reverse. the CNY food free. already, naturally is the the CNY the might years is You at X.X. We coffee does for how coffee we it many margin? Well, offer KCOFFEE In at CNY the think offer question sell ask X, work free. the this We breakfast and about for for our X. comes Food

way. we very that do capability chain competitive this So it's in can our supply a

So margin healthy. the -- is the net-net

sales it incremental and in result, then incremental same-store profit. has of both and So -- terms

WOW Pizza store. the come Now Hut to

a if of fast with but little The store. is service, in price. But a can bit offering the order less Hut, a But average a bit sort than bit a bit, for Hut casual more [indiscernible] I go more smaller yourself, Pizza the it's describe this? is less like total how lower you you better -- ticket variety, do is portion, but bit there just by Pizza a fantastic. normal food So

works of conversion sales WOW Pizza some concept. convert into very increase Hut same-store is it for It's overall, Hut So the and store, this just we Pizza encouraging. And basically. our new stores the

XXX stores July, we right the COS end it's XXX of over terms have So by to of achieve year. And margin, over by -- end we now, plan converted and of the actually the better. in

Although it's but is economics because COS a bit the days, unit better -- is less. early and COL is O&O

share you, you But So go Michelle. Thank that's some can right across with what in suggestions the the Shenzhen. #X board we now. see

Your next Stanley. Lou Lillian question comes Morgan with from

bit My sales challenged and environment. result giving under even trend question the a the on about same-store also, congratulations is a again, recent good on such and

basis? And third comp you in the tier So terms I look top place, understand low-tier of of cost to the management how we markets demand a quarter alleviated different operation seen all high-tier efficiency this should kind holistic cities? at want a bit. trends quarter, like in getting put and in the of different on the have and with into city when fourth And cost

Lillian. Thank you,

than year-on-year and longer attention are X a part still environment, one, business but both locations higher-tier little pre-pandemic of the of like sentiment bit the moving eastern Let on a and XXXX most been XXXX. By almost there's to and are recover centers environment in from city lower the And me the consumer pattern a levels. lot resilient business few the comments shopping location, to back China about and trading is By the to the tier faster term versus residential China. more make region, city share resilient X. Quarter learning then Quarter

that. We We consumer particular said, significant right It's and that tough change management right? one in to -- sorry. like is are Quarter always share tough. market not my and business now, accept whine expect doing X, sentiment capabilities. by so, and Yes, do scale I My business that conditions philosophy to and going don't able life, life, way said, the about seeing right it. but the advantage much X. With Quarter on and turn in with team in disruptions whatever we unexpected. comes our deploying are we thing. Often our we adapt as our our always to In the competitor We

do in the remarks key in how my terms to actions. regarding summary. et have are In But the them of repeating it, points, I specific they cetera, X covered

cost First make have operational of value support about into all, to tuned for drive our our answer reinvest money low lighter offerings and question our the cost efficiency, your element margins. managers and we work to process every store and efficiency,

and have deck, market price creative in our picture our broaden addressable Second, innovate widened drive new products, have we traffic. we PowerPoint which points to lovely the and

and power casual growth such I small mini Third, Hut. Like we model, WOW, KCOFFEE showing strong called Hut of just fast all strategies for store the KFC are innovate breakthrough future store Pizza described, the as initial towns model and cafe to which Pizza X results. for and KFC

in As or double-digit transaction sales. a X growth see delivery result, actually year, for Quarter and robust we this growth

margins restaurant OP since industry see profitable and XX%. Lillian. grew by stabilized most the despite X dynamic. you, We spinoff core Thank Quarter the Our

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

take to that margins, first looking Q-on-Q sales to expectation. Andy, a is Joey, result promotion edged definitely, fact all, details, of And cost the the I'd at intense despite when the congrats of seems our to I QX deeper best food and down our wishes on my again percent basis like XX look be QX. Chen. into on as the by very strong and Andy. noticed, margin in also a paper exceeded this bps you're And

upward a the or cost time big and that? for the Pizza because is if group on chain driving is for has the our at Or Hut, smart flattish also you this what commodity because Is look of the year-on-year labor, trend. the largely of it's basis secondly, cost? usual it initiatives? And supply of falling versus value So declined

which restaurant of that normalized first usually forward, actually going par pretty a as with regarded these also our margin is can what first is half it largely is that much the So XXXX XXXX, comparison market be Is comparable of rest lastly, to for the half changes? And margins year? all the fair for base. I by on say noticed driving our

obviously, complex the Thank terms operating consumer term, in in -- term. for value I Chen of pretty we your narrating you, short environment are question. short some remain And pretty And conscious. dynamic, think, very

And so that's in important an thing mind. to keep

So at perspective, look last particularly if was low from our third you year, quarter not base.

you about we see consumer late softened stayed in think the September. If last year,

that's we So keep that in something mind.

So in the we short on we have as term, taken obviously, sales actions would cost as in be prepared adjust an But very have we important nevertheless, mentioned our call. our driver have structure. for mentioned margins the remarks, to decisive

to also, that we and -- very model embrace the business change change. some so And action decisive to have a market our of then

to expansions we're then off. in to since margins. achieve And our see result, that, also, stabilized as a UC spin we so operating is see margin, the And able which best

commodity short-term a are like Now are They term, in consumer are I the us important in not how short you initiative, the initiatives more some change have make we again, favorable. and same we, the and for the over commodity invest time, think to the short about think the our of structural changes. is But also cost that the only over again, long-term value, embrace mentioned operate invest the if look at it prices term, business, in more efficient. In but price our those at measure. not structure, you if way how

XX% before. We we -- still mentioned time in sometimes always and long fluctuates, fluctuations. as -- term or as minus it plus some have so the X%, and sometimes target seasonality, And

in all, we I our that. think view for all market

quarter This is XX.X%. about

a focus. So be yes, that quite our continue to And labor in of see in productivity. of terms did you out, of improvement fill bit some will

to add sure they're add looking operations, do RGM to procedures continue take do viable If for value. we out. will consumer our and not make the value, will some the it what of or what don't We we simplify that actually

we year these expect the But we have composed an leverage but runs improve -- for terms area half program. be to things, the this right? Capital continue level it to O&O, allocation be from of we in that. that our digital example, and year, digit. things, to this also then impact the year, we at to COL investments [indiscernible] that full do in look work obviously, So are at then I try many, on of the And store initiatives at inflation single low many for depreciation continues to second think of soften big marketing when

so we try improve initiatives to And will have many incrementally. to

did some so I want have call, but earnings year, right, last to the first one folks -- folks, And is as which our reminded you we thing quarter in remind company in enjoy like we big in leave expect second experience we which half the didn't and policy year. the and of also year, VAT we government that don't reduction, was half this a first this one-time,

the XX third was So million, and XX in about USD that million. quarter, items -- year about that it's last impact comparability for the then -- second quarter USD was

factor that's And in the model you so think keep at that guys that's mind. -- I look one when should

significant this that and revenues. aim of we terms compared year sales And to to mentioned our this have will G&A, think an so in when improvement a year, XXXX. we last total is to before, G&A is improvement of as I And around keep X% compared

we we're at in short demonstrated, operating think again, more -- have -- the aim demonstrated, like and to that to stable we run embrace think, we we term, actions I the the the our have both our long manage model. And I growth our cost improve margins and improve the we do in bad are time in change for business And way in short you is adjust and also this that so and can we term? time. good we and probability it. But I Sure. But we if then operational for term, think how structure, look And and I stable our the look confident efficiencies taking longer relatively changes, see to can face think our possible. in margins market challenges

that ability should that margin to changes to long to embrace in term. change, us think make decisive So sustain I help the --

you, for examples Chen. Luo concrete X give just I'll

in straight at good the For things select right example, XX% automatic really continue that producer. better can the COS, are see farmer now you that. In now, go Pizza COL, It's can right, kitchen? pretty Hut We we do We'll fried we get and -- our machine. price, the you to ingredient in have -- to rice imagine. totally what cool. specific store of right our

house. might to have very You your consider in small. one actually It's

have So because it from store particularly problem, do robotic the can labor Language]. Hut then it. benefit too store labor now small Not the store cannot of it peak solve time. And or during XX% right Pizza our [Foreign really shortage the server. all

So to day And all that we Not this right? it spend have I but It means just whole are day, that definitely we my selected therefore, for select sense. less throughout less mean? COL, tail specific that so day Less makes SKUs better, of the structural time wastage, the throughout day, as certain COL. does part. out mentioned these fewer examples. that has take at COS, less some we wastage, a the then -- in remarks, prepared And have part. What change

Andy that again. that's And shelf. best automatic rice it if to my fried Look machine wishes also forward to on is available

with Your question comes Jefferies. next Anne from Ling

The one. have new format I small So a again.

store Pizza example, for store. doing the a forward, it in the currently, mainly because on opening mean Hut for the that future on moving WOW, that does So conversion you're

can on at also also current Pizza decision of new actually many opening some store So How Hut WOW. And the you forward many accelerating you terms that current the question then strict can -- stores you you currently for shift what KCOFFEE for you your mean store based be will can for that of opening, make your do a rollout? And kind that quickly your this do like is how kind this think them store and network. be network, of point make on of new same this that will store, how of the like format? under Or in that? visible are moving adjacent

you, Thank Anne.

the one WOW of For model, Pizza models. Hut is

of testing et actually this the you For Currently, imagine. cetera, top model Pizza formats KFC locations both have multiple multiple and also in model Hut we and and cities, and Hut, country, et store part city WOW, tier we can Pizza cetera. for low-tier for city, different are

you about new clear potential we stores KCOFFEE the to will WOW that be imagine And Pizza later model, for of much if the as be But KCOFFEE, store, but we of many can open well. Similar sort Cafe of store Tibet. And converted. part you right are Shigatse China station suitable distinct for is the in kind of existing bit a not a so add-on as KFC some tourist imagine. so the more how store. identify Hangzhou similar. bit will store is on a in testing KCOFFEE in of So now the existing and different remote it and a like a railway existing and conversion. the high-speed have to then this most can parts story the store year new again, a in Hangzhou location Dzong, -- right, side-by-side have Hut we not we is

we also then And the are tier, of city we it. drink the different So well. testing our and as different food are KCOFFEE building locations,

So to we'll and XXX which we of year, our and we accelerate by Anne. you, if learn number we is more is and to this and XXX we and then continue the to Thank the XXX, -- we'll to KCOFFEE, learn. XXX of a continue mind, adapt have what in we adjust stores, the end bit aggressive speed have but need

comes question from with Bittner next Oppenheimer & Your Co. Brian

you. the Andy, you some it's a half of could second Thanks to year working help you. I years, over the think about guys was I the wish sales. Thank put been same-store for all hoping for how best. on the the and pleasure with guardrails you

the Of fourth easier third year, sure the not the in given quarter. a I'm last gets operating environment, lot how and if comparison But are. at look course, comparisons we relevant

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for Brian, thank thank for your much also question. your you and kind so you then words,

in macro lot of on there's think side. I of I macro, terms think a news the

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our And is cost a the think you working. can And has quite so strategy result, structure significantly. see, I improved as

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to results of we'll so continue pretty And that also I in channel that campaign, activities have and do some some encouraging. some promotional to think were value savings traffic. And drive invest to we the

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the can you in trend so back and -- last have time. come that And what at year, to go you if we

food of And leading lot with we store. and And restaurant drive We're business as model. And -- of KFC, model consumer to a have innovative have also but that the KCOFFEE try that, proud Hut to of with we we initiatives capabilities. in some obviously, breakthrough WOW our side-by-side very a model on lot a so very our player. innovation good industry is Pizza is have initiative to news important

we'll not second we're the overly half, we be optimistic will in so but optimistic. be cautious overly continue And people that, do as to pessimistic, but shouldn't we

a you, I'll is just Valley. here. still want Wild part to me growing fashionable to these West lower It has a tier for in seems city of on crystal at want of growth. And just few comments called that China to accounts and mean, market in almost growth here. quite ball nobody the China. be growing the Maybe frontier U.S. bearish the that world's I days just I I Yum And China company become growth rate, emphasize into Thank a reminds today's China. Brian. add of But add of particularly, annual push the even yesterday's the X/X current the of Silicon to kind shift obviously,

And that like something has Shenzhen. in already happened

the both to will system in So well. Therefore, I'm equally same-store sales try confident sales And you appreciate of opening will we approach. also a certain as And elsewhere important happen on sales. sales and same-store we in same-store new will lot to of compared to transfer China terms that balanced is have focus sales have it stores, and sales. that will are system that

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alone, but below. reported shopping But not in actually malls last and try mostly in Tier China media. X it's we and So not least, have focus to a opened in year XXX balanced approach. Last

opened in And malls. think another XXX malls countries this world China. alone, year the in days how we I for XXXX, shopping XXX open be shopping these are to many about expecting

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to content some just Brian. put So Thank into here. the background macro try you,

appreciate essence I do same-store question. the is and the was my And of of sales what's the system but known equation, side the growth unit that And that kind the unknown. sales what's is of

next comes Sijie The CICC. with question from Lin

high for strong operational and best wishes line, to efficiency bottom Congrats the and Andy.

lower our understand because coming expanding in KFC entry-level average. over introduce want relatively But Hut, strategy the longer for price range. stable are although we quarters period, pizza the Pizza to and I ticket So Hut, a pricing for is better we want TA the Pizza to especially

after may So this restaurant that relatively observed other cuts year year. recently, some TA to hope last we stable TA keep companies

elasticity savings consumer. to will we and further pass money for is the So we especially it of how still KFC, the about relatively Or keep our pricing strategy, because may promotion stable? increase to high

you, Thank Sijie.

question margin. So presume TA about about is the basically. hidden And the question the TA the I is

KFC the robust and thing So the as strategy Pizza Driving traffic. is XX% in And Pizza Hut our TA we Hut. transaction growth both both KFC for consistent same-store drive most with business, see is trend at our traffic and important we and to TA, stabilized see growth transaction margin business. And well. operational X even represents improve of take the and lower our health to business, margins total way, because proactive the Point we improve restaurant efficiency with the the for steps that QX operating by the is

and will So fluctuate compared to steady pandemic. we TA. TA quarter-by-quarter the approach a maintain long a take for balanced term, particularly KFC in to

that's TA and long-term take if Quarter XXXX. pre-pandemic, still of is it's view, Quarter XX. a X and higher X actually than the TA we XX However, That's RMB

price So in well short we have approach. But the very long the a that in worked drove have because term, we KFC, focused balanced will and as that sharp traffic see. value, range the can we term, widen

offer will that out well. well, continue for with continue However, TA as strong we whole such with also because do chicken, balance to as ticket money items they they said, the to family higher value and bucket

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we more recover actually, campaign it's segments April, close bit the a The probably KFC. Hut and June, value-cautious add consumer we May outsized suffer it's same-store more to same-store tap by will April. And but pretty X, okay. of sales, Quarter Hut last into year, the Pizza expected promotion recovered sales than me let the actually, because And with For to diner it solo Pizza which and particular pizzas, XX, way, price about TA Hut continue which This our last pizza, growing It's point the X And talked at person et price expanding particular in because of WOW. By the this Thank particular for is you, share RMB it segment. Sijie. market is price below burgers in pizza nice digit then, very meal, cetera. the for Pizza entry earnings release. double the us. entry it's and course,

Wei comes The Citigroup. Xiaopo with last question from

things small efficiency lot with the Citigroup. prior discussed Yes. been done Xiaopo want by this expansion the distraction this of business but the A all past perspective. Yes. the given lot team because of prepared efficiency, on Joey in thought for improvement. Have intended disposal thinking this been be remarks environment to small a to and Joey's business, have I on any the that environment, the and focus of I and the of just may just a you environment in given the things on the business in business understand the a of was small Wei resources. want have about Q&A seek

business. When like And constantly Thank review new our we that you, stores open would comments here if the could along portfolio the smaller is is business any completely certain packaged of a during We well -- to served our thinking. us Xiaopo. I make in for thinking retail, mean not I I the the food, few mean your markets. of some smaller example, line then pandemic.

mission However, of is now normal of business are to see historical the sort and packaged accomplished. probably more back food can the we

are bit [indiscernible] we very probably going our reduce So to soon.

has very and smaller one only example. And always for business. very then a a interactions on percentage our business, in we invest We approach, small profit disciplined with Andy have So the that's analysts. which shareholders shared other of previous our small

fail opportunity, is to and the staff smaller set very challenging. opportunity train our up not give While the business us but it learn, to fail. It's business smaller to gives to us

progress. portfolio. our we'll review continue good actually Lavazza to really making So is

lower are more growth nimble have is sales bean -- significantly XXXX, turning Quarter we profitable actually fresher X for in meaningful more bean coffee last bean, have year, that from Lavazza, cost, expect this we et more of than Lavazza sold actually China year year. this and breakeven innovation, it. The we Italy about retail cetera. business happy to of And We we moving so are production

Huang but Little then will -- build a business. continue, by So business, resilient and Lavazza step. it's And Huang -- the takes to time building Ji it's very Sheep a is really step good and it

is and indeed Little in success, time more XX this then We over has Chinese foreign one a have this a first part bit year. And the our globally. person consumer. we the sheep, bringing is convert is called new are new [indiscernible] serve store, stores And XXX -- concept sometimes because achieved we half, adding are to it model harder of stores to and the to Bell sort building stores new initial of having a bit total of Taco to more store

further of constantly So we business. are starting reviewing are and we bit portfolio need improve the a Xiaopo, the but, out more time, we smaller the model. are to the that's we business health And where

a Xiaopo. Sure, add Yes. there. bit more little will I

very company, disciplined Store, it. capital we're our in any deployment albeit about Be model, brand. the As it

and demonstrated a I need we'll profitable we for have to invest is which don't do continue have say continue in to brand. the have something well we'll need we that. in that a requirement think a that, don't have we to be smaller potential, -- when to past, And see you and we

a China progress, But that. coffee building will we right? example, continue For in brand great to see in invest and take we'll time,

our consolidate the business of the brands the We end, resources closed business. we KCOFFEE also end to Lavazza like on at coffee core have on we functional when some now like think lower and C&J, right, need focusing

we deployed And it deployment, you, sure Thank disciplined so including like continue to about the very store, portfolio, make yes, overall to remain shareholders. our for capital that efficiently brand, Xiaopo. for the for so capital the

Thank you, and Andy, all the best.

you. Thank

for today. call the Thank you joining

questions, on further our out the information please contact through For earnings our Thanks. in release reach website. and

you. Thank

Thank you guys. much, so