Q1 2021 Yum China Holdings Inc Earnings Call

April 28, 2021

[music].

Good day, and thank you for standing by and welcome to the Yum, China's first quarter 2021 earnings conference call. At this time all participants are in a listen only mode at the speaker's presentation there'll be a question and answer session to answer question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you were.

Quiet any further assistance, please press star zero and I'd like to hand, the conference over to your first speaker today Ms. Debbie Ding. Thank you. Please go ahead.

Thank you operator, Hello, everyone and thank you for joining Yum, China's first quarter 2021 earnings conference call joining us on today's call are all of a field of Joey Wat and of our CFO. Mr. Andy Yeah before we get started I'd like to remind you of our earnings call and Investor presentation contain forward looking statements.

Each of subject to future events and uncertainties. Our actual results may differ materially from these forward looking statements.

All forward looking statements should be considered in conjunction with the cautionary statement all of our earnings release and the risk factors, including our free.

With a C C.

This call also includes certain non-GAAP financial measures you should carefully consider at the comparable GAAP measures reconciliation of non-GAAP and GAAP measure, including our earnings release.

Today's call includes three sections Joanne will provide an update regarding at least from development and our first quarter 'twenty to 'twenty one right now.

Andy will then cover the financial performance in greater detail. Finally, we will open the call to questions. You can find the webcast of this call I know Powerpoint presentation, which conference of operational and financial information for the quarter on our IR website.

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

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

Our first quarter results demonstrate the resilience of Yum China.

The lives of at 342 million in operating profit.

System sales grew 34% year over year at same store sales recovered with 10% growth.

We sort of made us all expansion opening 350, new stores in a quarter.

So let's call it of trading was adversely affected by the resurgence of COVID-19 outbreak and tightened public health measures.

The income was particularly pronounced in northern China, where pieces of spike and in transportation locations due to sharply lower passenger volume.

I would like to say on all 400000, plus employees and ride it for their contributions during this difficult period.

Many of them day normally tonnes a day at home time to celebrate of holiday with their family is that serving our customers and communities we.

We delivered these strong results with at that occasion agility of our people.

Pandemic has introduced volatility and uncertainty to our trading pattern on.

Team acted and reacted nimbly to changing conditions.

By planning for a variety of possible situations and deploying resources, firstly, we overcome operational challenges.

Partnering with all of suppliers and through inventory and production planning our in house supply chain manage complexity and potential disruptions to fulfill the demand of all of 10000 per store network.

Our operations team and ensure the best possible level of restaurants staffing and delivered at Liberty writers.

Our operational effectiveness.

Sit at painted by our digital capabilities.

At the fluid situations, where at April to quickly adjust author and deploy labor at Zimmer.

Non pattern shifted at all.

Certainly reinforces our determination to continue investment in digital technology and supply chain to fortify our competitive advantages.

Let me now update you on our call Brent first let's start with KFC.

You'll see at delivered operating profit of 300 at $27 million system of sales grew 24% KFC continued to rapidly expand.

<unk> 253, New stores, Inc. First quarter.

During Chinese new year, we kept our operations simple to address their heavy foot traffic.

We focused on our furniture product of fried chicken on poker.

Our Golden bucket syndrome gene home, all of the abundant value and resonate well with customers.

With a variety of buckets, we capture at different Patty sizes.

In the off peak period, we brought back half of these signature of beef wrap menu will fun and at crayfish to make them more premium and exciting.

We also launched at the new Chongqing, Chile pulp Broga My line of Shankle of box as part of the offering we ran at special promotion with the popular Asher role playing game changing impact, yes at which was very well received by younger customers.

A leading digital and delivery capabilities enable us to stay agile in this fluid situation.

Despite the recovery in dying delivery remains popular and accounted for 28% of south up 10% compared to a pre COVID-19 level, Inc. First quarter of 2019.

We drove this rapid pace of growth through a hybrid delivery model omni channel marketing in our own Super App at.

Aggregated drives demand.

While consumer is done by our own dedicated riders.

The that this allowed us to capture of delivery demand with sufficient writers.

Which was especially crucial in ensuring that the fed is Chinese new year.

Delivery growth was also enabled by our continuous investment in strengthening our delivery capabilities.

We stopped at trade zone phase ride sharing in 2019 last year, we upgrade of outright on platform to improve zoning rider on routine and monitoring. We also started testing ride sharing between KFC and pizza hut.

This is the first time, we put the platform two of tests during Chinese new year period, and we are pleased with the progress.

Leveraging our digital assets and direct connections without over 219 million members, we were able to shorten the lead time of our marketing campaigns and modify them. So that we can be more responsive to changing market conditions and consumer demand of course.

All of digital infrastructure also allow us to deploy at appropriate surprise and staffing level where needed.

Digitization is essential to operating efficiency as part of all of end to end Digitization initiatives with pilot launched an AI enabled restaurant inventory management to <unk>.

Leveraging historical data reason training and real time inventory levels, that's true improve forecast accuracy for a limited time offer.

Of this enable us to optimize inventory and improved productivity.

Now, let's move on to Pizza hut.

We are encouraged by pizza hut's strong recovery in the first quarter same store sales grew 38% at operating profit reached $60 million.

These results reflect our efforts to improve fundamentals.

Let me provide an update along the four key pillars.

Our product offerings have significantly improved over the past few years.

We have several successful product launches during Chinese new year, such as seven tough platter with C. Boston at stake.

Call colored colorful yeah, Colorado neotype impact.

Flowers shape stuffed crust pizza Soothing squadron pizza and year of the off holiday feast set featuring signature product piece on two new yet.

These products work, great for sharing and was well received by consumers.

In March at Pizza Hut refresh is menu.

Raising 40% of the menu with new upgrade offerings, such as beef Wellington and rose B type of US. We also introduced Portuguese chicken Curry.

Popular dish on the delivery menu to die.

We also have been unlocking the growth of the parents of breakfast and afternoon tea with strength on the menu with new offerings, such as French toast for purpose.

And of three layer T set or afternoon tea time.

Apart from good food, we have also been actively engaging customers both offline and online.

During Chinese new year, we celebrate the festival with consumers by bringing in some of China's intangible cultural heritage such as shadow of Peppertree and paper cutting into our stores.

And then on the digital front, we have been strengthening on membership program and Super apps to engage members and improve customer service.

Our member base exceeded 90 million of income to build at 55 for kind of on total sales up nine percentage points year over year digital ordering increased to over 80% of so from 65 of them a year ago.

As table at the high mobile ordering at became more popular.

We also apply in Digitization and automation of our kitchen to improve operations at.

Part of our multi phased intelligent kitchen project.

We started to rollout an AI enabled two to pace food preparation and provide real time metrics of kitchen performance.

Initial results have shown improved efficiency and customer experience.

The pizza hut strengthening at the luxury takeaway of ready to Cook offerings.

Delivery accounted for 35 at Mt sales, an increase of over 10% from pre COVID-19 level, Inc. First quarter of 2019.

While growing from a small base, we are expanding I'll take away and ready to cook business through menu innovation, and making them more convenient for consumers.

Lastly, we enhanced our store portfolio through a saddle rate of Remodels and new store formats.

Since 2018, we have refreshed nearly half of all pizza hut stores to make them more relevant to our consumer.

This is over 1001 hundreds of stores.

As we promised promised in the 2019 at Investor Day.

So H is now below three at the stores look great.

The new small store format, which includes the hub and spoke model, which is also mentioned in the 2019 rest of day is creating more opportunity for pizza hut expansion at.

Enabling us to capture the growing demand for off premise dining.

All of the 44, new units, we opened in the first quarter of.

Uh-huh in small store format.

I am confident that we will unleash pizza huts growth potential through this combination of much improved fundamentals strong digital capabilities multiple sales channels and rejuvenate at asset.

In summary, we are pleased that all brands react quickly to the fluid market conditions and deliver strong operating profits despite those pressures.

Most importantly, we remain optimistic about our long term growth opportunity in China, We will continue as of Saturday store expansion for our core brands.

So all of emerging brands and enhance end to end Digitization and intelligence of pricing to build a bigger and nimble yum.

China.

While we are optimistic about our future we remain cautious about near term conditions.

Okay channel.

Colby operations like we saw leasing fee, Indiana at constantly mindful that we are not back to normal yet tight.

Heightened public health measures continue to be at daily routine and continue to have a lingering impact on consumer behavior.

Same volume is still well below pre COVID-19 levels.

We are not sitting still on <unk>.

I'm bullish on innovative culture enable us to adjust marketing and operations quickly as things evolve with that I will turn the call over to Andy Andy. Thank you, Joe and Hello, everyone.

Let me now Hawaii at dish.

<unk> detailed follow first quarter financials, and then share perspective on.

On this year's outlook.

Otherwise all percentage changes before the effects of foreign exchange.

Let me first cover our Q1 financial results.

We experienced substantial year over year of growth in the first quarter as we began to lap COVID-19 type of period last year.

Total revenue grew 36% year over year led by same store sales growth of 10%.

New unit contribution and.

Surely fewer temporary store closures.

Because of the volatility induced by the pandemic in 2020, so year on year comparisons are less representative.

Looking at the two year change you have a better sense of how we are trading at back to pre COVID-19 levels.

So we are providing pro forma metrics here for convenience of comparison with 2019.

Same store sales recover to approximately 94% of the first quarter 2019.

Total revenue grew roughly 7% compared to first quarter of 2019.

All of it from new units and consolidation of Suzhou KFC at won't you.

As we discussed on your last earnings call.

On the sell through of couple of weeks what's disrupted.

Surgeons of visual of outbreaks at significantly reduced truckload.

Volume joined the 40 days of Chinese new year period was down approximately 40% year on year and 70% compared to 2019.

These impacts were more pronounced for KFC.

It has more store in the trust of the paper locations.

On a year over year basis, KFC same store sales grew 5%.

Driven by the recovery of sales.

While delivery remains a popular.

On a two year basis sales recovered to approximately 90 focuses at the same store traffic at approximately 87%.

Average ticket roughly 80, 748% versus 2019.

Due to increase in delivery mix.

The respective average ticket.

Of delivery and buy in store.

Please go ahead.

Store sales grew 38% year over year.

Driven entirely by the recovery of trucks.

On a two year basis same.

I was with coverage of approximately 95% led by a 2% increase in traffic.

This is a true testament to the success of the brand.

Achieved in executing is localization.

Unlike KFC the increase in delivery of takeaway mix contributed to lower ticket average versus 2019.

Liberal margin was 18, 7% up eight.

<unk> two last year.

This was mainly driven by sales leverage operational excellence and favorable commodity parts of it.

Cost of sales was 32%, which was 180 basis points lower than last year.

Commodity prices declined by 7% year over year, mainly mainly helped by lower poultry pricing.

The impact was partially offset by investments in promotion to drive traffic.

Cost of Labor was 23, 3% 220 basis on lower than last year.

Sales leverage.

Labor productivity improvements more than offset rate inflation and diminished government subsidies.

Given the labor shortage that we are experiencing we are still actively seeking to hire additional restaurants there.

Occupancy and other was 27, 8%.

Four points lower than last year.

Mainly attributable to sales leverage and savings and other operating costs.

We also received of approximately $6 million in rental reductions in gasoline.

Compared to 2019 restaurant margin was relatively flat.

At <unk> and cost control offset sales leverage investment in value promotions.

An increase of wider cost associated with the rise in delivery volume.

G&A expenses increased 24% year over year, mainly due to a timing shift of government incentives.

Congratulate phase out of COVID-19 related relief and the consolidation of <unk> and Suzhou KFC.

Excluding this impact G&A increased 3%, reflecting our ongoing cost controls.

Operating profit was $342 million compared to 97 million last year.

The increase was mainly driven by sales and restaurant margin improvement how.

Partially offset by the increase from G&A expenses.

Our effective tax rate was 29, 6%.

Net income was $230 million and adjusted net income was $233 million, excluding $60 million mark to market investment loss at.

$249 million up 225% year on year.

Diluted EPS increased $2 53.

This reflects from mature that will issue as part of our secondary listing from the Holdco in September of 2020.

Now, let's turn to the outlook as Joe you look at we are optimistic about our growth opportunities in China.

But we remain cautious about the near term environment.

While the pandemic impact is subsiding.

Be mindful that the pandemic is not over yet.

The full recovery takes time.

We have an uneven and on media recovery path.

We are confronting a couple of we at easier.

First.

Preventive measures.

We remain in effect.

This will have a continuing impact on consumer behavior.

Sporadic outbreaks of women, we mined consumer of the lingering risks.

Social distancing and smaller gatherings may persist for some time.

Dial in operations.

Well below pre COVID-19 levels.

Second close at.

On the spending is cautious.

Government data shows that despite of parent recovery in domestic travel volume during the streaming of holiday weekend in April.

They are willing to travel spending was still down over 40% comparing to creep of debit level in 2019.

Net sales at our transportation location remains well below 2019 levels.

Against this backdrop, we expect it will take time for same store sales to fully recover to pre COVID-19 levels.

We will focus on driving top line growth with compelling value proposition more marketing company.

A lot of innovations.

Digital engagement with consumer but bolt on.

E and off premise occasions.

While necessary these.

Of this initiative.

Will pressure our margins.

Apart from that we face other cost headwinds.

The tailwind of favorable commodity prices in the first quarter will likely gradually subsides.

At this time, we expect posted prices to rebound.

Partially potentially turn into inflationary pressure later this year.

In addition to replacing plastic packaging with equal friendly materials.

We will also invest packaging upgrades.

Delivery and takeaway.

We expect labor cost to increase.

Subsequent quarters.

There are two components to that.

Wage inflation was 2% in the first quarter of minimum wage increases were deferred in certain markets.

We expect wage inflation to pick up from the second half of the year.

Full year range of inflation should stay at mid single digits.

Second <unk>.

Increasing increased hiring.

In the past few quarters, we have been short of partner workers due to COVID-19 related restrictions.

We are working to increase restaurant of staffing levels.

While this will increase.

Training hours and wage expenses.

It's critical for customer services and long term viability.

We have approximately $6 million of temporary relief from the GAAP loss in the first quarter. This.

This was partly due to a timing shift of a non previously acquired in 2020.

We expect to support two tougher all at the year progresses.

As a reminder.

We are lapping over $100 million.

In 2020.

In the second quarter 2020 alone we received of approximately 50, new end use.

Yeah.

Relief.

Some of the investment in technology end to end Digitization and optical infrastructure.

Strengthened our capability and further solidify our competitive position.

But in the near term.

The pressure our margins and operating profit.

Roughly its up we are working diligently to drive same store sales recovery and.

And it's always store expansion.

We are also committed to invest to drive accelerated growth and create value for our shareholders in the long term.

With that I will pass you back to Debbie to start the Q&A Debbie Thanks Sandy.

Now open of course for Crusher in order to give as many people as possible of accounts to ask crusher. Please limit your questions to one at a time operator, please start the Q&A.

Excellent just a reminder, if you wish to ask a question. It is store one to withdraw your question. Please press the pound of Husky once again it is store one thank you.

We have multiple questions in the queue. Our first question is from Brian Bittner from Oppenheimer. Please ask your question Brian.

Thank you.

I hope you all are doing well on staying safe.

Can you help.

The investors in the United States, just better understand who are not in China, better understand what type of consumer trends you.

Youre seeing in your store base that are not located in the transportation hubs I understand the transportation locations are challenged given the transportation trends, but.

Overall, you've already recovered 94% of your pre COVID-19 sales volume, so you're pretty close to a full recovery.

So are you seeing of more clear path to pre COVID-19 sales levels in those markets that are outside of the transportation hubs or is there still of lot of volatility and headwinds related to the pandemic and those more traditional markets.

Thank you Brian.

We are all staying quiet savings Shanghai, China is recovering quite quite smoothly. Despite not completely on yes, let me let me give you.

Our overall picture about the Chinese new year trend and then compare to KFC, both at Pizza hut and out of it.

Specific about the non constipation hump hopefully at that give us.

Some ideas about what's going on here, so let's start with the Chinese new year.

On.

We had a lot of uncertainties before going to the Chinese new year because of the trading was of itself.

Well, what our company has done is true.

Per have quite a few scenarios plans.

So we react quickly.

Adapt to the market condition, the trading picked up during Chinese new year end was robust.

After the Chinese new year, we continue to see some weaknesses in trading at a particular entity in transportation hub.

Outside of transportation hubs to unveil question that dining volume is still well below the pre COVID-19 net cash pre COVID-19 levels. That's why we remind our in line. So that we are not all of them yet.

What can we do we stay agile and we.

We plan for the possible day.

At the Navajo So at that 0.1 interest of point to which as you know.

At <unk> he was at Pizza hut.

We are happy with full of rent recovery.

We go on into Q1 result.

So the resilience and the.

Energy on for Brent.

The sales was disrupted but with our scenario planning.

Year on year same store sales.

For forecast EBITA and I'm, referring to two years from pre COVID-19 level of.

Can see was minus 6%, which is at 94% at that include the impact of the transportation a chunk of patients.

Patient how pizza hut.

Recover to a 95.

On <unk>.

<unk> 2019 Q1.

On without much of the transportation hub in the App store portfolio.

So that gives us that because 2020 the number of the unusual.

And then when we look at the systems sales.

The pizza hut compared to 2019 at still minus too because he's had been non opened at 90 store last year. Although we are picking up from Q1 of can't see system sales recover to a plus 6% was at 2019, because we opened a lot of store last year.

So I hope that gives you a sense that that at it.

We've all without the transportation hub.

The.

Same store sales at seal.

Having a little bit GAAP was at 2019.

<unk> come to the a.

A bit more specific about the Ah.

Trent.

On the trading.

And can you talk about the transfer of patient how business is still 40% at dawn.

On compared to 2020 and Thats the traffic and in terms of sales, it's pretty much in line, although we do slightly better than the traffic number.

And then in terms of city tier.

I'm talking about can see because cash C store cover of 1500 cities in China are over.

Over 1000 factories in China, so at that give a better but a big picture of what's going on here.

The lower tier cities.

Better sales same store sales and a higher tier cities.

Mainly because of higher tier city stores have the element of mix all of transportation hub stores.

And then at the delivery growth is better in lower tier cities.

And at Eastern part of Western Palm, China led the recovery of northern part of North Eastern part of China because of the regional outbreak they have been a bit softer and then weekend on a weekday hour hour traffic is pretty much back to where it needs to be.

Or where we want it to be because we have at a bit more.

Promotion to drive that weekend traffic, which was of pissed off before but now that's true.

Pretty normal and then for the non transportation hub stores.

A J.

Just single out of these SaaS store is about 2% GAAP with the 2019 operating company level. So Brian I hope that gives you a comprehensive view.

Of the of the trading from consumer behavior point of view of that feel quite value of cautious at therefore, we do.

You have to be mindful about the value of that we can pass on to consumer, but that's not the only thing they wanted a tier one new product so.

Other than value, we still launch new product to to make sure at that.

We encourage the customer to come back so I'll pause here on.

Any.

Yes, I just had a couple of things at there Brian.

Brian.

Do you think of you.

For the folks outside of China, I think imports.

Important to keep in mind that we view.

Facing quite of bit of uncertainty and challenges related to COVID-19, so even though.

Same seems to have come down a lot here.

Did halfway of UK regional resurgence at.

At the end of last year at the beginning of this year right. So they have on impact on our first quarter of trading.

So.

And then when we look around.

I think we still have quite a bit of house forensic measures that you're still in place. So that would fuel and then government as a company.

My folks to stay alert.

Not to be alarmed at stay alert.

On the COVID-19 situation and as we look outside of China, and then we have seen a resurgence in.

In some of our other.

Country in Asia, including Japan and <unk>.

More recently the situation in India, so that we might at that.

<unk>.

We're not out of the woods, so still at large funding Charles charge of hats.

Joey mentioned, obviously translate copies of important business. Okay FC Yeah Council of high single digit of the sales.

So that will continue to be sort of like you know.

Charles volume to overcome reached us therefore, we recover SSG pursuit of proof of it.

This level of things.

Same thing for the guidance for a variety of methane in the first quarter.

Traffic was still at about 80 from that.

Level.

Pre COVID-19 levels.

Our delivery business is doing fantastically well.

Very strongly last year I think this year, we're still growing at.

Mid double digit number of right. So.

So that continues to be at bright spot for us.

Compared to pre COVID-19 level, obviously grew more than sales.

I think 67% range so.

So that's sort of like the overall situation going on thank you.

Thank you. Thank you both for the perspective.

Our next telephone question is from Chen <unk> from both of Securities. Please ask your question chip.

Thanks, Terry and and I've got a question on the margin side.

So our same store pizza hut posted pretty strong margins for Q1 this year.

At Myer correct.

On my Tech operations correct.

The highest.

Ever since tool into all.

While we started a revitalization process, so what's our future strategy and when you recall too.

Uh huh.

In terms of balancing margins and same store sales growth is at fab towards faded out.

On the future margin trend of this of hub could be above the level of that we saw during the past few years, while we are in the process of revitalizing pita. Thank you.

Pricing.

This is Andy So let me try to address your question is do you have any follow up.

So I think if you look at pizza.

Pizza Hut, obviously, we are very pleased with the execution there I think over the past couple of quarters that they have demonstrated that they have excuse the true.

From about hedging of program really well on India building on that piece of Lindsay right. So.

I think some of those as we mentioned before obviously improvement I think you've looked at from momentum. We continue to look at that improvement based on the fundamentals that we have laid out forward store.

All of the bottling.

The food.

We also.

On the Digitization program, which will go very well for us in the.

At that makes what we were able to pivot very quickly so.

If you look at of digit number four day without borders.

Screen critical windows, almost flexible set of that.

So.

So I think I think they have.

Yes, good jobs in revitalizing fundamentals.

We see that.

Net recoveries is quite strong, but I think I don't think we can say at the whole company. Okay. Let's say that we are up at wood compared to from.

From COVID-19 level. So that's top priority for <unk> is driving traffic and we're glad that for the first quarter in 2021, we see.

Actually the traffic.

The increase year over year, but also compared to the 2019 level in the first quarter.

So so at the next one is obviously drive the sales sales.

Number.

So so that's do some work there at the thing we will continue to.

Emphasize on life of money.

So you mentioned very on point.

For consumer now or in a day coming out of the impact from COVID-19.

So.

Ken.

Pleased with the progress in cost control executions.

But I think part of it is still not in the bone quality of life with view.

Four of our pizza and of course.

Obviously.

To drive store traffic drive of consumer back to the store and then.

Inboard of full recovery.

In store sales of competitive pre COVID-19 levels.

But I think if you look at our pizza hut some of the improvement will definitely continue.

And some of that has been mentioned for example, as we see the poultry prices sort of holding price as it goes up.

And secondly at.

Apio progresses, we may see.

Inflationary pressure there.

Brian of doing <unk>.

<unk> improvement right.

Assuming from.

<unk> two eco friendly materials, but also investing more into packaging for upgrades for delivery and also particular weight product.

That would also be somewhat of overhang there.

Labor productivity as we have done.

All of our Labor force.

On technologies.

Of the two of the AI.

At April to the rest of our operations.

But some of that.

It's sort of like being due to the labor shortage that we have seen.

I think the second half last year.

<unk> mentioned that we continue to try to resolve that.

Looking into increasing of start up of level make sure that we continue to maintain at high level of customer services.

So long term I believe right.

So as of this at a couple of things and again, if you look at the overall margin from last year, we received $100 million.

From.

Definitely we'll be right. So this year is already facing out of we have $6 million.

In the first quarter at <unk> expect that to continue to phase out.

As of the year progressed.

And also we have some positive obviously some.

<unk> quarterly call.

North of that I think I just want to at two comments. One is we have been very consistent with the past.

Of recovery for Pizza hut same.

At time, we commit with Turner on.

We have.

<unk> always been.

Very clear about our policy, which is sales first profit later and we focus on improving the fundamentals.

Of the business in the last few years and we are grateful that we are seeing the results.

So at that 0.1 0.2 is what is next.

The next is to focus on.

Improving all aspects of the changes that we made in the last few years and demand of changes made to make pizza hut of resilient business model, that's what we want.

Because that's what we have been trying hard to.

To achieve for KFC.

Which is a very resilient business and we want pizza hut to be a resilient business model as well and at least in two aspects. We want to continue one is sales first populated as the pop in the last few years.

Next we want both sales and profit as I mentioned at the.

Locations before south at Vanity profit of Sanity, and we want all of it at both.

Second the second aspect of the risk of that in business model and you can see we have seen increasing building on off premise business.

So now between the delivery and takeaway of the off premise business is over 40% of the business and this is important.

Of course, we're not relying too heavily on dining business.

It's much better to have signing delivery and right now.

Takeaway or ready to Cook.

As well.

You know four pillar four pillar of the business.

Instead of two pillar. So these are two example of resilience that we are looking for thank you at Watson.

Central at jewelry.

Yeah.

Our next telephone question comes from Michelle Cheng from Goldman Sachs. Please ask your question Michelle.

Hi, Joey Andy on my question is about the occupancy on August <unk>.

Multi is that these are Copa has seen.

Savings net of passing quarters. Okay can you give us more color on the breakdown and also more specifically on rental ratio.

Otter like leading restaurant chassis, they have a pretty favorable rental time pulse Colby. So I'm, just wondering that compared with a pre COVID-19 level are we also seeing of.

Good rental saving and how sustainable these on a call savings can be seen in the next few quarters. Thank you.

Michelle. Thanks. This is Andy so regarding your question on <unk> I think at.

We've seen quite a substantial improvement.

Coming from the oil sequence.

<unk>.

Year over year lower than what we one 4%.

Lower than 2019 same period.

Period.

I think as you can see these two number on <unk>.

And of because driven by sales leverage.

So that's the most important factor that's driving that.

One is that if you look at utility there's two things going on there I think over the past few years. So some of the government have reduced <unk>.

Of course to.

Basically we try to improve the business environment and especially during the pandemic. So that also helped.

How long this block of thing.

Maybe end of the year or next year.

One is obviously over the past couple of years, we have tried to improve kitchen automation of operations.

We have mentioned smart utility device that we have installed on some of the store.

Typical seizure so that also lowered on and.

And then.

And then also we mentioned at.

Some of the savings due to rent relief of.

Temporary relief at some of the government relief.

In terms of security payments and whatnot. So so that I think in the first quarter, we still have sort of $6 million. So on all of these combinations.

Help us sort.

I'll conclude at <unk>.

But as a percentage of net sales, but I think of.

So I think some of those uses of carryforward.

But a big part of that would probably.

I have a few of the sales leverage that we sort of.

Yeah.

Yeah. Thank you Andy sure.

Our next telephone question is from Anne Ling from Jefferies. Please ask your question.

Hi, Andy.

Hi, Joey.

Half of questions at all regarding.

Operating day.

Lastly.

It's a balance of margins we have experienced in the first quarter I'm just wondering whether there is any like come on.

Not one off of it so I can all I E.

At catch up because of the sales have been so strong so.

All of the investment that we need to do it but because of the time of time shifting debt on that.

We.

Yeah.

I wanted to also say you know what what should we be expecting in terms of the operating margin in the coming upcoming couple of quarter is that some of the other unless one that we need to play catch up because because like in the first quarter was so good that there are some some of that of course that might have lagged behind.

So that's some of my question I also of a side question is on the delivery side.

If we.

With this asset.

In terms of sharing the.

The rise of trained on Pizza hut and KFC in that case.

In the past we have.

We've talked about a little bit of the margin dilution for the delivery business.

With all of these exercises introducing that at all.

At some point in all of our margin for delivery of business will be at par to the dialing in different about that day.

The sales mix.

Is getting high end high on the delivery side. Thank you.

This is Andy let me try to address your questions about some of the one off and one of them.

Obviously, I think last year, we have received government subsidies and whatnot and then as you mentioned so thats. According to phase out on your first quarter with help of $6 million I think that that will continue to be the trend there of Europe.

Part of that.

For the.

Cost of sales for example.

No.

Well I think I believe a couple of years of.

Horizon.

<unk> net and commodity prices beginning of second half last year, we can see that easing up we've done quite a bit in the first quarter, we see a 7% you'll be of declines ability of poultry prices of comparable.

As you have.

Probably notice that on the news.

See corn prices audits feeding stocked at our.

Price of those other we're already seeing like the floating.

Holding prices.

It goes up both here at.

In China, but also overseas.

Our contract of the lockup, probably one to two quarter.

But as you mentioned, we would see that at <unk>.

<unk> begin to subside as of year progress.

Potentially in line with special week, turning to inflationary pressure.

All of this year.

One is obviously.

We have embarked on the phasing out of pocket so.

And then and then as we see delivery and takeaway as it is increasingly important part of our business. We are also investing into improving the packaging for those operations. So you would part of Odyssey lay of affecting cost would go up as of yet.

Progress as we continue to roll that out.

Uh huh.

But at some labor I think.

Part of that is obviously the labor productivity that we.

<unk> been ongoing for a number of years now if it goes really to to continue to see that level.

Movement from device.

<unk> technologies and <unk>.

To improve at what rush of operations.

I think there's two issues there one is that.

One is that we did experience some labor shortage things lots of things.

On a second half of last year as I mentioned, we tried to rectify that and then try to step up the hiring but I think.

We see what not at the level of debt that we.

We would like to see.

So we will continue to drive that one is of the wage inflation.

At the economy at.

The pick up.

The impact.

Impact of Si.

Our submissions.

The type of restriction by GAAP income of mobility for some of the prime broker, but overall I think the labor market will be getting tighter and tighter and there was slight Lucy on wage inflation how.

We also stepped up.

And that is you.

You have to remember that is compounded for two years right. So some of that does having the way at.

<unk> worked through.

For delivery I think is not always necessary.

It's more complicated story for the margin.

Because we need to look at politically.

<unk>.

Obviously, we have of delivery cost valued at up to us, but we also to see if we can improve our operations inside the restaurant right because of the margin. So if you look at our margin of for example.

Before the pandemic.

We do see that.

Sounds like our margin.

That could be stable.

Despite our our delivery volume of percentage mix of the sales increase from.

<unk>.

Six 6%.

In 2000.

16, two almost spaces.

Almost like 30%.

In 2019.

So we are able to find a way to offset that.

Increasing in.

Youll recall.

We'll continue to do that.

Yes.

That will likely continue to be pressured, but we're trying to find ways.

To offset that.

So thats all of auto I think.

I know we have to deliver very strong probably end.

We're very proud of our team of cost control, but you are right.

Going into the next few quarters.

We're going to see some some headwind in terms of quality.

And goodbye.

Alright.

Hi, I just wanted to add three points to Andy's comment.

In terms of the cost side, we continue to work on it of calls such as the delivery three points of upgrade with variety of PREPA of Gray AI enabled zoning right of routing optimization that helped but what I really really want to point out is <unk> end 0.3. These are the other aspect of the equation.

On two is about the sales upside during peak trading period end.

Peak trading hours.

If we can.

Have enough ride at we actually have more sales upside.

During the peak trading period end trading at.

<unk> is a very good example.

It will be a bit misleading to ourselves and we just look at the cost side. So at that point to 0.3.

All of it.

When Andy said on earlier in the whole at approach at is the hottest approach. It is not necessary that shortfall relative thing that having more store helped us deliver at cost.

At.

At what that way.

Well when we increased our store portfolio of density.

We reduced the average sales.

So all of that leverage.

For example, when we have more store, we can reduce the delivery this day.

Of the Writeup on five kilometers anticipation of a kilometer and that reduced our costs.

So is that it's not only just of course, we have.

Other quite of few aspect that we can do to both increase of sales and to manage their costs and on number has shown that we have we have been able to do the endoscopy. Thank you Ed.

Is any of that it won't add a little bit on.

On Tony's comment two things of one and two is correctly point out.

Incremental incremental sales, but profit margins much higher because of the incremental margin we shouldn't be higher.

Yet at one is that in term of.

The rider.

On the rider.

That would be fine.

Interesting thing that I think we're still looking to see how the dynamics work there.

Hi, Betsy network.

It's enabled by the fact that we run our full of delivery that we have a hybrid model at work with Aggregators.

The traffic and are on the App, but the delivery would manage that operations outside we have dedicated Ryder. So we can continue looking to improvement on the net would you factor the benefits of that so that that maybe a little bit different from the U S west of operators and some of the operating most of the bunch of operator here in China one of each model.

Got it thank you.

Thanks.

Our next telephone question is from lithium <unk> from Morgan Stanley. Please ask your question Lillian.

Alright, Thanks, Hi, Andy and Joey I have actually a one of those falling follow up questions. Because most of the your question on one of onset that's still about the comment that you just made about the low kind of business on the holistic approach so compared to a couple of years ago with delivery of whats still a relatively smaller amount of revenue right now.

As of close to 30% and also at the store network in the lower tier cities at the 10.

In density is actually higher.

Compared to and then on what kind of a margin impact.

To this kind of dynamic changes.

In particular like car delivery, all we know that is still probably it depends on the calculation at probably still marching dilutive, but compared to a couple of years ago or kind of a margin impact of these at that.

Delivery and also lower tiers.

Sure.

As to the margin and at what kind of protection. We can make for the next couple of years will it be all incrementally positive to margin. Thank you.

Okay.

Thank you Ian this is Andy let me take a crack at this and then maybe.

So we have more of an issue at all.

A bit more later.

In terms of delivery I think.

Hello, It's fair to say the delivery of Biogen is dilutive to the overall operations as we mentioned before.

We generally look at the rest of operations politically right. So we have multiple ways of delivering the product to our customer E right take.

Takeaway on delivery.

Is.

It's important to look at obviously.

The rest of our module for us because.

Like E Commerce E Commerce, you don't meet your warehouses and distribution of the consumer food you need to deliver at the consumer at certain times.

To ensure the quality of the food and then.

Sure.

So having a production of restaurant location is almost a month.

If you look at the day.

Delivery delivery have been growing very rapidly.

We believe that this incremental to our overall sales.

No.

And then the other part is that if you look at overall restaurant margin for example.

Paul.

Kathy.

For the pandemic, let's walk of stable, but so is about 18% in 2017 18 19.

And then we are back to <unk>.

Customer level.

In the first quarter this year so at this period.

Obviously delivery has been increasing mix as I mentioned before about delivery was about 11% of our.

That was.

In 2017, and now it's about 30% plus right. So.

So we're able to maintain that margin obviously is at work there's a lot of that will go into it but.

It hasn't been particularly at dilutive true.

The other one is that you could look at for example of the labor cost expenditure for example, therefore.

And therefore of well kept secret for example.

It had been also wanted to be stable. Despite obviously, we continue to see.

Wage inflation in China at <unk>.

Part of that makes me true high single digit level. So if you look at <unk>.

Cost of labor, which including the.

Right of course, there was.

Both.

Ooh 'twenty, 2021%.

It is stable from 2018 to 19, both logically speaking, it's probably like 2020 will.

Total loans.

We want to do it so and then in this year, we are at about 22% so.

So overall I think.

As Joey mentioned.

Non.

Necessary dilutive for us at least on incremental sales come at bringing by delivery.

We actually we have higher margin youll see some of the module level.

Contribution from the additional sales is actually pretty high.

Thank you and I just have one more point of at Lilian.

It can be shipped to two day delivery business actually help our rental percentage.

As well just maybe bring that aimed at equation why.

Because.

If a store is relying too heavily on time business doesn't location cannot be compromised too much has to be it has to be very very good location.

Otherwise you don't get the business.

But when we build a more and more delivery friendly stores.

Relying more on more on delivery we.

We actually open up more opportunity.

Four locations.

At slightly lower range.

And thats not a small deal for us.

So as.

As we expand our store portfolio of moving to us.

Inventory at certainly helped.

Okay. Thank you.

Thanks, a lot of Julian on D.

Distributor.

Yes.

Our next telephone question comes from Christine Peng from UBS. Please ask your question Christine.

Hi management I just have one quick question regarding the outlook provided by the management earlier. So you mentioned about there are still some of our certainties.

In China regarding COVID-19 situation, but having said that we actually are reserved on very strong pickup in the domestic traveling activities, especially going into the labor day holiday. So can you maybe give us more colors in terms of the sequential trend you are preserving.

In China in a posture of around two months at so that investors kind of get a better feeling in terms of what is expectation we should be we should be setting for the upcoming one of two quarters same store sales.

Recovery compared with pre COVID-19 on level. Thank you.

Hi, Christine this is Andy so I think.

You are correct that.

On the wealth of travel volume pick up quite a bit I think this year end, especially the spring festival and potentially go into the labor day.

Holidays, we get.

So that's on overall traffic volume side I think.

But the difference is that the consumer behaviors do remain cautious. So if you look at the trip they take generally shorter trip.

If you look at overall spending level is still down.

A quite significantly probably about 40% of us compared to.

Pre COVID-19 level right. So I.

I think thats to think that we need of separate Greg the tripped up youll take the type of trip that they take maybe different and also the spending levels of different and I think that is.

Two what we offset default right Julian mentioned of January when we see that some from panel like sort of like urge to go out and when they're at holiday right you to relax, but so we see that sometime.

How the sales would be what we saw.

But then this post holiday season sounds like you'll suddenly people which annually.

Still are cautious about the COVID-19 situations.

Situations and then also economy economic situations right. So.

Obviously in two of that within a set of people folks.

So that's what's going on here I think if you look at the overall situation is much better compared to 2020, obviously in terms of of COVID-19 situations, even compared to you know obviously, we but again as we have mentioned before is we need to stay at work not to be alone but to alert the.

The reason is because if you look at in China, we have a mini resurgence.

Both situations.

At the end of last year in early January.

When things come down at I think it's easy for folks to think like everything is back to normal, but but I think we ought to use that with all of it will.

We also I think the what's happening internationally, we would also at the impact on the overall consumer.

A settlement here.

We have seen the situation in India.

Our heart goes out to two.

On the folks in India impacted by COVID-19, it's.

Of course of reminder, for us that we're not of the would we need to.

We expect a recovery of the full recovery could be.

Non linear and on EBIT.

Just not saying I think at our firm belief on this how we operated sales will deepen to narrow different situations and we encourage analysts and <unk>.

Institute of good things start to extract of linearly linear extrapolation.

On.

But that's how we can kind of that's why we say the full recovery from a same store sales takes some time.

Thank you.

And our next question is from Lina Yan from HSBC. Please ask your question.

Hi, Thanks management for the very detailed analysis on your performance.

I have a question regarding the base effect of sales at the traffic hubs I think youre starting to talk about the very negative gross at the traffic hops from second quarter last year. So it has always of being high single digit of yourselves.

From second quarter of last year so.

Would you comment that the base for our Capex hop sales will become a more favorable from second quarter onwards. Thank you.

Yes at likely right. So because we have a big impact obviously.

At the Lockdown I think last year and at beginning in the first quarter that we'll see rebound of traffic over the over the year.

But I think the volume is due significantly below the pre COVID-19 level. So I think on a year over year basis, you will see improvements on a.

Two year period compared to pre COVID-19 level, I think it will take quite a bit of time for a fully recovered.

And then obviously, we're encouraged by the fact that the governments.

On the program to fruition here at China.

Optically com.

Of the resurgence of.

In December and also in.

January period.

So, but I think I think I think it would more impactful for KFC, because you'd have more store in a trusted location at our part is that the international we don't don't forget we of international locations.

International traffic was still pretty much.

Immaterial right right. So.

Until the country.

Over the border and we see enough of travel that will continue to be a big overhang for the chunk of it.

Okay. Thank you very much. So I think every comparison is referred to a two year comparison basis. Thank you.

That's right yes.

There's no further questions at this time I would like to hand, the call back of the speakers for closing remarks. Please continue.

Thank you for joining the call today, we look forward to speaking with you on our next earnings call. This concludes today's call and have a great Day, Inc.

Alright. Thanks.

Thank you all you may all disconnect have a great day goodbye.

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Good day and thank you for standing by welcome to the Yum China's first quarter 2021 earnings conference call. At this time, all participants are in a listen only mode of.

Of the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I'd now like to hand, the conference over to your first speaker today Ms. Debbie Ding. Thank you. Please go ahead.

Thank you operator, Hello, everyone and thank you for joining Yum, China's first quarter 2021 earnings conference call joining us on today's call are all of our CEO Ms Joey Wat and our CFO Mr. Andy before.

Before we get started I'd like to remind you of our earnings call and Investor presentation contain forward looking statements, which are subject to future events and uncertainties. Our actual results may differ materially from these forward looking statements on.

All forward looking statements should be considered in conjunction with our cautionary statement on our earnings release and the risk factors included are free.

Billings with the SEC.

This call also includes certain non-GAAP financial measures you should carefully consider the comparable GAAP measures reconciliation of the non-GAAP, our GAAP measure is including our earnings release.

Today's call includes three sections Joanne will provide an update regarding recent developments at our first quarter 2021 results.

Andy will then cover the financial performance in greater detail. Finally, we will open the call to questions. You can find the webcast of this call on a powerpoint presentation, which contents of operational and financial information for the quarter, our IR web site.

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

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

Our first quarter results demonstrate the resilience of Yum China.

We delivered 342 million, Inc. Operating profit since.

System sales grew 34% year over year at same store sales recovered with 10% growth.

We accelerated our store expansion opening 350, new stores in the quarter.

First quarter of trading was adversely affected by the resurgence of COVID-19 outbreak and tightened public health measures the.

The impact was particularly pronounced in northern China, where cases spike and in transportation locations due to sharply lower passenger volumes.

I would like to say on a 400000 plus employee and riders for their contributions during this difficult period.

Many of them been non returned to their hometown to celebrate of holiday with their family is that serving our customers and communities.

We delivered these strong results with the dedication of the agility of our people.

The pandemic has introduced volatility and uncertainty to our trading pattern.

Our team acted and reacted nimbly to changing conditions.

By planning for a variety of possible situations and deploying resources, firstly, we overcome operational challenges.

Partnering with our suppliers and through inventory and production planning our in house supply chain manage complexity and potential disruptions to fulfill the demand of our 10 thousands of our store network.

Our operations team and ensure the best possible level of restaurants staffing and deliver on delivery riders.

Our operational effectiveness facilitated by our digital capabilities.

Amidst of fluid situations, we were able to quickly adjust of us and deploy labor at demand pattern shifted at certainly reinforces our determination to continue investment in digital Technology Enterprises, Inc to fortify our competitive advantage.

Let me now update you on our core brands.

Let's start with KFC.

You can see at delivered operating profit of $327 million system of sales grew 24% KFC continued to rapidly expand.

Opening 253, new stores in the first quarter.

During Chinese new year, we kept our operations simple to address their heavy foot traffic.

Focused on our signature products of fried chicken on poker.

Our Golden Buck at Cintron genome.

Albert abundant value and resonate well with customers.

We have a variety of buckets, we capture at different pack sizes.

And on off peak period, we brought back KFC signature beef wrap menu will fund and at great pace to make them more premium and exciting.

We also launched at the new Chongqing, Chile pop Broga Mila assay on Gopal.

As part of the offering we ran at special promotion.

The popular Azure role playing game changing impact, yes end, which was very well received by younger customers.

Our leading digital and delivery capabilities enable us to stay agile in this fluid situation.

Despite the recovery in dying delivery remains popular and accounted for 28% of south.

At 10% compared to a pre COVID-19 level, Inc. First quarter of 2019.

We drove this rapid pace of growth through a hybrid delivery model omni channel marketing in our own Super App at.

An aggregated drives demand.

While consumer is done by our own dedicated riders.

This allowed us to capture of delivery demand with sufficient riders.

Which was especially crucial in ensuring the success this Chinese new year.

Delivery growth was also enabled by our continuous investment in strengthening our delivery capabilities.

Start at trades on phase ride sharing in 2019 last year, we upgrade our right of platform to improve zoning rider on routine and monitoring. We also started testing ride sharing between KFC and pizza hut.

This is the first time, we put the platform to test during Chinese new year peak period, and we are pleased with the progress.

Leveraging our digital assets and direct connection without over 290 million number we were able to shorten the lead time of our marketing campaigns and modify them. So that we can be more responsive to changing market conditions and consumer demand of course.

All of digital infrastructure also allow us to deploy at appropriate surprise and staffing level where needed.

Digitization is essential to operating efficiently as part of our end to end Digitization initiatives with pilot launched an AI enabled restaurant inventory management to leveraging historical data <unk> on tray and real time inventory levels led to improve.

Forecast accuracy for a limited time offer.

This enable us to optimize inventory and improved productivity.

Now, let's move on to Pizza Hut, we are encouraged by Pizza hut strong recovery in the first quarter same store sales grew 38% at operating profit reached $60 million.

These results reflect our efforts to improve fundamentals let.

Let me provide an update along the four key pillars.

But our product offerings have significantly improved over the past few years.

We have several successful product launches during Chinese new year, such as seven tough platter, we see by mistake.

Now current Colorado, Yes calendar impact of <unk>.

Flowers shaped stuffed crust pizza drinking water and pizza and year of the of holiday fee set featuring signature products based on.

On junior yes.

These products work, great for sharing and was well received by consumers.

In March at Pizza Hut refresh is menu.

Raising 40% of the menu with new upgrade offerings, such as beef Wellington and Roes be capex.

Also introduced Portuguese chicken Perry.

Popular dish on the delivery menu to die.

We also have been unlocking the growth of parish of breakfast and afternoon tea, we strengthened our menu with new offerings, such as French toast for purpose.

And of three layer chief at or afternoon tea time.

Our platform we.

We have also been actively engaging customers at both offline and online.

During Chinese new year, we celebrate our first of all with consumers by bringing in some of China intangible cultural heritage such as shadow of Peppertree and paper cutting into our stores.

And then on the digital front, we have been strengthening our membership program and Super App to engage members and improve customer service.

Our member base exceeded 90 million income to build at 55 is now on total sales up nine percentage points year over year digital ordering increased to over 80% of ourself from 65 of them a year ago.

As table side mobile ordering became more popular.

We are also applying digitization and automation of in our kitchen to improve operations at.

Part of our multi phased intelligent kitchen project, we started to rollout an AI enabled to co pays preparation and provide real time metrics of kitchen performance.

Initial results have shown improved efficiency and customer experience.

Pizza hut is strengthening as the luxury takeaway in ready to Cook offerings.

Delivery of kind of all 35 announced sales an increase of over 10% from pre COVID-19 level, Inc. First quarter 2019.

While growing from a small base, we are expanding all take away in ready to cook business through menu innovation, and making them more convenient for consumers.

Lastly, we enhanced our store portfolio through a thought of rate of Remodels and new store formats.

Since 2018, we have refreshed nearly half of all pizza hut stores to make them more relevant to our consumer.

This is over 1100 stores.

As we promise promise in <unk>.

2019 at Investor Day at.

Store H is now below forget the stores look great.

The new small store format, which includes the hub and spoke model, which is also mentioned in the 2019 Investor day is creating more opportunity for pizza hut expansion at.

Enabling us to capture the growing demand for off premise dining.

All of the 44, new units, we opened in the first quarter of.

Uh-huh in small store format.

I am confident that we will at least pizza huts growth potential through this combination of much improved fundamentals strong digital capabilities multiple sales channels and rejuvenate of asset.

In summary, we are pleased that our brands react quickly to the affluent market conditions and deliver strong operating profit despite those pressures.

Most importantly, we remain optimistic about our long term growth opportunity in China. We will continue at a SATA range store expansion for our core brands grow our emerging brands and enhance end to end digitization and intelligence of pricing to build a bigger and nimble.

China.

While we are optimistic about our future we remain cautious about near term conditions. Okay.

Colby operating like we saw lease on state Indiana.

Constantly mined at that we are not back to normal yet.

And public health measures continue to be at daily routine and continue to have a lingering impact on consumer behavior.

<unk> volume is still well below pre COVID-19 levels, but we are not selling steel our nimble and innovative culture enable us to address marketing and operations quickly as things evolve with that I will turn the call over to Andy Andy. Thank you, Joe and Hello, everyone.

Let me now provide additional details on our first quarter financials, and then share perspective on this year's outlook.

Unless noted otherwise all percentage changes at before the effects of foreign exchange let.

Let me first cover our Q1 financial results.

We experienced substantial year over year of growth in the first quarter as we began to lap COVID-19 impact of period last year.

Total revenue grew 36% year over year led by same store sales growth of 10%.

New unit contribution and substantially fewer temporary store closures.

Because of the volatility induced by the pandemic in 2020, so year on year comparisons are less representative.

Looking at the two year change give a better sense of how we are trending back to pre COVID-19 levels.

So we are providing pro forma metrics here for convenience comparison with 2019.

Same store sales recover to approximately 94% of the first quarter 2019.

Total revenue grew roughly 7% compared to first quarter of 2019.

From new units and consolidation of Suzhou KFC at launch.

As we discussed on your last earning call.

The sales recovery was disrupted by the resurgence of regional outbreaks and significantly reduce travel.

Volume joined the 40 days of Chinese new year period was down approximately 40% year over year and 70% compared to 2019.

These impacts were more pronounced for KFC.

Have most of in the transportation locations.

On a year over year basis, KFC same store sales grew 5% driven by the recovery of <unk> sales, while delivery remains a popular.

On a two year basis sales recovered to approximately 94% grew at the same store traffic at approximately 87%.

Average ticket roughly 80, 748% versus 2019.

Due to increase in delivery mix.

The respective average ticket.

Of delivery and buy in womenswear.

Please go ahead of same store sales grew 38% year over year.

Driven entirely by the recovery of traffic.

On a two year basis.

Sales with coverage of approximately 95% led by a 2% increase in traffic.

This is a true testament to the success of the brand.

Has achieved in executing is localization.

Unlike KFC the increase in delivery and takeaway mix contributed to lower ticket average versus 2019.

Gross margin was 18, 7% up eight points compared to last year.

This was mainly driven by sales leverage operational excellence and favorable commodity pricing.

Cost of sales was 32%, which was 180 basis points lower than last year.

Commodity prices declined by 7% year over year, mainly mainly helped by lower poultry pricing.

The impact was partially offset by investments in promotion to drive traffic.

Cost of Labor was 23, 3% 220 basis on lower than last year.

Sales leverage and labor productivity improvements more than offset rate inflation and diminished government subsidy.

Given the labor shortages that we are experiencing we are still actively seeking to hire additional restaurants there.

Occupancy and other.

Was 27, 8%.

Four points lower than last year, mainly attributable to sales leverage and savings and other operating costs.

We also received of approximately $6 million in rental reductions in gasoline.

Compared to 2019 restaurant margin was broadly flat.

Productivity gains and cost control offset sales leverage investment in value promotions and increased wider quarter associated with the rise in delivery volume.

G&A expenses increased 24% year over year, mainly due to a timing shift of government incentives.

Congratulate phase out of COVID-19 related relief.

Consolidation of loans <unk> loans in Suzhou KFC.

Excluding this impact G&A increased 3%, reflecting our ongoing cost controls.

Operating profit was $342 million compared to 97 million last year.

The increase was mainly driven by sales and restaurant margin improvement, partially offset by the increase from G&A expenses.

Okay.

Our effective tax rate was 29, 6%.

Net income was $230 million and adjusted net income was $233 million, excluding $60 million Mark to market investment loss, it was $249 million up 225% year on year.

Diluted EPS increased $2 53.

This reflects from ensure that work issue as part of a secondary listings at the Holdco to September of 2020.

Now, let's turn to the outlook.

So you look at we are optimistic about our growth opportunities in China.

But we remain cautious about the near term environment.

While the pandemic impact is subsiding.

Must be mindful that the pandemic is not over yet.

Therefore recovery takes time.

With an uneven end on linear recovery path.

We are consulting on a couple of we are this year.

First <unk>.

<unk> measures.

Remain in effect.

This will have a continuing impact on consumer behavior.

Sporadic outbreaks of women, we mined consumer of the lingering risks.

Social distancing and smaller gatherings may persist for some price.

Dial in locations are still well below pre COVID-19 levels.

Second consumer spending is cautious.

Government data shows that despite of parent recovery in domestic travel volume during Ching Ming holiday weekend in April.

Related travel spending was still down over 40% comparing to create pandemic level in 2019.

In fact sales at our transportation location remains well below 2019 levels.

Against this backdrop, we expect it will take time.

Same store sales to fully recover.

COVID-19 levels.

We will focus on driving top line growth with compelling value proposition more marketing campaigns.

All of our innovations.

And digital engagement with consumer for bolt on.

E and off premise occasions.

While necessary this.

Of this initiative.

Will pressure our margin.

Apart from that we face other cost headwinds.

The tailwind of favorable commodity prices in the first quarter will likely gradually subside.

At this time, we expect posted prices to rebound and partially potentially turn into inflationary pressure later this year.

In addition to replacing plastic packaging with eco friendly materials.

We will also invest packaging upgrades for delivery and takeaway.

We expect labor cost to increase.

Sequential quarters.

There are two components to that.

Wage inflation was 2% in the first quarter of minimum wage increases were deferred in certain markets.

We expect wage inflation to pick up from the second half of the year.

Full year range of inflation should stay at mid single digits.

Second.

Increasing increased hiring.

In the past few quarters, we have been short of partner workers due to COVID-19 related restrictions.

We're working to increase restaurant staffing levels.

While this will increase.

Training hours and reach of expenses is critical for our customer services and long term viability.

We have approximately $6 million of temporary relief from the government at low locked in the first quarter.

This was partly due to a timing shift of a non previously applied in 2020.

We expect this supports to taper off at the year progresses.

As a reminder.

We are lapping over $100 million in 2020.

In the second quarter 2020 alone we received of approximately 50, new end use.

Dollars.

Relief.

Some of the investment in technology end to end at utilization and operational infrastructure.

Strengthen our capability and further solidify our competitive position.

But in the near term this will pressure our margins and operating profit.

Wrapping up we are working diligently to drive same store sales recovery.

And it's always store expansion.

We are also committed to invest to drive accelerated growth and create value for our shareholders in the long term.

With that I will pass you back to Debbie to start the Q&A Debbie Thanks Sandy.

Now open of course for crusher to order to give as many people as possible of accounts to ask crusher. Please limit your questions to one at a time operator, please start the Q&A.

Excellent just a reminder, if you wish to ask a question. It is store one to withdraw your question. Please press the pound of Husky once again it is store one thank you.

We have multiple questions in the queue. Our first question is from Brian Bittner from Oppenheimer. Please ask your question Brian.

Thank you.

I hope you all are doing well on staying safe.

Can you help.

The investors in the United States, just better understand who are not in China, better understand what type of consumer trends you.

Youre seeing in your store base that are not located in the transportation hubs I understand the transportation locations are challenged given the transportation trends, but.

Overall, you've already recovered 94% of your pre COVID-19 sales volume, so you're pretty close to a full recovery.

Are you seeing of more clear path to pre COVID-19 sales levels in those markets that are outside the transportation hubs or is there still of lot of volatility and headwinds related to the pandemic and those more traditional markets.

Thank you Brian.

We are all staying quiet savings Shanghai, China is recovering.

Recovering quite quite smoothly, despite not completely on yet.

Let me, let me give you.

Overall picture about the Chinese new year trend and then compare the KFC versus pizza hut and there have been specific about the non constipation Hum hopefully at that give us.

Some ideas about what's going on here, so let's start with the Chinese new year.

<unk>.

We have a lot of uncertainties before going to the Chinese new year because of the trading was of itself.

Well, what our company has done at <unk>.

Payer have quite a few scenarios plans.

So we react quickly and we adapt to the market condition. The trading picked up during Chinese new year end was robust but.

After the Chinese new year, we continue to see some weaknesses in trading, particularly in transportation hub.

Outside of transportation hubs to NGL question that dining volume is still well below the pre COVID-19 net cash.

Pre COVID-19 level, that's why we remind our investors that we are not all of them yet.

What can we do we stay agile.

We plan for the possible dinar.

Scenario so at that 0.1 in terms of point of two which as you know.

At <unk> he was at Pizza hut.

We're happy with both of our brands recovery.

We go on to Q1 results.

So the resilience and the energy.

Brent.

The sales was disrupted with the scenario planning that you.

Year on year same store sales.

For forecast EBITA and I'm, referring to two years from pre COVID-19 level.

Cassie was minus 6%, which is at 94% at that include the impact of the transportation of patient how pizza hut.

Recover to a non.

<unk> 95.

Compared to 2019 Q1 on.

Without much of the transportation hub in India store portfolio.

So that gives us at because 2020 at a number of unusual.

And then when we look at the system sales.

Yeah.

The pizza hut compared to 2019 at still minus two because of a few have been non open that many stores last year, although we are picking up the cure of.

You can see our system sales recover to plus 6% versus 2019, because we opened a lot of store last year.

So I hope that gives you a sense that that at.

With all without the transportation hub.

The same.

Same store sales at seal.

Having a little bit GAAP was at 2019.

Come to the a.

A bit more specific about the so at the trend in end and trading.

You know Andy talk about the transportation hub business is still 40%.

Non compared to 2020 and Thats the traffic in terms of sales is pretty much in line, although we do slightly better than the traffic number.

And then in terms of city tier.

I'm talking about cash EBITDA, Cassie store count of 1500 cities in China.

<unk>, we're not an advantage in China, so at that give a better but a big picture of what's going on here.

Lower tier cities.

We have better sales.

Myself and the higher tier cities.

Mainly because the higher tier city stores.

At.

Element of mix all of transportation hub stores, and then at the delivery growth.

Is better in lower tier cities.

And the eastern part of Western Palm, China led the recovery in northern and northeastern part of China.

Most of the regional outbreak day.

<unk> had been a bit softer and then we get on a weekday hour hour traffic is pretty much back to where it needs to be.

For where we wanted to be because we have at a bit more.

Promotion to drive that weekend traffic, which was of pissed off before but now that's true pretty normal and then for the non transportation hub stores.

At <unk>.

Just single out of these SaaS store.

It is about 2% GAAP with the 2019 on pre company level. So Brian I hope that gives you a comprehensive view.

Of the of the trading from consumer behavior point of view of that feel quite value of cautious at therefore, we.

You have to be mindful about the value that we can pass on to consumer, but that's not the only thing they want the tier one new product so.

Other than value, we still launched new product too to make sure at that.

We encourage the customer to come back so I'll pause here on.

On any.

Yes, I'd say a couple of things at there.

Brian.

Moving to you I think.

For the folks outside of China, I think is important to keep in mind that with you.

Facing quite of bit of uncertainty and challenges related to COVID-19, so even though it.

Thing seems to have come down a lot here.

We did have a regional resurgence at the end of.

Last year at the beginning of this year right. So they have on impact on our first quarter of trading.

So.

And then when we look around.

I think we still have quite a bit of health preventive measures that you're still in place. So that was fuel and governance of putting to remind folks to stay alert.

Not to be alarmed at stay alert.

On the COVID-19 situation and as we look outside of China, and then we have seen the resurgence in.

In some of our other.

Country in Asia, including Japan.

And more recently the situation in India, so that we might like.

Like.

We're not out of the woods so still at.

At a large funding China charge of hats.

Joe You mentioned, obviously, China paper copies of important business for KFC at Council of high single digit of the sales.

So that will continue to be sort of like you know.

Challenge for them to overcome reached at fully recover SSG compared to the pre COVID-19 level.

Same thing for the guidance for EBITDA and nothing in the first quarter.

Perfect.

Still at 87% level type of proof.

At level, our delivery business is doing fantastically well right with all grew very strongly last year I think this year will still grow at.

Mid double digit number of right. So.

So that continues to be at bright spot for us.

Pre COVID-19 level, obviously grew more than <unk>.

I think 67% range.

So that's sort of like the overall situations I can think of.

Thank you. Thank you both for the perspective.

Our next telephone question is from Chen <unk> from both of Securities. Please ask your question.

Thank you of jewelry and I've got a question on the margin side.

So same store pizza hut posted pretty strong margins for Q1. This year on in fact at Myer corrected by my calculation is correct it should be.

At the highest <unk> ever.

Ever since tool into all of.

While we started with <unk>.

Our collaboration process, so with our future strategy would you recall too.

Peter Haag.

In terms of balancing margins and same store sales growth is it fair to say at a.

The future marketing from of Pizza hut could be above the level of that we saw during the past few years, while we are in the process of revitalizing pita. Thank you.

This is Andy So let me let me try to address a question on FTE of so you have any.

All of them.

So I think if you look at.

Pizza Hut, obviously, we are very pleased with the execution there I think over the past couple of quarters at they have demonstrated that they have excuse me.

From about hedging of program really well on India building on basketball Lindsay right. So.

I think some of those as we mentioned before obviously improvement I think you've looked at on momentum. We continue to look at got improvement based on the fundamentals that we have laid out default rate of store.

All of the bottling.

The food.

We also.

On the Digitization program, which will go very well for us in the.

At that makes what we were able to pivot very quickly so.

If you look at of digit number four at without borders.

<unk> claimed critical right now at almost flexibility instead of that so.

So I think I think they have.

Good job in revitalizing fundamentals.

We see that recovery is quite strong, but I think I don't think we can say at the whole company kind of let's say that we're up at wood compared to feel free.

True kovac level. So that's top priority for <unk> is driving traffic and we're glad that for the first quarter in 2021, we see.

Actually the traffic.

Increased slightly year over year, but also compared to the 2019 leveling of first quarter.

So the next one is obviously drive the sales sales.

Number.

So there is still some work there at the thing we will continue to.

Emphasize on life of money.

So you mentioned by end point for consumer now in a net.

On the SA coming out of the impact from COVID-19.

So.

Again, we're pleased with the progress in cost control executions.

But I think half of it is still not the number one priority for us with deal flow.

The bulk of our pizza.

Great.

To drive store traffic drive of consumer back to the store and then Inc.

Import of full recovery.

So same store sales of competitive pre COVID-19 level.

But I think if you look at our pizza hut some of the.

Bruce Lee will definitely continue.

And some of that as we mentioned before for example, as we see the poultry prices kind of holding prices are going up.

At that in the second half right at the peak.

Year progresses, we May see Inc.

Question on refresh of their.

O'brien of doing packaging improvements right.

Listening from.

Perfect to eco friendly materials, but also investing more into packaging for upgrades for delivery and also particular weight product.

That would also be somewhat of overhang there.

Labor productivity as we have been.

A lot of late.

Using technologies.

The two of AI.

We've been able to.

The restaurant operations.

But some of that sort.

Due to the labor shortage that we have seen.

I think the second half last year, we have mentioned that we continue to try to resolve that we are looking.

Booking into increasing of stock company level make sure that we of course, you to maintain at high level of customer services.

So from the long term viability.

So as of this at a couple of things and then again if you look at the overall margin from last year, we received $100 million from capital.

<unk> relief right. So this year is already facing out of we have $6 million.

In the first quarter at news and expect that to continue to phase out.

As of the April Brett so on.

So we have some positive and then obviously some headwinds in terms of margin.

On the call.

North of that I think I just want to at to comment one is we have been very consistent with the past.

Of recovery for Pizza hut same.

At time, we commit with turnaround.

We have oh.

Always being at.

But very clear about our policy, which is sales first profit later and we focus on improving the fundamentals of the.

Business in the last few years and we are grateful that we are seeing the results.

So at that 0.1 0.2 is what is next.

The next is to focus on.

On improving all aspects of the changes that we may end of last CBS and demand of changes made to make pizza hut of resilient business model, that's what we want.

Because that's what we have been trying hard to.

To achieve for KFC.

Which is a very resilient business and we want pizza hut to be resilient business model as well and at leasing to ask that we want to continue one is sales first populated as the pop in the last few years.

Next we want both sales and profit as I mentioned at the.

Acacia therefore, south at Vanity profit of sanity, and we want a bit of both.

Second the second aspect of the rest of it in business model.

Can see we have been increasing and building on off premise business.

So now between the delivery and takeaway of the off premise business is over 40% of the business and this is important.

Of course, we are not relying too heavily on signing of this month.

At much better to have signing delivery and right now.

Takeaway or ready to Cook.

<unk> as well.

For pillar four pillar of the business.

Instead of two pillar. So these are two example of resilience that we are looking for thank you at all attend.

Central at jewelry.

Our next telephone question comes from Michelle Cheng from Goldman Sachs. Please ask your question Michelle.

Hi, Joey Andy All of my question is about the occupancy on August <unk>.

We actually of multi is that these are Paul Farr has seen.

Sure.

Savings net of passing quarters. Okay can you give us more color on the breakdown and also more specifically on rental ratio.

Otter like leading restaurant chassis and they have a pretty favorable rental time pulse Colby. So I'm just wondering that company always know pre COVID-19 level are we also seeing of.

Good rental saving and how sustainable these all of that cost savings can be seen in the next few quarters. Thank you.

Michelle Thanks.

Andy So.

Moving on your question on <unk>, I think Youre right were seeing quite a substantial improvement.

Coming from the oil sequence.

10%.

Year over year lower than what we one 4%.

Lower than 2019 same period to.

Period.

I think as you can see these two number on <unk>.

And of because driven by sales leverage.

So that's the most important factor that's driving that.

One is that if you look at utilities as two of things going on there I think over the past few years. So the government have reduced <unk>.

Of course to.

Basically we try to improve the business environment and especially during the pandemic. So that also helped.

How long has lots of things.

Maybe end of the year or next year.

One is obviously over the past couple of years, we have tried to improve our kitchen operations of operations.

We have mentioned smart utility device that we have installed on some of the store.

A simple procedure, so that also lower than that.

And then.

And then also we mentioned at <unk>.

Some of the savings due to rent relief of.

Temporary relief at some of the government relief.

Income from security payments and whatnot. So so that I think in the first quarter, we still have sort of $6 million. So all of these combinations.

Help us sort.

I'll conclude our OTR.

But as a percentage of sales, but I think.

So I think some of those as a carryforward.

But a big part of that would probably.

I have a few of the sales leverage that way.

Yeah.

Yes, Thank you Andy sure.

Our next telephone question is from Anne Ling from Jefferies. Please ask your question.

Okay, Hi, Andy Hi, Joey.

Half of questions at all regarding.

The operating day.

Lastly at <unk>.

I suppose at margins that we have experienced in the first quarter I'm just wondering whether there is any like come on.

Not one off of it.

At catch up at all because of the sales have been so strong. So there are some of the investments that we need to do it but because of the time of time shift on that.

We.

I mean, yeah the <unk>.

I want to also say you know what what should we be expecting in terms of the operating margin in the coming upcoming couple of quarter is that some of the other investment that we need to play catch up because because like in the first quarter was so good that day awesome. Some of the of course that might have lagged behind.

So some of my question that also aside question is on the delivery side.

If we were.

With this asset.

In terms of sharing.

On the right as you know between on Pizza hut and KFC in that case.

In the past we have.

We've talked about a little bit of the margin dilution for the delivery of business.

With all of these exercises or do think that at all.

At some point in all of our margin for delivery of business will be at par to the dialing in different the fact that the the.

The sales mix at all.

It is getting higher and higher on the delivery side. Thank you.

This is Andy let me try to address your questions about some of the one off in one of them. So obviously I think.

Last year, we have received government subsidies and whatnot and then as you mentioned, so thats going to phase out on your first quarter with help of $6 million I think that that will continue to be the trend there on your part.

Is that.

For the.

Cost of sales for example.

We're at.

I think I believe a couple of years of.

<unk> income poking.

<unk> net and commodity prices beginning of second half last year, we can see that easing up we benefit quite a bit.

The first quarter, we see a 7% year over year declines because of the poultry prices of comparable.

But as you.

Probably notice that on the news.

See corn prices at speeding stocked at.

Price is going up we're already seeing like the falling prices.

It goes up over here at China, but also overseas.

Our contract of the lockup, probably one to two quarter I have time.

But as you mentioned, we would see that tailwind beginning to subside as of year progress.

Potentially in line with especially turning to inflationary pressure later on this year.

The other one is obviously.

We have embarked on.

The patient out of pocket.

<unk>.

And then and then as we see delivery and takeaway as it is increasingly important part of our business. We are also investing into improving the packaging all of those operations. So you would part of Odyssey way of attacking costs would go up at.

As of year progresses.

We continue to roll that out.

Sure.

But from Labor I think.

Part of that is Neil obviously of labor productivity.

We have been ongoing for a number of years now.

As that goes we need to to continue to see that level will improve.

Lynn.

<unk>, providing new technologies in <unk>.

To improve at what rush of operations.

I think as to each of their one is that.

One is that we did experience some labor shortage since lots of things.

And on second half of last year as I mentioned, we tried to rectify that and then try to step up the hiring but I think of.

Not at the level of debt that we do from a licensee.

So we will continue to drive that the other one is of the wage.

Inflation.

At the economy at.

Of the pick up.

Eight of them impact.

Impact of Si.

Our submissions.

The price of restriction by GAAP income of mobility for some of the prime broker, but overall I think the labor market will be getting tighter and tighter.

You can see on wage inflation on.

How should we also stepped up.

And that is.

So you have to remember that is compounded for two years right. So so that does clear headwind at.

Walk through.

For delivery I think is not always necessary.

It's more complicated story for the margin.

Because we need to look at Holistically.

Hum.

Obviously, we have of delivery cost valued at up to us, but we also to see if we can improve our operations inside the restaurant margin.

On margins. So if you look at our margin on for example.

Before the pandemic.

You see that.

Sounds like <unk> margin.

What could be stable.

Despite our our delivery volume of percentage mix of sales in <unk>.

<unk> from Citi.

<unk>.

Six 6%.

In 2016.

<unk> two almost spot on.

Almost like 30%.

In 2019.

So we are able to find a way to offset that.

Increasing you'll recall.

We will continue to do that at <unk>.

But.

That will likely continue to be pressured, but what we're trying to find ways.

To offset that.

So thats all of auto I think.

I know we have to deliver very strong probably and we're very proud of our team of cost control, but you are right going.

Going into the next few quarters.

Youre going to see some some headwind in terms of cost et cetera.

And alright.

Alright.

Hi, I just wanted to add three points to Andy's comment.

In terms of the cost side, we continue to work on it of calls such as the delivery of three zero of upgrade with variety of PREPA of great AI enabled zoning right of routing optimization to help but what I.

We really want to point out is <unk> end 0.3. These are the other aspect of the equation.

0.2 is about the sales upside during peak trading period end.

Trading hours.

If we can.

Have enough ride at we actually have more sales upside.

During the peak trading period end trading and Chinese new at a very good example, so at.

It will be a bit misleading to ourselves and we just look at the cost side, so at that point to point.

Three do you think about it.

When when Andy said earlier at the holistic approach at is the hottest approach is not necessary that shortfall relative thing that having more store helped us deliver at cost.

At what that way.

Well when we increased our store portfolio of density.

We reduced the average circle of the leverage at this point.

Back on when we have more store, we can reduce the delivery this day.

Of the Writeup on five kilometers anticipation of a kilometer and that reduced the cost.

Is that it's not only just of course, we have a.

Other quite of few aspect that we can do to.

To both increase the sales at.

And to manage their costs and on number has shown that we have we have been able to do that in Alaska. Thank.

Thank you Ed.

Is any of that it won't add a little bit on volume.

At Joey's comment two things of one is to each of correctly point incremental incremental sales of profit margins much higher opposite of incremental margins, we shouldn't be higher.

Yet at one is that in terms of.

The rider.

Net would be fine.

Interesting thing that I think we're still looking to see how the dynamics work right.

At high density networks.

It's enabled by the fact that we run our full of delivery that we're aware of a hybrid model at work with Aggregators.

The traffic at our own app, but at the delivery, we manage that operations outside we have dedicate Ryder. So we can continue looking to improvement on the net would be factor the benefits of that so that that maybe a little bit different from the us best of operator than some of the operate most of the cash operator here in China one of them.

Model.

Got it thank you.

Thanks.

Our next telephone question is from ILUVIEN Lal from Morgan Stanley. Please ask your question Lillian.

Alright, Thanks, Hi, A&D and Joey I have actually a one of golf ball on follow up questions. Because most of the your question on one of onset that's still about the comment that you just made about the low kind of business on the holistic approach so compared to a couple of years ago with delivery of which are still at relatively smaller amount of revenue right now.

As of close to 30% and also the store network in the lower tier cities.

Intensity, it's actually higher.

Compared to and then on what kind of a margin impact.

This kind of dynamic changes.

Delivery and also lower tiers.

Store.

Changes to the margin and at what kind of projects and we can make for the next couple of years will it be all incrementally positive to margin. Thank you.

Okay.

Thank you Ian this is Andy let me take a crack at this end then maybe.

So we have more of issue at all.

A little bit more later.

In terms of delivery I think is low it is fair to say that.

The delivery of Barton is dilutive to the overall operations as we mentioned before.

We generally look at the rest of operation Holistically. So we have multiple way of delivering the product to our customers Titan Inc. Right takeaway on delivery now is from.

Once you look at obviously.

The rush of module for us because.

E Commerce E Commerce, you don't meet your warehouses and distribute to the consumer food you need to deliver at consumer at certain times price to ensure the quality of the food and then.

Section.

So having a production of western on location is almost a month.

If you look at the <unk>.

Delivery of it we would have been growing very rapidly I think.

We believe that this incremental to our overall sales.

No.

And then the other part is that if you look at overall restaurant margin for example.

Four.

Kathy.

For the new of pandemic, let's walk of stable, but so is about 18% in 2017 18 19.

And then we are back to though.

Customer level.

In the first quarter this year, so all through this period.

Obviously delivery has been increasing mix as I mentioned before.

Delivery was about 11% of all.

<unk> sales.

No.

In 2017, and now it's about 30% so.

So we're able to maintain that margin obviously is hard at work.

A lot of that will go into it but.

It hasn't been particularly dilutive to.

The other one is that you could look at for example at the labor cost expenditure for example.

Therefore for KFC cyclic simple.

It had been also wanted to be stable. Despite no oddity, we continue to see.

Wage inflation in China at <unk>.

Of our pandemic material of the high single digit level right. So if you look at KFC.

Cost of labor, which including the wider.

Wider call Sir.

About.

22021%.

It is stable from 2018 and 19, both logically speaking from <unk>.

So you were 21, 2021% right. So and then in this year, we at about 22% so.

So overall I think.

As Joey.

So he mentions.

It is not.

Necessary dilutive for us at.

Of these incremental sales come at bringing by delivery.

Actually we have higher margin below some of the module level.

Contribution from net additional sales is actually what's going on.

Thank you and I just have one more point of at million.

Actually ship to two of the delivery business actually help our rental percentage.

Well, just maybe bring the A&P question why.

Because if.

If a store is relying too heavily on buying business doesn't location cannot be compromised too much has been at has to be very very good location.

Otherwise you don't get the business.

But when we build a more and more of the luxury friendly stores.

Relying more on more on delivery, we actually open up more opportunity.

For location.

At slightly lower end.

And thats not a small deal for us.

So as.

As we expand our store portfolio of moving to us.

Lastly at <unk>.

It helped.

Okay. Thank you Lillian.

Thanks, a lot of Julian on D.

Distributor.

Yes.

Our next telephone question comes from Christine Peng from UBS. Please ask your question Christine.

Hi management I just have one quick question regarding the outlook provided by the management earlier. So you mentioned about there are still some of our certainties.

In China regarding COVID-19 situation, but having said that we actually observed on very strong pickup in the domestic traveling activities, especially going into the labor day holiday. So can you maybe give us more colors in terms of the sequential trend you are preserving.

And in China in a posture of our two months of so that investors can get a better feeling in terms of what is at expectation we should be we should be setting up for the upcoming one of two quarters same store sales.

Recovery compared with pre COVID-19 on level. Thank you.

Hi, Christine this is Andy so I think.

You are correct that if you.

The worth of travel volume pick up quite a bit I think this year end.

She is spring festival would actually go into the Labor day.

Holidays weekends.

So that's the overall traffic volume side I think.

But the difference is that the consumer behaviors do remain cautious. So if you look at the trip that they take generally shorter trip.

If you look at overall spending level is still there I.

I think.

A quite significantly of probably about 40% of us compared to us.

No.

Public level right. So I think thats to think that we need to separate the tripped up you will take it at <unk>.

Chip that they take may be different and also of the spending levels and I think that is similar to what we observed before alright, Julian mentioned generally when we see that at some compare like sort of like urge to go out and you went there at holiday right you to relax, but so we see that sometime at the heart.

Day sales would be what we saw.

But then this post holiday season sounds like you'll suddenly people, which I am.

Still are cautious about the COVID-19.

Situations and then also economy economic situations right. So.

Obviously in juice at with an uncertainty for folks.

So that's what's going on here I think if you look at the overall situation is much better compared to 2020, obviously in terms of at COVID-19 situations, even compared to you know obviously, we but again as we have mentioned before is we need to stay at work not to be alone but to alert.

The reason is because if you look at in China, we have a mini resurgence.

Both situations.

At the end of last year in early January.

When things come down I think it's easy for folks to think like everything is back to normal, but but I think we ought to use at window at.

Also I think the what's happening internationally would also at the impact on the overall consumer.

On a settlement here.

We have seen the situation in India.

Oh, Hi go out to two to two.

The folks in India at the impact by COVID-19 as.

Of course of reminder, for us that we're on.

Afterwards, we need to.

We expect a recovery of the full recovery could be.

Non linear and on EBIT.

Just not saying I think in terms of our firm belief on this how we operate at a proposal to narrow different situations.

Encourage analysts.

Rest of two good things, but to extract of linearly linear extrapolation.

On.

But that's how we can kind of that's why we say the full recovery of our same store sales takes some time.

Thank you.

And on our next question is from Lina Yan from HSBC. Please ask your question.

Hi, Thanks management for the very detailed analysis on your performance.

A question regarding the base effect of sales at the traffic hubs.

I think you started to talk about the very negative growth of the traffic hubs from second quarter last year. So it has always of being high single digit of yourselves.

From second quarter of last year. So would you comment that the base for our Capex hop sales will become a more favorable from second quarter onwards. Thank you.

Yes at likelihood right. So because we have a big impact obviously.

At the lots of I think last year at beginning in the first quarter that we'll see rebound of traffic over the over the year.

But I think the volume is due significantly below the pre COVID-19 level. So I think on a year over year basis, you will see improvement on a.

Two year period compared to pre COVID-19 level, I think it will take quite a bit of uptime for at <unk>.

We recovered.

Documents.

On the vaccine program at the fruition here at China, possibly Com, Inc.

It would be <unk>.

In December end also.

January period.

So, but I think I think I think it was more impactful for KFC, because you'd have more store in the trust of the hookup location yet.

Is that the international total GAAP, we of international locations.

International traffic was still pretty much.

Immaterial right now right so.

Until kind of over the border and we see enough of travel that will continue to be a big overhang from the check with your company.

Okay. Thank you very much. So I think every comparison is referred to a two year comparison basis. Thank you.

Yes.

There's no further questions at this time I would like to hand, the call back of the speakers for closing remarks. Please continue.

Thank you for joining the call today, we look forward to speaking with you on our next earnings call. This concludes today's call and have a great day. Thank you. Thank you.

Thanks.

Thank you all you may all disconnect have a great day.

Q1 2021 Yum China Holdings Inc Earnings Call

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