Q4 2023 Yum China Holdings Inc Earnings Call
Operator: Thank you for standing by and welcome to the Yum China 4th... All participants are in. It will be a... Bye. Starkey, followed by the number one.
Thank you for standing by and welcome to the Yum, China fourth quarter and fiscal year 2023 earnings conference call.
All participants are in a listen only mode. There will be a presentation followed by a question and answer session.
If you wish to ask a question you will need to press the stocky followed by the number one on your telephone keypad.
Operator: I would now like. Hi, y'all. Thank you, operator. Hello, everyone.
Michelle Cheng: I would now like to hand, the conference I, let Jim Ms Michelle Shane.
Jim: I ought to Richter. Please go ahead.
Jim: Thank you operator, Hello, everyone. Thank you for joining Yum, China's fourth quarter 2023 earnings conference call on today's call are our CEO Ms. Joey Wat and our CFO, Mr. Andy Yeung I'd like to remind everyone that our earnings call and investor materials.
Operator: Thank you for joining Yum China's fourth quarter 2023 earnings conference. On today's call are our CEO, Ms. Joey Wat, and our CFO, Mr. Andy Yeung. I'd like to remind everyone that our earnings call and investor materials contain forward-looking statements which are subject to future events and uncertainties. The actual results may differ materially from these forward-looking statements.
Jim: Forward looking statements, which are subject to future events and uncertainties actual results may differ materially from these forward looking statements.
Operator: All forward-looking statements should be considered in conjunction with a cautionary statement in our earnings release and the risk factors included in our filings with the FDC. This call also includes certain non-GAAP financial measures. You should carefully consider the comparable GAAP measures. Reconciliation of non-GAAP and GAAP measures is included in our earnings release. You can find the webcast of this call in the PowerPoint presentation on our IR website.
Jim: All forward looking statements should be considered in conjunction with the cautionary statement in our earnings release and the risk factors included in our filings with the SEC.
Jim: This call also include certain non-GAAP financial measures you should carefully consider the comparable GAAP measures reconciliation of non-GAAP and GAAP measures is included in our earnings release.
Jim: You can find the webcast at least call and a powerpoint presentation.
Jim: Our web site.
Operator: Please note that during today's call, all year-over-year growth results exclude the impact of foreign currency, unless otherwise noted. Now I'd like to turn the call over to Joey Wat, CEO of Yum China. Okay?
Jim: Please note that during today's call all year over year growth results exclude the impact of foreign currency.
Jim: Unless otherwise noted now I would like to turn the call over to O U R E O Yum, China Julian.
Joey Wat: Thank you. Hello, everyone, and thank you for joining us today. It's Chinese New Year this coming Saturday. I want to wish everyone a happy and healthy year of the dragon. I would like to kick off today's call by expressing my sincere appreciation to all our employees, for their incredible effort in helping Yum China deliver exceptional growth in the fourth quarter and for the full year. 2023 was a pivotal time for business. The transformation of our business fundamentals in the past few years enabled us to seize opportunities emerging from China's reopening and evolving market conditions. In 2023, we hit record-breaking revenue of $11 billion and grew system sales 21% year over year, outperforming the industry. Operating profit soared to $1.1 billion, an all-time high excluding special items.
Julian: Thank you.
Julian: Hello, everyone and thank you for joining us today.
Julian: Please new yeah, this coming Saturday.
Julian: Want to wish everyone, a happy and healthy yeah, Okay got it.
Julian: I would like to kick off today's call by expressing my sincere appreciation to all our employees.
Julian: Yeah incredible F I'll help.
Julian: Help Yum China.
Julian: Loan growth in the fourth quarter and for the full year.
Julian: <unk> hundred three was a pivotal time for our business.
Julian: The transformation of our business fundamentals in the past few years.
Julian: Enable us to seize opportunities emerging from China, we openly and evolving market condition.
Julian: In 2020.
Julian: We hit record breaking revenue of $11 billion and grew.
Julian: Those systems, so 21% year over year outperforming the industry.
Julian: Operating profit soared to one 1 billion, an all time high excluding special items.
Joey Wat: Co-operating profits grew 79%. We opened a record 1,697 net new stores, expanding our total store count to 14,644 stores. KFC reached 10,296 stores. Pizza Hut reached 3,312 stores.
Julian: Core operating profit grew 17, 9%.
Julian: We opened a record 16 hunger and 97 net new store.
Julian: Expanding our total store count to 14644 stores.
Julian: KFC reached 10296 stores Pizza hut reached 3312 stores.
Joey Wat: On today's call, I would like to walk you through the tremendous growth opportunities we see and discuss our strategies to capture them in 2024 and beyond. For the past 36 years, Connors Restaurant has been the market leader in China. During this time, Connors Restaurant operators have passed in and out of the paper.
Speaker Change: On today's call I would like to walk you through the cement as growth opportunity, we see and discuss our strategy to capture them in 'twenty 'twenty four and beyond.
Speaker Change: For the past 36 years.
Speaker Change: We have seen the market leader in China.
Speaker Change: This time Congress restaurant operator.
Speaker Change: And all I'll say at baseline.
Joey Wat: Instead of being guanghong, or the flavor of the month, we want to be changhong, or the flavor of the decade, or even the next several decades, in this developing market. While the restaurant industry is still growing double digits, even during 2023, we see a long runway of growth for our brand. KFC still only serves one third of the Chinese population.
Speaker Change: Is that all being one home or the fate of the month, we wanted to be tongue.
Speaker Change: Well, that's the labor of the decade or even the next several decades.
Speaker Change: In this developing market.
Speaker Change: The restaurant industry is still growing double digit even during 2023.
Speaker Change: We see a long runway of growth for our brand.
KFC is still only one third of the China operation.
Joey Wat: Our next ambitious target is to expand our reach to half of the population by 2026. Huh? By being closer to our customers. This means adding store density in existing cities and entering new cities. KFC currently operates across 2000 cities in China and is tracking an additional 1000 cities for Peter Hart and our emerging brands. The white space is even larger.
Speaker Change: Sure.
Speaker Change: It's just pocket is to extend our reach to half of the population by 2026.
Speaker Change: Yes.
By being closer to our customer.
Speaker Change: I mean, any thoughts Anthony, especially cities and entering new cities.
Speaker Change: <unk> currently operates across 2000 cities in China and is tracking and additional 1000 cities.
Speaker Change: Our pizza huts and our emerging brands.
Speaker Change: The white space is even larger.
Joey Wat: China is back with significant regional and city-tier differences in lower tier cities. Urbanization and long-term consumption upgrades are presenting attractive opportunities for us. With lower living costs, consumers in these cities have significant purchasing power for a product. So, as an example, premium beef burgers sell well in lower-tier cities, just as in high-tier cities. Over half of our new stores in recent years are in lower-tier cities. These stores have performed well, benefiting from lower labor costs and rent. And the ticket average is as good as in higher-tier cities.
Speaker Change: China is back.
Speaker Change: With significant regional and city kids differences.
Speaker Change: Well she is cities urbanized station.
Speaker Change: Long term consumption upgrades are presenting attractive opportunities right.
Speaker Change: With lower living calls.
Speaker Change: Consumers in these cities have significant purchasing power well upfront.
Speaker Change: S.
Speaker Change: Example, premium beef burgers so.
Speaker Change: So well in lower tier cities, just as in high tier city.
Over half of our new stores a reason yes.
Speaker Change: Lower tier cities.
Speaker Change: These stores have performed well benefiting from lower labor costs.
Speaker Change: And the ticket average is as good as in higher tier cities.
Joey Wat: For now, we are mainly serving middle-class consumers in these markets. As we expand, we see further opportunity in widening price points to broaden our addressable customer base. Our vision is to reach 20,000 stores by 2026. We will continue to protect our new store payback at two years for KFC and three years for pizza. Over the past years, we have been improving our fundamental capabilities to reach this target. This is the key reason we can expand at an accelerated speed. Some of these improvements include, first, a flexible store format with lower upfront investment opening up more site potential across the retail sector. Second, core structure refacing lowered our rent ratio in 2023 to 8.7% of sales, the lowest level in the past 10 years.
For now we are mainly serving middle class consumers in this market.
Speaker Change: As we expand we see further opportunity in widening price point to broaden our addressable customer base.
Speaker Change: Our mission is to reach 20000 stores by 2026.
Speaker Change: We will continue to protect our newfield payback as truly is forecast to be in three years for pizza hut.
Speaker Change: Over the past years, we have been improving our fundamental capabilities to reach this pocket.
Speaker Change: This is the key reason, we K N and M S Saturn readers speak.
Speaker Change: These improvements include first.
Speaker Change: That's the goal store format with lower ranking last month open up more sites potential across city tiers second.
Speaker Change: Second cost structure re phasing and lower our rent ratio in 2020, 328.7% ourselves.
Speaker Change: The lowest level in the past 10 years.
Joey Wat: The majority of our leases are based on variable rent. Third, improved operating capabilities. AI-enabled digital tools empower our capable restaurant managers to oversee multiple stores without compromising quality. This also solves the bottleneck of having enough good RGMs as we expand rapidly. Finally, strategic franchise partnerships allow us to gain access to locations that were beyond our reach before, such as highway service centers. In addition to new store growth, our same store sales grew 7% in 2023. It was fueled by a 12% increase in transactions, indicating healthy growth. Our innovative menus, excellent value for money, and effective online channels captured over 1.7 billion transactions last year. Now, let's talk about food innovation.
The majority of our leases are based all variable rate.
Speaker Change: Sure.
Speaker Change: Cool operating capabilities.
Speaker Change: Enabling digital tools empower all capable restaurant managers to oversee multiple stores without compromising quality.
Speaker Change: This also so the bottleneck.
Speaker Change: Having enough good Oh, Gee and as we expand rapidly.
Speaker Change: Finally, strong TB franchise partnership.
Speaker Change: <unk> us to gain access to location that were beyond our reach before such as Highway service Center.
Speaker Change: In addition to our new store growth our same store sales grew 7% in 2023.
Speaker Change: It was fueled by a 12% increase in transactions, indicating healthy growth.
Speaker Change: Our innovative menu with excellent value for money.
Online channels captured over one 7 billion transactions last year.
Speaker Change: Now, let's talk about food innovation in 'twenty two 'twenty three we wrote off more than 500, new or upgraded products.
Joey Wat: In 2023, we rolled out more than 500 new or upgraded products. That means we offer something new every week. Some examples include KFC's beef wrap with spicy duck blood and chicken taco with bullfrog.
Speaker Change: That means we all got something new every week.
Speaker Change: Examples include K F C B RAF with spicy blood and chicken Taco with pool raw and Pizza hut.
Joey Wat: And Pizza Hut's flat stone durian pizza. These may sound a bit exotic, but I can assure you they are very popular in China. Over the years, many of our most popular products have entered our 100 million club in US dollar sales, and 2023 was no exception. Our Golden Spa Chicken Burger, Kuan Jin Spa J Pi Bo, launched in quarter four of 2022, joined our 100 million club in 2023, with very little spent on marketing. It offers amazing value for money using chicken breast meat and is very popular with younger customers. Chicken breast meat is a very high quality protein, but the cost of breast meat is much cheaper in China than duck meat.
Speaker Change: Songs Julian Pizza.
Speaker Change: You may sign up is on it but I can assure you they are.
Speaker Change: Very popular in China.
Over the years many of our most popular products have entered our $100 million club.
Speaker Change: Solar cells and 2023 was no exception.
Speaker Change: Our Golden Spa. She comes broker quantities bought cheap high ball launched a quota for 2022.
Our 100 million club in 2023 with very little spend on marketing.
Speaker Change: He offers amazing value for money using chicken breast meat.
Speaker Change: <unk> is very popular with younger customers.
Speaker Change: Breast meat is very high quality protein.
Speaker Change: The cause of breast meat is much cheaper in China, then Amit.
Joey Wat: Our Juicy Whole Chicken,, is another remarkable success story. We launched it in 2021, and by 2023, we sold over 50 million whole chickens. Whole chicken and beef burgers combined now contribute close to 6% of our sales, more than the original recipe chicken that we have been selling for the last 36 years.
Speaker Change: Oh Juicy whole chicken nieces Chinchy is another remarkable success story, we launched it in 2021 and five 2023 we sold over 50 million a whole chicken.
Speaker Change: Whole chicken and beef buzzard combined now concho built close to 6% of ourselves.
Speaker Change: More than the original recipe chicken that we have been selling in the last 36 years.
Joey Wat: K-Coffee also grew rapidly in 2023. Driven by product innovation and improving accessibility, 190 million cups were sold last year, a 35% increase year-over-year.
Speaker Change: K coffee also grew rapidly in 2023.
Speaker Change: It's driven by product innovation and improving accessibility.
Speaker Change: 119 million cope well, so last year, a 35% increase year over year.
Speaker Change: Oh coffee offers great value for money as below $9 nine R&D hookup.
Joey Wat: Great value for money, at below 9.9 RMB per cup. Great value for money remains a key factor to drive traffic, in addition to the great food that I just mentioned. We have strategically enriched our menus with entry-priced point products to attract incremental customers. Our superb in-house supply chain empowers us to innovate and offer fantastic value while protecting markets. At Tipsy, apart from our long-lasting value platform, Crazy Thirsty, we identified entry price combos as huge underserved market segments. Last year, KFC expanded the choices of its 20 RMD combos, including our recent Chinese burger, Bing Han Bao, which has been well-received by customers.
Speaker Change: Great value for money remains a key factor to drive traffic.
Speaker Change: In addition to the great food that I just mentioned.
Speaker Change: We have strategically and reached our menus with entry price point products to attract incremental customers.
Speaker Change: Our support in house surprising empowers us to innovate and all the fantastic value.
Speaker Change: All the testing market.
Speaker Change: At KFC.
Speaker Change: From a long lasting value platform Crazy Thursday.
Speaker Change: Thank you Sir.
Speaker Change: We identified entry priced combos and huge underserved market segment.
Speaker Change: Last year, Tennessee expands at the choices.
Speaker Change: 'twenty on the combo.
<unk>, a lease and Chinese bugger, being humble, which have been well received by customers.
Joey Wat: For pizza, the under 50 RMB segment represents a significant portion of the market, but it's underserved at Pizza Hut. In November last year, we launched four entry-priced pizzas, including the delicious Texas BBQ Chicken Pizza. We will continue to add more cross-courses and choices to our menu this year to capture incremental sales. We also see amazing potential to further grow delivery sales. We are adjusting our delivery pricing structure to be more aligned with market norms. This will help us capture incremental traffic, especially in the smaller ticket segment and from more price-sensitive customers. Our third traffic driver is the effective use of our own and third-party online channels. In 2023, our digital sales surpassed $9.2 billion. Of that, about one-third came from our own super app, one-third from many programs, and one-third from aggregators.
Speaker Change: Our pizza so under FASB RMB settlements represent a significant portion of the market, but it's understood at Pizza hut.
Speaker Change: In November of last year, we launched a full entry priced Pizza Inc.
Speaker Change: <unk> the delicious.
Speaker Change: This barbecue chicken pizza, we will continue to add more cost cautious choices to our menu this year to capture incremental sales.
Speaker Change: We also see amazing potential to further grow the luxury sellers.
Speaker Change: We are adjusting our delivery pricing structure to be more aligned with market known.
Speaker Change: This will help us capture incremental traffic, especially in the smaller ticket settlement.
Speaker Change: From more price sensitive customers.
Speaker Change: Our foot traffic driver is the effective use of our own and third party online channel.
Speaker Change: And 'twenty twenty-three all digital sales surpassed $9.2 billion.
Speaker Change: Of that about one third came from Oh Super App, one third from mini program and one third from outwith data it.
Joey Wat: Our own super app sales grew rapidly last year, up 34%. We continue to actively recruit and engage members. Our loyalty program exceeds 470 million members, who contra-billed a record 65% of our sales.
Speaker Change: I'll also put out south grew rapidly last year or so.
Speaker Change: 35%.
We continue to actively recruit and.
Speaker Change: Engage member.
Speaker Change: Loyalty programs.
Speaker Change: 417 million members.
Speaker Change: Who comes from Bill to a record 65% of ourselves.
Joey Wat: The purchase frequency of our K-FRIENDS, our most loyal customers, was more than 100 times a year. Our collaborations with major e-commerce and social media platforms extend our reach beyond physical stores. This allows us to attract new customers and promote new orders in a cost-effective manner. We consistently let the industry lead in terms of sales generated on these platforms. Our brands are deeply ingrained in China, well-loved, and trusted by consumers
Speaker Change: The purchase frequency of our K friend.
Speaker Change: Our most loyal customer with more than 100 times a year.
Speaker Change: Oh collaboration with major E Commerce, and social media platform.
Speaker Change: Then our reach beyond East coast stores.
Speaker Change: This allows us to attract new customers and promote you over in a cost effective manner.
Speaker Change: We consistently lead the industry in terms of self generated on the platform.
Speaker Change: Our brands are deeply ingrained in China, well la.
Speaker Change: Oh and truck five consumer.
Joey Wat: We continued to deliver amazing growth despite operating in a challenging environment. KFC is thriving and remains our key growth engine with a record operating profit of $1.2 billion in 2023. Pizza Hut is taking off, adding 409 stores in 2023 alone, compared to just 41 stores in 2019.
Speaker Change: We continued to deliver amazing growth despite operating in a challenging environment.
Speaker Change: Jesse it's surprising and remains a key growth engine with a record operating profit of $1 $2 billion in 2023.
Speaker Change: Pizza hut is picking all adding 409 stores in 'twenty two 'twenty three alone compared to just 41 stores in 2019.
Joey Wat: Their 2023 core operating profit tripled year over year. LaVonda is on the right track, with self-support and notable improvement in store economics. Taco Bell is making notable progress. Yet, there's more work in store model refinement and menu localization to be done. Little Sheep returned to profitability in 2023. Its innovative store model, which caters to smaller party sizes, has achieved initial success.
Speaker Change: It's 123 call operating profit tripled year over year.
Speaker Change: Nevada is on the right track.
Speaker Change: So coupled and notable improvement in store economics.
Speaker Change: Taco Bell is making notable progress, yes, that's more where install model refinement and menu localization to visa.
Speaker Change: Little sheep returned to profitability in 2023.
Speaker Change: This innovative model, which caters to a smaller party sizes has achieved initial success.
Joey Wat: We expect good momentum in opening stores both in China and overseas. Huang Jinghuang continues to be resilient, maintaining profitability every year since we acquired it in 2020. In 2023, Huan Jinhuang tripled profits and opened 14 net meal stores. We will continue expanding our store footprint in China and overseas this year and into 2024. We are serving up a combination of exciting menu items, including awesome toys and games for Chinese New Year. KFC's newest innovation, the Happy Fried Egg in Spicy Sauce Chicken Burger.?? It is absolutely delicious and is comfort food for your soul.
Speaker Change: We expect good momentum in opening stores, both in China and overseas.
Speaker Change: Once you one continues to be resilient maintaining profitability every year since we acquired it in 20 countries.
Speaker Change: In 2023, plus a long trip.
Speaker Change: Tripled profit.
Speaker Change: And opened 40 net new stores.
Speaker Change: We will continue expanding our store footprint in China.
Speaker Change: Overseas this year.
Speaker Change: Oh, what into 'twenty plentiful, we are studying a combination of exciting menu items.
Speaker Change: Awesome toy and game for Chinese new year.
Speaker Change: KFC newest innovation that have P. Fries egg is spicy sauce chicken Burger.
Speaker Change: I love pages, sometimes called G toy box is absolutely delicious.
Speaker Change: Coastal book or your soul.
Joey Wat: We are also offering our wildly popular Golden Bucket again this year. It has a very lucky and down-to-earth name,, which means "Get Rich Soon." And the first letter also stands for KFC. So right now, it's getting around, and it's becoming more popular to wish each other KFC in China. Pizza Hut is launching 18 new products, including Wagyu Beef Pizza and XueHua HeLiu Pizza, at just 69 RMB. The abundant choices and value are amazing. Although consumers are more rational and price sensitive in the current economy, there is a strong desire to indulge, especially during holidays. Our enticing offers are designed to generate excitement and attract traffic. I eagerly anticipate this wide-ranging trading period. With that, I will turn the call over to Andy. Okay?
Speaker Change: We are also offering a wildly popular golden bucket a day. This year. It has a very lucky and sign to us knee quite a tight which means that.
Speaker Change: Rich Sue.
Speaker Change: And the first letter also sample K F. C. So right now is getting Iran, getting more popular to wish each other KFC in China.
Speaker Change: Yeah.
Speaker Change: She's a hot is launching 18 new products.
Including well good beef pizza sure Julio Pizza at just 69 RMB.
Speaker Change: Funding choices and value are amazing.
Speaker Change: Although consumers are more rational and price sensitive in the current economy that is a strong desire to intouch, especially during holiday.
Speaker Change: And I think all of us are designed to generate excitement and.
Speaker Change: Traffic.
Speaker Change: I eagerly anticipated this widespread trading period with that I will turn the call over to Andy Andy.
Andy Yeung: Thank you, Joey. And happy Chinese New Year, everyone. Today, I will discuss our fourth quarter and full year 2023 financial week, followed by our Outlook for 2024, as well as our capital allocation strategy. We delivered robust results in the fourth quarter, and we set the milestone for the full year. In response to the current operating environment, we adopted our strategy and launched Attractive Campus. This allows us to drive incremental traffic and self-driving.
Andy Yeung: Thank you Joey.
Andy Yeung: Happy Chinese new year, everyone today, I will discuss our fourth quarter and full year 2023.
Andy Yeung: Followed by our outlook for 2024, as well as our capital allocation strategy.
Andy Yeung: We delivered robust results in the fourth quarter and reached a significant milestone for the full year.
Andy Yeung: In response to current operating bombers.
Andy Yeung: We adopted our strategy launch attracted campaign.
Speaker Change: Yes allow us to drive incremental traffic and so.
Andy Yeung: We maintain 21% system sales growth in the Same after 4 weeks, for offering profit in the fourth quarter for triple year-over-year, and Western Margin includes only comparable. As you may have noticed, we have introduced call offering profit to enhance the comparability of our results and provide additional transparency on how we evaluate the performance of our call offering. It's natural.
Speaker Change: We maintained 21% system sales growth in the quarter came after a full year.
Speaker Change: Our operating profit.
Speaker Change: Quarter, four triple year over year.
Speaker Change: Restaurant margin pool.
Speaker Change: I wont basis.
Speaker Change: As you May have noticed we have introduced core operating profit.
Speaker Change: Hey come back really of how we sell and provide additional transparency on how we evaluate the performance of our core operations.
This metric.
Andy Yeung: Excludes foreign exchange impact, special items, and other items affecting compatibility. For further details, please refer to the reconciliation table in our early release presentation. Let's now look at our 4th quarter performance in more detail. System sales increased 21% led by 12% net new unit contract, sponsored by King South Dallas Growth and Lapping Temporary Closure from the pandemic in the prior year. Hi, Brian.
Speaker Change: Excluding foreign exchange impact of special items.
Speaker Change: Other items affecting comparability.
Speaker Change: For further detail.
Speaker Change: I used to refer to reconciliation table in our earnings release and presentation.
Speaker Change: Let's now look at our fourth quarter performance in more detail.
Speaker Change: System sales increased 21%.
Over here led.
Speaker Change: Led by 12% net new unit contribution.
Speaker Change: 4% same store sales growth in.
Speaker Change: Lapping temporary kosher live in Tommy.
Yeah.
Speaker Change: Hi, Brian.
Andy Yeung: KFC's system sales increased 20% year-over-year. Sainsbury's sales growth of 3% mainly came from 16% Sainsbury's traffic growth and 11% lower ticket average, to put it into perspective. Ticket average in the fourth quarter was 39 RMB, the same as last quarter and higher than 2009. Overall, ticket average remains stable in the past five years.
Speaker Change: Subsea systems, Inc.
Speaker Change: Increased 20% year over year.
Speaker Change: Same store sales growth of 3% mainly came from 16% same store traffic growth and 11% lower ticket average.
Speaker Change: It put it into perspective average from the fourth quarter was 39 R&D the same as last quarter.
Speaker Change: Higher than 2019.
Speaker Change: Overall ticket average remained stable in the past five years.
Andy Yeung: And our focus has been to grow our trust. A strong rebound in dine-in sales, especially for breakfast day pots, and successful expansion of our entry price offering contributed to lower demand. Pizza Hut, system sales increased 24% at Yum! Sting Saw Sales growth of 6% was driven by strong traffic growth of 15%.
Speaker Change: Our focus has been to grow our trial.
Speaker Change: A strong rebound.
Speaker Change: Especially for breakfast day part.
Speaker Change: And successful expansion of our entry price offering called you wish you well with it.
Speaker Change: Pizza hut system sales increased 24% year over year.
Speaker Change: Same store sales growth of 6% was driven by strong traffic growth of 15%.
Andy Yeung: And take an average decrease of eight. This is by design and consistent with our revitalization strategy since 2010. Our recent focus has been to expand pizza offerings below $50 and smaller party size options. The strategy has proven effective in expanding our addressable market and capturing incremental traffic. Our rational margin was 10.7%. 30 bases were spawned, higher than last time.
Speaker Change: And ticket average decreased eight cars.
Speaker Change: Uh huh.
Speaker Change: Despite his time and consistent with our we watch allocation strategy since 2017.
Speaker Change: Our recent focus has been to expand pizza offering below 50 on me and smaller sized option.
Speaker Change: The strategy has proven effective in expanding our addressable market and capturing incremental.
Our restaurant margin was 10, 7%.
Speaker Change: 30 basis points higher than last year.
Andy Yeung: On a comparable basis, our restaurant margin... The improvement was mainly due to self-leveraging. Lower, wider car?
Speaker Change: Comparable basis, our restaurant margin cool.
Speaker Change: 170 basis points.
Speaker Change: The improvement was mainly from south leveraging.
Oh why they call.
Andy Yeung: more favorable commodity prices and lower advertising expenses. This more than offsets increased marketing campaigns and wages. Now, let's go to the key items. Cost of sales was $32.40.
Speaker Change: More favorable commodity prices.
Speaker Change: Hello advertising expenses.
Speaker Change: This more than offset increased marketing campaign and wage inflation.
Speaker Change: No.
Speaker Change: Go through the key items.
Speaker Change: Awesome.
Speaker Change: 30 to Pakistan.
Andy Yeung: 50 Bases on Hire, Yum. During the quarter, commodity prices were favorable. We pass that to consumers by offering better value for money. Cost of labor was $29 on steel, or improved 40 basis points on a comparable basis. Self-leveraging, low rider cost, and efficiency gains more than offset rate increases. Online.
Speaker Change: 50 basis points higher year over year.
Speaker Change: During the quarter ammonia prices were favorable.
Speaker Change: We passed that consumer by offering better value for money.
Speaker Change: Cost of Labor was 29 on yogurt.
Speaker Change: Flattish year over year.
Speaker Change: Or improved 40 basis points on a comparable basis.
Speaker Change: Sales leveraging.
Speaker Change: So why the cost and efficiency gains more than offset.
Speaker Change: Rate increases for fun one.
Andy Yeung: Occupancy and other was 27.9% and Proof 100 Bases Upon Yield, or they were comparable. This came from lower right, and depreciation expenses, as well as more efficient management of marketing and advertising. G&A expenses increased 6% year-over-year.
Speaker Change: Occupancy and other was 27, 9%.
Speaker Change: Pool 100 basis points year over year.
Speaker Change: Oh 180 basis points on a comparable basis.
Speaker Change: This came from lower rent.
Speaker Change: And depreciation expenses as well as more efficient management of marketing and advertising expense.
Speaker Change: G&A expenses increased 6% year over year.
Andy Yeung: We highly evaluate costs and headcounts to keep G&A growth below record. Operating profit was $110 million, call up in partnership. Our effective tax rate was 24.2% in Q4 and 26.9% for the full year. Lower effective tax rates on a year-over-year basis were mainly due to more preferential tax benefits and higher pre-tax benefits. Saturday EPS was $0.23, excluding special items, foreign exchange, and major investments.
Speaker Change: We tightly manage costs and headcount to gen eight well below revenue growth.
Speaker Change: Operating profit was $110 million of impulses, Portugal.
Speaker Change: However, the effective tax rate was 24, 2% in Q4.
Speaker Change: And 26, 9% for the full year.
Lower effective tax rate on a year over year basis was mainly due to more preferential tax benefits and higher pretax income.
Speaker Change: How does the EPS was <unk> 23.
Excluding special items.
Speaker Change: Foreign exchange and maybe cutting investment the increase was 164%.
Andy Yeung: The increase was $164 billion. Now, let's turn to our outlook. We remain excited about the vast growth opportunities in China. In 2024, we anticipated opening 1500 to 1700 new stores that new After 36 years in China, it's amazing that we're still growing our stall at Double Ditch. Our heavy new store payback gives us confidence to continue expansion and reach 20,000 stores by 2020. As we shared at our investor day last, we aim to grow system cells and the uplink process by high single-digit to double-digit compound annual growth rates and EPS by double-digit compound annual growth rate from 2024 to 2035. We'll continue to capture our new opportunities by innovating new products, launching engaging campaigns, and widening price ranges. This helps us to expand our trustful customer base and drive incremental sales. We're confident in executing our three-year plan. Cross-structural rebasing continues to be a key focus.
Speaker Change: Now, let's turn to our outlook.
Speaker Change: We remain excited about that.
Speaker Change: Well with opportunities in China.
In 2020, Paul we anticipated.
Speaker Change: Opening 1500 to 1700 useful.
Speaker Change: After 36 years in China.
Speaker Change: It's amazing that with steel globally.
Speaker Change: Our score at double digit.
Speaker Change: Oh, how are we neurostar payback give us confidence.
Speaker Change: Continued expansion.
And which 20000 store by 2026.
Speaker Change: As we shared at our Investor Day last year, we aimed to quote systems out and offering policy a high single digit to double digit compound annual growth rate.
Speaker Change: And EPS by double digit compound annual growth rate from 2024 to two.
Speaker Change: 2026.
Speaker Change: We will continue to capture our new opportunity by innovating new products.
Speaker Change: Launching engaging campaign and widening price point.
Speaker Change: Just help us to expand our addressable customer base.
Speaker Change: And drive incremental sales.
Speaker Change: We're confident in executing our three year plan.
Speaker Change: Cost structurally basi continues to be a key focus.
Andy Yeung: Our efficient cost management will enable us to pass the savings back to customers and Dry Tropic While Protecting the Market. Before I delve into the first quarter, I would like to remind everyone that the first quarter of 2023 was a phenomenal year, during which we achieved record setting. We capture robust demand from the reopening, delivering solid revenue on the call side. We benefited from substantial temporary, and BAE Detection Panel, which is not expected to recur.
Speaker Change: How are you efficient cost management.
Speaker Change: To pass the savings back to customers and drive traffic while protecting margin.
Speaker Change: Before I delve into the first quarter outlook.
Speaker Change: I'd like to remind everyone that first quarter 2023.
Speaker Change: Our nominal quarter during which we achieved record setting policy.
Speaker Change: We captured robust demand from the opening.
Speaker Change: Delivering solid.
On the cost side.
Speaker Change: Thanks.
Speaker Change: From substantial temporary relief and Bac deductions benefit.
Speaker Change: Which is not expected to recur this year.
Andy Yeung: We also benefited from labor productivity gains from the labor shortage in the first quarter last year. Looking ahead to the first quarter of this year, As Joey mentioned, we're now operating under a new normal. Consumers are more rational in spending. Yes, there is a great expectation and appetite for new and exciting products that can offer great value for money. In response, we have statistically planned a very intensive number of new product launches and attract... We have also dedicated more resources to drive sales and capture.
Speaker Change: We also benefit from labor productivity gain from labor shortage in the first quarter last year.
Speaker Change: Looking ahead to the first quarter this year as Joey mentioned.
Speaker Change: We're now offering.
Speaker Change: Consumers are more rationale spending yes, okay great.
Speaker Change: Great expectations, and appetite for new and exciting products.
Speaker Change: That can offer great value for money.
Speaker Change: In response, we have purposefully plant a very intensive number of new product launches.
Speaker Change: Attractive promotion.
Speaker Change: We have also dedicated more resources to drive sales and capture the peak Chinese new year trial.
Andy Yeung: In light of this... We will work hard on productivity improvement. Our aim is to maintain our core offering profit while actively stable on a comparable year-over-year basis. This will exclude temporary release, VAT deduction benefit, and changes.
Speaker Change: In light of these chunky, we will work hard on productivity improvement.
Speaker Change: And cost control, including G&A.
Speaker Change: Our aim is to maintain our core operating profit walk at least stable on a comparable year over year basis in the first quarter.
Speaker Change: This will exclude time, who lead.
Speaker Change: The deduction and changes in foreign exchange rates.
Andy Yeung: Now, let's turn to capital allocation. There's no better investment than investing in our own organic growth while delivering excellent returns to our shareholders, with a strong focus on Efficient Capital Returns. CAPEX in 2023 will total $710 million, at the low end of our original target. In 2024, CapEx is expected to be in the range of $700 million and $800 million. Since the spinoff, we have returned $3 billion to shareholders, and we plan to return an order of $3 billion in the next, reaccelerated return to shareholders in 2023, returning a record. $833,000,000 in cash dividends and share repayments. In 2024, we plan to further accelerate return to shareholders to around $1.5 billion. We raised our dividends by $2,300, from $0.13 to $0.16.
Speaker Change: Now, let's turn to capital allocation.
Speaker Change: There's no better investment than investing in our own organic growth, while delivering excellent returns to our shareholders.
With a strong focus on efficient capital return Capex in 2023 total staff was $110 million.
Speaker Change: At the low end of our.
Speaker Change: I'll begin with hockey.
In 2024.
Speaker Change: Is expected to be in the range of $700 million and $850 million.
Speaker Change: Since our spinoff, we have retired $3 billion to shareholders.
Speaker Change: Thanks, Good returns and other $3 billion in the next three years.
We accelerated returns to shareholders in 2023, returning a record.
Speaker Change: $833 million in cash.
Speaker Change: Cash dividends and share repurchases.
Speaker Change: In 2024, we plan to further accelerate returns to shareholders.
Speaker Change: One is by building.
Speaker Change: We raised our dividend by <unk>.
Speaker Change: 23%.
Speaker Change: 13 two.
Speaker Change: 2016.
Andy Yeung: That would be roughly $250 million for the company. As for share repurchase, we already have a $750 million program, and we plan to further increase purchases by around $500 million.
Speaker Change: That would be roughly $215 million for the full year.
Speaker Change: As for share repurchases, we already have a $750 million program in place.
Speaker Change: And plan to further increase in purchases by around $500 million.
Andy Yeung: So, a total of $1.25 billion share repurchase in 2020. This is equivalent to around 9% of our market cap at the current share price. The stepping up of returns demonstrates our confidence in our cash-generating capability and commitment to return accepted cash to our shareholders. Now, I will pass it back to Joey for closing remarks.
Speaker Change: So a total of one <unk> $5 billion share repurchase in 2024.
Speaker Change: This is equivalent to around 9% of our market cap at the current share price.
Speaker Change: The stepping up of returns demonstrate our confidence in our cash generating capability and commitment to return excess cash to our shareholders.
Speaker Change: Let me pass it back to Joe <unk> for closing remarks Joey thank.
Joey Wat: Thank you, Andy. Before we turn to Q&A, I would like to just summarize. In 2023, we reached record top and bottom lines, as well as net new store openings, and we returned a record level of cash to our shareholders through dividends and buybacks. These achievements were made possible by the transformation we implemented in our fundamental capability, ranging from flexible store formats to put innovation at scale to support supply chain management and industry-leading AI applications.
Joe: Thank you Andy before.
Joe: Before we turn to Q&A I would like to just summarize.
In 2023, we reached record topline and Bottomline.
Joe: As well as net new store opening.
Joe: And we returned a record level of cash to our shareholders through dividend and buyback.
Joe: These achievements were made possible by this transformation, we implemented in our fundamental capabilities.
Joe: Ranging from festival store format.
Joe: Innovation at scale to support supply chain management and industry, leading AI application.
Operator: We have showcased our expertise and agility to navigate diverse market conditions. Acknowledging the high expectations our shareholders hold for us, we, in turn, set equally high standards for ourselves. We are fully committed to our three-year growth target and generating long-term sustainable value for our shareholders. I would like to thank our shareholders for your continued support. With that, I will pass it back to Michelle. Thank you, Joey.
Joe: We have showcased our expertise agility to navigate diverse market conditions.
Joe: And knowledge in the high expectations, our shareholders hold for US we in turn set equally high standards for ourselves.
Joe: We are fully committed to our three year growth pockets and generating long term sustainable value for all shareholders.
Speaker Change: I would like to say all shareholders for your continued support.
Speaker Change: With that I will pass it back to Michelle thank.
Michelle Cheng: Thank you Joey now we will open the call for questions.
Operator: Now we will open the call for questions. In order to give more people the chance to ask questions, please limit your questions to one at a time. Operator, please start the Q&A. Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2.
Michelle Cheng: What does it give more people the chance to ask questions. Please limit your questions to one at a time operator, please start the Q&A.
Speaker Change: Thank you.
Speaker Change: You wish to ask a question. Please press star one on your telephone and wait for your name to be announced if you wish to cancel your request. Please press star two.
Michelle Cheng: If you're on a speakerphone, please pick up a handset to ask your question. The first question comes from Michelle Cheng with Goldman Sachs. Please go ahead.
Speaker Change: If you're on a speaker phone please pick up the handset to ask you a question.
Speaker Change: Your first question comes from Michelle Cheng with Goldman Sachs. Please go ahead.
Michelle Cheng: Hi, Oh Joy, Andy Congrats for steel they really see they are resolved and it also doesn't trustee shall hold every time, Oh, well, we understand our company strong long term position, but my question is do you want to focus a bit on the short time. So can you give us some colors regarding Dci pre Chinese new year traffic.
Joey Wat: Hi Joey, Andy, congratulations on a still very resilient result and also an impressive shareholder return. Well, we understand the company's strong long-term position, but my question still wants to focus a bit on the short term. So, can you give us some color regarding this pre-Chinese New Year traffic and same-door sales trend? And also, I think Andy mentioned that in the first quarter we are looking for more steady core operating profits. So, can you clarify? Does this refer to like profit level or margin? Yeah, so that's my question.
Michelle Cheng: Same store sales trend.
Speaker Change: And also I think Andy mentioned about all in first quarter. We all know people must step stadia cooperating properties. So now can you kind of clarify does need referred to like property level margin. Yeah. So that's my question. Thank you.
Andy Yeung: Thank you. Thank you, Michelle. So let me address your question about clarification on, you know, our statement on, you know, for offering profit in the first quarter. We are looking at, you know, the overall level, not the margin side. I think, you know, it's important to keep in mind that the first quarter last year was an exceptional, phenomenal quarter that we achieved record profit, which was caused by, obviously, the sales leverage from the initial reopening, the demand surge, and then also some significant temporary relief, VAT deductions, and labor gains from labor shortage. So those factors, we don't expect them to repeat again this year.
Speaker Change: Yeah.
Speaker Change: Thank you Michele So let me address your question about clarification on you know our statement on your call off at the first quarter. We are looking at you know the overall level not not the margin side I think you know it's important to keep in mind.
Speaker Change: That that was in the first quarter.
Speaker Change: Last year was exceptional a phenomenal quarter that were achieved you know like what Paul said, which was both by obviously you know this is Matt.
Speaker Change: Some of the initial opening he might search and then also some significant empathy the atg adoption and we became familiar with faulty so.
Speaker Change: Factors, we don't expect them to repeat again this year and so I hope I answered that question a clarification.
Joey Wat: And so I hope I answered that question on clarification. For the Chinese New Year, for the Chinese New Year trading, Andy mentioned in his presentation earlier, it's a very, very tough lab because last Chinese New Year, we had phenomenal trading during the 2022 Chinese New Year. But we have prepared a very full and exciting calendar for the Chinese New Year. Not only the excitement of the marketing campaign but products as well. And this is the first time we launched five new burgers five weeks before the Chinese New Year. The excitement is there.
Speaker Change: For the Chinese new year for the Chinese new trading N D has mentioned a.
Speaker Change: In his presentation earlier, it's a very very tough glad because large Chinese new year, we have a phenomenal trading.
Speaker Change: During the 2022 Chinese new year.
Speaker Change: But we we have prepared a very full and exciting calendar for their Chinese new year are not only the excitement of the of the marketing campaign a product and this is first time, we launched five new logos, a five week before going to the Chinese new year, the excitement of this year.
Joey Wat: The trading so far has been solid, but it's still a bit earlier because we really need to anticipate until the first day of the Chinese New Year. And then right now, the weather, to a certain extent, the extreme weather is a bit of a wild card. So that's where we are. And the focus going into the Chinese New Year after the first day of Chinese New Year is on our golden bucket. That was the total focus of all our operation team. But it's a very, very tough quarter.
Speaker Change: So I saw that so far has been trading has been trading so far has been solid.
Speaker Change: It's still a bit early yet because that's where you really.
Speaker Change: Need to anticipate until the first day of the Chinese new year.
Speaker Change: And then right now are the the whether that's what I thought I'd spend the extreme weather is a bit of a wildcard. So that's where we are and the.
Speaker Change: Okay.
Speaker Change: Into the Chinese new year after their first ever Chinese is about I'll call them bucket that was about a total focus on all our operation team, but it's very very tough a quarter. So are you know would be would be happy if we actually can stay flat with the with the same store sales.
Operator: So, you know, we'll be happy if we can actually stay flat with the same thoughts. That's where we are right now. Your next question comes from Brian Bittner with Oppenheimer. Please go ahead.
Speaker Change:
Speaker Change: That's where we are right now.
Speaker Change: Your next question comes from Brian Bittner with Oppenheimer. Please go ahead.
Brian John Bittner: Hi, thank you. As it relates to this, I understand the first quarter is a very difficult comparison versus last year, but your goal is to keep operating profits flat, as I understand it. So what type of sales trends or same store sales do you need in order to keep, you know, those operating profits flat? And then, Andy, once we get past this first quarter's difficult comparison, how do you think about the way the year will build? How do you think about the second half of the year and the opportunity to grow sales there versus, say, maybe the first half of the year, which seems to be a more challenging setup? Thank you, Brian.
Brian John Bittner: Hi, thank.
Brian John Bittner:
Brian John Bittner: As it relates I understand the first quarter is a very difficult comparison versus last year, but your goal is to keep the operating profits flat as I heard it so what type of sales trends or same store sales do you need in order to keep you know those operating profit is flat and then Andy.
Andy Yeung: Once we get past this first quarter or difficult comparison, how do you think about.
Andy Yeung: The way the year will build how do you think about the second half of the year and the opportunity to grow sales there versus say, maybe the first half of the year, which seems to be a more challenging setup.
Speaker Change: Thank you Brian Yeah. So I guess, there's a lot of question about you know the first quarter.
Andy Yeung: Yeah, so I guess there's a lot of questions about, you know, the first quarter outlook, rightly so. But before, you know, again, diving into more detail on, you know, the first quarter outlook, let me just point out a couple of things, okay? You know, overall, consistent with our three-year plan, we are confident that we will maintain, you know, stable operating margins in the long run. As I mentioned, the emphasis here is the long run because in the near term, you're going to have some factors that, you know, affect the near-term situation.
Brian John Bittner: Why are you so but before you know again like talking to more detail on you know the cost kind of post COVID-19 outlook.
Speaker Change: Just to point out a couple things right.
Speaker Change: Overall.
Speaker Change: Consistent with our three year plan, we are confident that the woman.
Speaker Change: You know stable up in margins in the long run as I mentioned the emphasis here is the long run do you can you try and be you're going to have some factors that affect the near term situations and you know and then over the long term. We're also looking to potential opportunity as we haven't been doing so.
Andy Yeung: And, you know, and then over the long term, we also will look into potential opportunities, as we have been doing so, to restructure our cost base, looking to improve, you know, our occupancy and other costs, and then also leverage, you know, our digital capability to better manage, better use more effective advertising and also G&A. Now, when we look at, you know, in 2023, Western margins and OPE will improve quite meaningfully. That's driven by, you know, think-self health growth, right?
Speaker Change: Restructure our cost base.
Speaker Change: To improve you know.
Speaker Change: Our occupancy and other costs and then also libraries.
Speaker Change: Our fish that will keep a bogey to better manage that.
Speaker Change: I was typing and also journey.
Speaker Change: Now when.
Speaker Change: When we looked at you know.
Speaker Change: 23, a western Washington, Oh P equal tighten meaningfully.
Speaker Change: It's driven by you know seem self helpful right and as well as possible.
Andy Yeung: And as well as, you know, cost structure and infrastructure. So, you know, KFC is already offering a very high level of margins, and then Pizza Hut, you know, has a little bit more room for improvement in the long term. Now, you know, if we look at the quality fluctuations, you know, that's to be expected, as you mentioned, this is the first year, so normalizing operation, we open. And then your first quarter and every quarter will be driven by some seasonality, and then also will be driven by, obviously, the sales trend and other factors because sales are always a very important factor in determining margin. And, you know, as you mentioned, and you mentioned You know, we achieved, again, you know, like a nominal quarter with, you know, record-setting operating profit. And so, and then there was also some, one office, you can look at, you know, the work and save table, roughly $30 million of one time that we received last year. So that's not a high base for us this year.
Speaker Change: So chassis.
Speaker Change: All the offering out there.
Speaker Change: High level I know Martin.
Speaker Change: Pizza hut.
Speaker Change: Oh people movement and the long term.
Speaker Change: Now if we look at the quarterly fluctuation no that's to be expected as we mentioned this is the first year you know.
Speaker Change: So Lamar think operation post opening.
Speaker Change: And and and and and then the first quarter.
Speaker Change: Every quarter it will be driven by some seasonality.
Speaker Change: And then also maybe driven by obviously the sales trend and other factor would be the southeast always a very important factor.
Speaker Change: Market wise.
Speaker Change: And.
Speaker Change: As you mentioned and mentioned last year, you know it was a high base.
Speaker Change: Yeah, Yeah cheap again.
Speaker Change: That's a normal quarter.
Speaker Change: As you know.
Speaker Change: Record setting operating profit and so and then there was also some one offs in the message.
Speaker Change: Looking through the table roughly $30 million of one time that you see last year. So they set up a high baseball Easter obviously will work hard.
Andy Yeung: Obviously, we work hard, you know, to manage our costs and drive sales. And in the first quarter, we are working under a new normal, right? And, you know, as we have, you know, mentioned in our prepared remark, consumers are more rational in terms of their spending and eager for, you know, new and good value-for-money products. And so, you know, as Juliet just mentioned, we have set up, you know, a number of very intensive numbers of product launches in our Canada. And then we also, you know, we'll make sure that we have it.
Speaker Change: Manage all cost and try to and in the first quarter, we work under a new normal right.
Speaker Change: As we have mentioned and now people are consuming.
Speaker Change: Some are more rational in from all the spending.
Speaker Change: And either for you know a new and good value for money products.
Speaker Change: So you.
Speaker Change: You know as soon as I just mentioned, we have set up you know a number of very intensive.
Speaker Change: Launches in Canada, and then we also.
Speaker Change: Make sure that we have so.
Andy Yeung: Significant resources and campaigns to drive that sales and traffic, especially around Chinese New Year, OK. So, so, you know, on again, you know, like Chinese New Year right now is too early to, to, to, give a very solid outlook because this year, Chinese New Year is a bit later compared to last year. So, current, right now, as we look at, you know, on our plan, the new normal is on track. However, as Joey mentioned, you know, there's quite a bit of uncertainty with Chinese New Year because millions, hundreds of millions of people are traveling in a very short period of time. And so, the weather conditions, you know, as we have observed recently, may or may not have an impact there. So, we'll continue to monitor the situation and adjust our plan as we always have been quick to respond to any changes. If necessary,
Speaker Change: And that's going to be sources.
Speaker Change: And campaigns are to drive ourselves and <unk>.
Speaker Change: Topics, especially around Chinese new year, Okay. So.
Speaker Change: So you know on again, you know like Chinese new year right now it's too early.
Speaker Change: Hughes to two to give a very solid.
Speaker Change: Because you see a new year.
Speaker Change: Later, a compared to last year. So our current right now as we look at you know.
Speaker Change: On the outside and that didn't you know I'm always on track. However, sweet imagine there's quite a few uncertainty would try as new year, because millions hundreds of millions of people are traveling in a very short period of time and so the weather conditions. You know as we have upside would be somebody may or may not happen. There. So we will monitor the situation.
Speaker Change: And adjust our plan as we always have been quickly to respond to any changes if necessary.
Andy Yeung: And so, on the call side, as mentioned, obviously, we'll focus on productivity improvement, cost control, and then, you know, as the goal is really to maintain a stable call opt-in profit after adjusting for the non-recurrent item and foreign exchanges. Thank you. Your next question comes from Xiaopo Wei with Citi. Please go ahead.
Speaker Change: And so on the call that we mentioned you know obviously, we're focused on productivity improvement cost control.
Speaker Change: And then you know at the goes way to maintaining a stable cough and pass it.
Speaker Change: After adjusting for notable.
Speaker Change: Uh huh.
Speaker Change: Thank you.
Okay.
Shopper: Your next question comes from Shopper way what city. Please go ahead.
Good morning.
Shopper: Thank you for taking my question I, just looked at a little bit longer term in terms of the business and the first thing is if you look at the financials in 2023 actually a very good control G&A. If you look at the G&A to sales ratio actually going down if you look at a 24 as Julian M D.
Xiaopo Wei: Good morning. Thank you for taking my question. I just look at a little bit longer term in terms of business. And the first thing is, if you look at the financials, in 2023, actually a very good controlled GNA. If we look at a GNA to sales ratio actually going down, if we look at a 24, as Joey and Andy mentioned, there are some factors which you cannot control in the short term, like weather, like macro. So shall we be certain that the GNA to sales ratio will continue to go down in 2024 because we have more control on the management of our admin cost at the high quarter level? That is the first question.
Julian: Sure. There are some factors, which you cannot control your short term like weather like mackerel. So shall we be searching that Gee I know you do sell suites sure well continue to go down in 'twenty four because that do we have more control on our management all of our other medium cost headquarter level that is the first question. The second question.
Julian: Added D and Julian mentioned that the consumers are more rational this year. So could you comment on your competitors well competitor would be more rational as well with a more rational consumers. Thank you.
Julian: Yeah.
Hum handle that okay, Okay got it.
Speaker Change: I I would just quickly talk little bit about you know all called at par.
Andy Yeung: The second question is, Andy and Joey mentioned that consumers are more rational this year. So could you comment on your competitors? Well, competitors will be more rational as well with more rational consumers. Thank you.
Speaker Change: You know in conjunction with the G&A.
Speaker Change: So you know.
Speaker Change: You can see that you know over the past few years and last year, we have you know.
Speaker Change: <unk> got a lot of athletes to restructure our cost base, our overall target foreseeable as I've been trying to keep a stable and we have kept stable around 31% of about two years, obviously, let's see let's move excuse me only somewhat.
Joey Wat: I will just quickly talk a little bit about our cost effort in conjunction with the GNA. So you can see that over the past few years and last year, we have made a lot of effort to restructure our cost base. Our overall target for fuel ads has been trying to keep it stable, and we have kept it stable around 31% over the past few years. Fuel prices move seasonally somewhat, and we are trying to keep it around 31% plus or minus 1%. And then the other one is labor costs. Labor costs, obviously, over the past few years, because of the pandemic, we did see some impact on cost inflation and also a very mixed shift that drives up labor costs.
Speaker Change: And we're trying to cabinet around like no sorry, So do you want to say plus or minus 1%.
Speaker Change: For the full year and then the other ones maybe cost maybe because obviously over the past few years because of the fact that we did see some impact on your cost inflation and also delivery mix shifts that they'll try something like a clock, but we were able to more than offset that to you know the reductions in occupancy and other costs.
Speaker Change: It was significant improvement.
Speaker Change: You know comparison.
Speaker Change: I, almost like 350 basis points our venues.
Speaker Change: But right now.
Speaker Change: That's supposed to yourself and so so that's the longer longer term trend.
Speaker Change: And depreciation costs also come down because we have in pool, you know capex efficiencies and then also optimize our portfolio. So those are the longer term trend you're talking about a margin lever for us is marketing and advertising because that's a lot into yourself.
Andy Yeung: But we're able to more than offset that through the reductions in occupancy and other costs, a significant improvement compared to even pre-pandemic levels by almost 350 basis points. Our brand is at a record level right now, percentage of sales. And so that's the longer-term trend. And appreciation costs also come down because we have improved, you know, cap-ex efficiencies and then also optimized our portfolio.
Speaker Change: Now remember basically I know you say logic are 417 million November Cabo almost 65% of I'll say, we're already so we think we we'd be able to talk about them.
Speaker Change: Sure.
Speaker Change: G&A, our G&A expense as a percentage of sales has improved this year to five 8%. We call aim to compete you are seeing that trend by ensuring that she had an equal I wouldnt.
Speaker Change: Main significantly lower then so let's do that obviously you will continue to be.
Speaker Change: Cool.
Speaker Change: Oh Ya patients. These in house are you technologies and other automation tools to help make our I was amazed him out of Michigan.
Speaker Change: Thank you.
Andy Yeung: So those are the longer-term trends. In terms of the other margin lever for us is marketing and advertising, because we have invested a lot in digital. And our member base right now is very large, 470 million student members account for almost 65% of our sales already. So we think we'd be able to work on that. In terms of G&A, G&A expenses percentage of sales have improved this year to 5.8%.
Speaker Change: So Paul I think.
Paul: I'm going to address your question by taking a step back by looking at the trends the industry trends are good competitors friend cause too much for them and then and then Oh, Oh observation about trading trends.
Paul: And that hopefully will give you.
Paul: <unk> holistic sense off our long term view.
Paul: First our industry.
It's wildly with Florida everywhere.
Paul: China economy is growing at mid single digit, but it's rarely reported 2023, Oh industry actually grew at double digit actually 20%.
Andy Yeung: We continue to aim to sustain that trend by ensuring that G&A growth remains significantly lower than sales. Through that, obviously, we'll continue to improve labor, like our efficiencies in-house, new technologies, and other automation to help automate some of those emissions. Thank you.
Paul: The recovery of the restaurant industry was very a lifeline for 'twenty two 'twenty three and we are doing slightly better than the industry average.
Paul: However for 2022 like it was not easy to dis aggregate many fed test.
Including the growth or the recovery one Nissan is sometimes the headlines could be misunderstood.
Paul: I'll give you an example for quarter three.
Paul: Yum, China performance. The headline was reported we grow so does our revenue by 9% and Mr.
Andy Yeung: Xiaopo, I think I'm going to address your question by taking a step back and looking at the trends, the industry trend, the competitors' trend, the consumer trend, and then and then our own observation of our trading trend. And that, hopefully, will give you a holistic sense of our long-term view. First, industry. It's widely reported everywhere that China's economy is growing at mid-single digit rates, but it's rarely reported. In 2023, our industry actually grew at double digit rates, actually. So the recovery of the restaurant industry was very vibrant in 2023, and we are doing slightly better than the industry average. However, in 2023, it was not easy to disaggregate many factors, including growth or recovery. One reason is that sometimes the headlines could be misunderstood. I'll give you an example.
Paul: Mr expectation by five points something like that in reality that is.
Paul: You too.
Paul: The foreign exchange difference.
Paul: In upgrading currency, which is rather than be in China, or south coast, well, 15%, but.
Paul: The reporting currency is the U S. Dollar so is reported at 9% so.
Paul: If we can obligate at foreign change from the upgraded currency, we see that difference, but fundamentally our industry is growing very nicely and now of course quota to everybody.
Paul: That's really country in tons. So the system self worth as much as 32%. So net net the industry because the by putting this thing for a car T G suite.
Paul: Great.
Paul:
Paul: And that explain why either de Yum, China, there's so many competitor us had been so aggressive.
Paul: To open new stores, because the opportunity is out there is the competitive yeah, absolutely. Unfortunately, let's not forget it has always been competitive in the last 36 years. That's what we have always been able to say, it's a market leader in the last 30 some years as well.
Joey Wat: For quarter three, Yum China's performance, the headline was reported, we grew sales revenue by 9%, missed the expectation by 5.7%. In reality, that is due to the foreign exchange. In our operating currency, which is renminbi in China, our sales growth was 15%. But the reporting currency is in U.S. dollars, so it's reported at 9%.
Paul: Right.
I went to consumption trends.
Paul: Well I'm going to share is not the mainstream thinking so we.
Speaker Change: We can agree to disagree.
Speaker Change: Amazing thinking is China is.
Speaker Change: Going through will cause sometimes downgrade with many challenges to a dose that is true, but we're studying that cluster.
Speaker Change: Customers are just getting more rational.
Speaker Change: However, what is not being mentioned a tool is even with 5% GDP growth.
Speaker Change: Mid single digit GDP growth because some of them up right. There's still also happening.
Joey Wat: So if we disaggregate the foreign exchange from the operating currency, we see the difference. But fundamentally, our industry is growing very nicely. And then, of course, in quarter two, the actual recovery in terms of system sales was as much as 32%. So let's let the industry recover by 20% for 2023. And that explains why, other than Yum China, there are so many competitors that have been so aggressive to open your store because opportunities are there. Is it competitive?
Speaker Change: Urbanization in China is still happening.
Speaker Change: And we don't even need to look at the restaurant industry, we tend to look good.
Speaker Change:
Speaker Change: China's top 6000 in shopping malls, which we track because we opened a lot of stores in those shopping more with food.
Speaker Change: Lynn or top 6000 shopping mall.
Speaker Change: 23 alone.
Speaker Change: There were 400, new shopping mall.
Speaker Change: No that's a low number.
Speaker Change: Tusa of them open during the second half of quarter.
Speaker Change: Quarter three quarter, four and we are happy to report to US Yahoo that that these shopping mall locations toward a better trading better than the rest well.
Joey Wat: Yes, absolutely. But fortunately, let's not forget, it has always been competitive in the last 36 years as well. And we have always been able to stay as a market leader in the last 30 some years as well. That's point one. Point two, consumption trends. What I'm going to share is not the mainstream thinking. So we can agree to disagree.
Speaker Change: Apart from the tourist and transportation location.
Speaker Change: So when when a shopping mall opened near the high Street or closer High Street, you can imagine that's Friday moved or something more.
Speaker Change: That itself is consumption.
Speaker Change: So come back to the rationalization of the customer.
Speaker Change: How do we respond to it we are the market leader.
Joey Wat: The mainstream thinking is China is going through a consumption downgrade with many challenges. To a certain extent, that's true. But to a certain extent, customers are just getting more rational. However, what is not being mentioned at all is even with 5% GDP growth, or Mixed Single-Digit GDP Growth, consumption upgrade is still happening. Urbanization in China is still happening.
Speaker Change: We our focus our focus in the last 30, some years and our ongoing focus is how to build a brand with a combination of good value amazing product.
Speaker Change: And opening up the price point.
Speaker Change: It's a combination.
Speaker Change: All of these.
Hum food is always number one and you can see why we continue to rose rock Oh. So many goes live at the same time, we are very cautious about the price point.
Joey Wat: And we don't even need to look at the restaurant industry. We can look at, um, China's top 6,000 shopping malls, which we track because we open a lot of stores in those shopping malls. Within the segment of top 6,000 shopping malls, in 2023 alone, there were 400 new shopping malls opened. Not a phone number.
Speaker Change: That's the reason why.
Speaker Change: Our original recipe chicken.
Speaker Change: After 36 years the price, it's less downside surprise, we launched 36 years ago only if the China housing prices increased by by those same Rachel original recipe than I think many Chinese people are even happier.
So so we do a range of the of the product launch, we launch well who people get the price as much as 50 M b, but at the same time when we also introduced a loss at the entry price value come back. Once this is the range we're going for it is working.
Joey Wat: And two-thirds of them opened during the second half of the year, quarter three and quarter four. And we're happy to report to our shareholders that these shopping mall locations stores are better, and are trading better than the rest. Well, apart from the tourist and transportation locations. So when a shopping mall opens near the high street or close to the high street, you can imagine the traffic moving to the shopping mall. And that itself is a consumption outbreak.
So you come to the trading pattern will have we seen during quarter four and that will give us some idea about the 'twenty 'twenty four going forward.
Speaker Change: Hmm.
Speaker Change: We celebrate 10000 store can see during December 15, this year it was.
Speaker Change: Very meaningful for us and also I hope give some confidence to our investors.
Speaker Change: What I'm curious about is solid and has nice growth.
Speaker Change: Yeah.
Speaker Change: Quarter four was thought were the best of saw softness we don't have to it but it's against but.
Joey Wat: So, come back to the rationalization of the customer. How do we respond to that? We are the market leader. Our focus, our focus for the last 30 some years, and our ongoing focus is how to build a brand with a combination of good value, amazing products, and opening up the price point. It's a combination of all of these.
Speaker Change: The trade to improve in November and they improved a bit more in December it's good to know the trends, though right.
Speaker Change: And then.
Speaker Change: The rebound of buying is very strong. However, the delivery remains popular is still 36% of our business customer like the convenience.
Speaker Change: By trade zone or improve.
Speaker Change: As I mentioned earlier tourist location and transportation hub are recovering very well other than that shopping malls are doing the best and the other.
Speaker Change: By region recovery happen across Oh man, you jump off point for <unk>.
Joey Wat: Good food is always number one, and you can see why we continue to roll out so much good food. But at the same time, we are very cautious about the price point. There's a reason why Original Recipe Chicken, After 36 years, the price is less than 5X of the price we launched 36 years ago. Only if the Chinese housing price increases by the same ratio of original recipe chicken, then I think many Chinese people are even happier. So we do a range of product launches. We launch Wagyu beef burgers at a price as much as 50 RMB. But at the same time, we also introduce the entry price value combo at 20. This is the range we're going for. And it's working. Point three, we come to the trading pattern. What have we seen during quarter four?
Speaker Change: Yes, northern part of China recovery, the recovery the best because last year Kobe lapping them. They were they were very difficult last year.
Speaker Change: Across the year eastbound China, which is the most important part of our business. It's still the most of it still in the region.
Speaker Change: City tier tier two inland central part of China.
Speaker Change: Recovering at the best of doing the best they are the regional hub library economy, the living as my sister Nora.
Speaker Change: Okay.
Speaker Change: One. Good example is <unk> is Steve destination for food in China.
Speaker Change: Lona amazing foot concept that people go to try not just to enjoy defensible, but little do people know tons off rent is only about 10% to 15% of Shanghai and yet ticket average is not too different.
Speaker Change: And these are the example of the cities are doing the best and going forward.
Speaker Change: And pizza hut are doing very well in lower tier cities.
Speaker Change: That pools that.
Joey Wat: And that will give us some idea about 2024 going forward. Um, we celebrate 10,000 stores of KFC on December 15th this year. It was very meaningful for us and it also, I hope, gives some confidence to our investors that Western QSR is solid and has nice growth. Quarter 4 starts with a bit of softness, we don't have to reiterate again, but the trade improved in November and then improved a bit more in December. Good to know the trends are right. And then
Speaker Change: The pizza hut business model, what sort of largest city.
Speaker Change: Last but not least our.
Speaker Change: We began trading right now its better than Wednesday. This is phenomenal for our team because if you remember in our previous earnings call. Our we.
Speaker Change: Yeah, Travis well small challenge after the pandemic People's behavior change the travel during weekends from.
What do we do we launched the whole chicken and that product the whole genome product pocket very very.
Speaker Change: <unk>.
Speaker Change: Uh Huh has a very clear focus to drive the delivery business during the weekend.
Speaker Change: Customers can buy the whole chicken put it on the table has a batch and some rice and this is a very nice meal.
Joey Wat: The rebound of DaYin is very strong. However, delivery still remains popular. It's still 36% of our business. Customers like the convenience of TradeZone or Improve. As I mentioned earlier, tourist destinations and transportation have been recovering very well. Other than that, shopping malls are doing the best among all. By region, recovery happened across all regions for quarter four and four years. The northern part of China recovered the best because last year COVID lapping. They were very difficult last year.
Speaker Change: So now all of a weekend so I'm sure it is better than we say it's huge.
Speaker Change: Milestone for our team our ability to build new product a new SKU to grow with a change of customer is that thank you for indulging me is along ends up I hope that gives you.
Speaker Change: I can give you some real long term view of the way that we trade up isn't it. Thank you that's helpful.
Speaker Change: Your next question comes from Lina Yan with East eight Chase space say please go ahead.
Lina Yan: Hi management, Thanks for the very detailed walk through of your business and your points well taken that youre very nimble in reacting to competition, but when I talk to my clients, what I heart most over the last quarter, what's that the market the fear Oh as you.
Joey Wat: And across the year, the eastern part of China, which is the most important part of our business, is still the most resilient region, in city tier, tier two, inland, central China are doing the best. They are the regional hub, the wider economy, and living expenses are lower. One good example is Changsha, it's the destination for foodies in China, a lot of amazing food concepts there, people go to Changsha just to enjoy different food, but little do people know Changsha's rent is only about 10-15% of Shanghai, and yet the ticket average is not too tight. And these are the examples of the cities doing the best and going forward. And PSAHA is doing very well in lower-tier cities.
Lina Yan: The new price point, especially by launching more entry price offerings.
Lina Yan: Dropped down your ticket size of yesterday, Andy showed some numbers low ticket size 30 night was very stable.
Lina Yan: Over quarter Y O Y in fourth quarter, all but I'm wondering if you could give us more color.
Lina Yan: In terms of how dose and cheap priced offering our parks are affecting yourself makes and what's the impact on I S. T and number of transactions per ticket. So that you can maintain a relatively stable.
Joey Wat: And that proves that the Pizza Hut business model works for lower-tier cities. Last, last but not least, our weekend trading right now is better than weekday. This is phenomenal for our team because, if you remember in a previous earning call, our week... Weekend traffic was more challenged after the pandemic.
Lina Yan: 13, I ticket size and on top of that what would be the impact of enterprise offering on your GP margin. Thank you.
Joey Wat: People's behavior changed. The traffic during the weekend dropped. What did we do? We launched the whole chicken, and that product, the whole chicken product, target very, very, has a very clear focus to drive the delivery business during the weekend. Customers can buy the whole chicken, put it on the table, have a vegetable and some rice, and this is a very nice meal. And it works.
Speaker Change: Thank you let.
Speaker Change: Let me reiterate we have been able to protect our ticket and ticket size and even grow a little bit over the years. So 20 2019 pre pandemic the ticket to get out of these 37.
Speaker Change: 1920, 20 is 40, and then 39 42 and 41 for 2023. So this is a long term trend.
Speaker Change: And we even go back even in another five years, it's not too far away. So this is always our our trading strategy to keep the ticket average relatively stable to go to specifics the introduction of the entry price products always Thomas Wei.
Joey Wat: So now our weekend sales are actually better than we think. A huge milestone for our team's ability to build new products and new skills to grow with the change of customers. Thank you for indulging me.
Joey Wat: It's a long answer, but I hope that it gives you some sort of long-term view of the way that we trade our business. Thank you. Your next question comes from Lina Yan with HSBC. Please go ahead.
Speaker Change: The new product.
Speaker Change: New product and also it comes with the introduction of the high priced product I mentioned that the beef booger in Pittsburgh.
Speaker Change: <unk> seen less than last year by the way for the category.
Speaker Change: So 50%.
Lina Yan: Hi Management. Thanks for the very detailed walkthrough of your business, and your points are well taken that you're very nimble in reacting to competition. But when I talked to my clients, what I heard most over the last quarter was about the market. As you brighten your price point, especially by launching more entry price offerings, it might drag down your ticket size. Obviously, Andy shared some numbers.
Speaker Change: Who'd been forgotten.
Speaker Change: B well goopy booger in 'twenty on the combo.
It's a good balance.
Speaker Change: Well also help us when we do promotions like even before Chinese new year.
Speaker Change: Always the try to help customer to a trade up to a higher ticket average by having a very attractive. It's Scott. So it's a combination of our of the marketing campaign that we have been doing to protect the ticket average is.
Joey Wat: Your ticket size, 39, was very stable quarter over quarter, YOY, in the fourth quarter. But I'm wondering if you could give us more color in terms of how those entry-priced offering products are affecting your sales mix, and what's the impact on ASP, and the number of transactions per ticket so that you can maintain a relatively stable 39 ticket size. And on top of that, what will be the impact of the entry price offering on your GP margin? Thank you. Thank you.
Speaker Change: Specifically for the entry price products.
Speaker Change: Has three purposes, and we are happy to see all three cause us up there.
Speaker Change: One is it does attract incremental customer.
Speaker Change: We've become more and more mass market, particularly for pizza hut, but by the way people think of average moved from 122 right now 90 over the last five years as part of the turnaround strategy Oh yesterday. It was because we wanted to open more towards become more mass market, we need to have product in python to cater for that.
Speaker Change: Incremental customer so at one and two what percentage is about 5% right now it's not a huge proportion that will offset the violence of I imagine.
Andy Yeung: Let me reiterate, we have been able to protect our ticket size and even grow a little bit over the years. So, 2019 pre-pandemic, the ticket average is 37, 2020 is 40, and then 39, 42, and then 41 for 2023. So this is the long-term trend. And if we even go back even another five years, it's not too far away.
Speaker Change: That's 0.1 0.2 is.
Speaker Change: Trusting me when we huh.
Speaker Change: The entry price point.
Speaker Change: It doesn't mean, the mood of the customer will go down not necessarily.
Speaker Change: Thing about Kuzma sidekick, many customer will still go for the.
Speaker Change: The problem solved the entry priced product to feel good.
Speaker Change: Feels good to choose something in the middle not the cheapest one right.
Right.
Speaker Change: Do you have a customer yourself at yourself, how would you choose.
So.
Joey Wat: So this is always our trading strategy to keep the ticket average relatively stable. To go to specifics, the introduction of the entry price product always comes with the new product. It's a new product and also comes with the introduction of the high-priced product. I mentioned that the beef burger category grew by 18% last year. So 50% IMB Wagyu beef burger and 20 IMB combo is a good balance.
Speaker Change: It really actually improve the price perception.
Speaker Change: By having something very low cost there I'll give you. One example, I did 10 years ago with Kashi business I Lola.
Speaker Change: Small Pepsi Coke price in our menu.
Speaker Change: [noise] lowered it.
Speaker Change: Oh.
Speaker Change: Good it looks very affordable, but how many people actually went for it not that men.
Speaker Change: Some say it's important it's almost closer to reality towards studying that.
Speaker Change: So I hope that gave us it was about how do we how do we treat the enterprise product, but suddenly it helps us when we go down to tier five tier six cities to it I'm sure do you want to introduce them.
Joey Wat: What also helps is when we do promotions, like for Chinese New Year, we always try to help customers to trade up to a higher ticket average by having a very attractive discount. So it's a combination of the marketing campaign that we have been doing to protect the ticket average. But specifically for the entry price product, it has three purposes, and we are happy to see all three purposes there.
Speaker Change: So our product to two southern customer by the way is a fantastic way to recoup.
Speaker Change: Young customer such as student as well.
Speaker Change: He could've with amazing sort of like the golden spot to confirm that is breast meat.
Speaker Change: Breast meat in the U S coal.
Speaker Change: We can sell at higher price does not me, but in China, It cost us less.
Speaker Change: So the model of course, we put that the module. The module is just fine. Thank you.
Speaker Change: Your next question comes from C. J Lynn what C. I say say please go ahead.
Joey Wat: One is, it does attract incremental customers. As we become more and more of a mass market, particularly for Pizza Hut. By the way, Pizza Hut's ticket average moved from 120 to right now 90 over the last five years as part of the turnaround strategy. Obviously, it works because if we want to open more stores, become more mass market, we need to have a product and price point that caters for the incremental customer. So, it works.
Speaker Change: Thank you Julian N D O. So we have talked a lot about the competition I want to ask one question about Pizza Hut, Oh do we see that Pizza hut had oh quite a good performance of margin in Q4, driven partially by the labor productivity gains and lower right of course Oh.
Speaker Change: He also mentioned before that our pizza hut margin is still lower than KFC and there's room for improvement. So what else. We can do to further reduce costs and improve efficiency. Thank you.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: [laughter].
Speaker Change: I think it was the so you know again you know we when we look at you know L. P.
Joey Wat: And to what percentage? It's about 5% right now. It's not like a huge proportion that will offset the balance of our margin. That's point one. Point two is, interestingly, when we have the entry-priced product, does it mean most customers will go there? Not necessarily. If you think about customer sidekicks, many customers will still go for the product above the entry price product to feel good. It feels good to choose something in the middle, not the cheapest one, right? You are the customer yourself. Ask yourself, what would you choose?
Speaker Change: And.
Speaker Change: The focus is.
Speaker Change: So many times, including what you have just earlier mentioned, we generally try to aim for you know called shows a to.
Speaker Change: To be remarkably stable.
Speaker Change: Over the long term.
Speaker Change: On a year over year basis.
Speaker Change: And and and that's because you know we have a very excellent.
Speaker Change: Pricing team are very disciplined with our pricing.
Speaker Change: And this will also come from you know our commitment to to continuously innovate.
Joey Wat: Third, it really actually improves the price perception by having something very low cost there. I'll give you one example I did 10 years ago with my KFC business. I lowered the small Pepsi Coke price on our menu. Lower it! Because it looks good, it looks very affordable, but how many people actually go for it? Not that many.
Speaker Change: And also if you could use you know new products every year.
Speaker Change: And then and also as we have mentioned many times, we make the best effort.
Speaker Change: Are you using every part of the chicken or power so that we can enhance.
So usage are minimized.
Speaker Change: And all of this quality.
Speaker Change: It allow us to provide quick value.
Speaker Change: All the money pulled out consumer while keeping our calls.
Joey Wat: The perception is important. It's almost as important as the reality to a certain extent. So I hope that gives a sense about how we treat the entry-price product. But certainly, it helps when we go down to Tier 5, Tier 6 cities to introduce our product to certain customers. By the way, it's a fantastic way to recruit young customers, such as students, as well. Particularly with amazing products like the Golden Star Chicken Burger, which is made from breast meat. Bread meat in the US can sell for a higher price than duck meat, but in China, it costs us less.
Speaker Change: So.
Speaker Change: Market to be stable.
Speaker Change: That would be something you'll quality Ah Ah seasonality and fluctuation there, but if you go back I'll track record, we have been able to keep it like so do you want to say plus or minus what to say over the past two years.
Speaker Change: You can see last year, if you just wait on that thought.
Speaker Change: Now when we looked at you know the old all calls are labor costs are obviously right now with the Salt Pepper you called me, so you'll be probably while modest in terms of inflation increase them, but more importantly over the year, we have utilized our digital and automation chew and technology.
Speaker Change: Like AI assistant that's gasoline inventory that we have mentioned before.
Andy Yeung: So the margin, of course, we protect the margin. The margin is just fine. Thank you. The next question comes from CJ Lin with CICC. Please go ahead.
Speaker Change: Beautiful acuity manage call.
Speaker Change: We will also with the Aussie and initiative are basically we had tried to streamline and mitigate the tariffs.
CJ Lin: Thank you, Joey and Andy. We have talked a lot about the competition. I want to ask one question about Pizza Hut. So we see that Pizza Hut had quite a good performance on margin in Q4, driven partially by the labor productivity gain and lower rider cost. And we also mentioned before that Pizza Hut's margin is still lower than CFC, and there's room for improvement. So what else can we do to further reduce costs and improve efficiency? Thank you, CJ.
And then like Cleveland or training et cetera to a more central hypothesis as well as centralized food processing.
Speaker Change: To to to further improve restaurant labor efficiency, and so you know, albeit a little fluctuation, but in the long term, we aim to keep labor cost.
Speaker Change: These stable long run again, the emphasis here is on the bottom line because.
Speaker Change: Because in the short term, it's going to be always impacted by it.
Speaker Change: Sales leverage.
Speaker Change: No occupancy and others, Oh go sinful KFC and same for Pizza hut.
Andy Yeung: So, you know, again, we, when we look at our cause and our focus, as we have said many times, including what Joey had just earlier mentioned, we generally try to aim for corporate sales to be marketably stable over the long term on a year-over-year basis. And that's because, you know, we have a very excellent supply chain team, very disciplined with our pricing. And this also comes from, you know, our commitment to continuously innovate and also introduce new products every year. And also, as we have mentioned many times, we make the best effort to use every part of a chicken or a cow so that we can enhance resource usage, minimize cost, and all these together have allowed us to provide great value for money for our consumers while keeping our cost of sales market state.
Speaker Change: The area, where we would have oh, the truth and competitive proof that they make as I mentioned earlier, we improved by almost 250 basis point no wait upsell ratio is one we have you know good long term contracts Oh and then we also have optimized I'll stop with sodium <unk>.
Speaker Change: As we expand into lower tier cities are they generally also come with Noel Ryan. It's mentioned as we mentioned the brand insurance is a lot lower than the tier one cities that's helpful.
Speaker Change: And then we also have more flexible format targeting a delivery.
Speaker Change: And take away that are smaller and also more cost efficient in terms of rent to sales ratio because if we shouldn't cause you said another one you know we can't say what others see every year you know our capex per store has been cool compared to a few years ago was more like 2 million.
Speaker Change: Miller U S. A M B P.
Speaker Change: These days.
Speaker Change: What.
Speaker Change: I live in a and B and her with new store, so I'll depreciate calls often.
Andy Yeung: There will be some new quality seasonalities and fluctuations there, but you know, if you look at our track record, we have been able to keep it around like 31% plus or minus 1% over the past few years, like last year, if you just wait on the dot. Now, when we look at, you know, the overall cost, labor costs, you know, obviously right now we're in a soft capital economy, so it would probably be more modest in terms of wage increases. But more importantly, over the year, we have utilized digital and automation tools and technology, like AI-assisted scheduling and inventory, which we have mentioned before, to enhance labor productivity and manage costs. We also, with the RGM initiative, basically, try to streamline administrative tasks and then, like, recruitment or training, et cetera, into a more centralized process, as well as centralize some of the food processing to further improve restaurant labor efficiency.
Speaker Change: And Hello, marketing leveraging extra.
Speaker Change: So so so I think for Pizza hut, obviously, you know labor because that's really exciting.
Speaker Change: The opportunity there.
Speaker Change: Oh definitely Oh, that's what I mentioned before I kept he's already running every height.
Speaker Change: 11th so so the wound for potash.
Speaker Change: Or how should we would be using the over those lines.
Speaker Change: I mean, it seems like.
Speaker Change: The overview and and take a step back again.
Speaker Change: We have been very consistent with the Pizza hut strategy things Hunter 17, when we embark on therapies I turned around it.
Speaker Change: Itself first profit later and that resilience coming after that.
Speaker Change: And so it.
Speaker Change: Obviously, you remember we work on our product we broke on the marketing campaign, we work on the business model. We work on unit economics of each of our stores now.
Once we turn around the same store sales within 18 months. After we make a promise that we really turned our focus to public because sometimes you have to do that trade off I think at the very beginning of a turnaround, albeit in a plant.
The trade off is always sounds for proppant later, so laid all we work under a qualified all the VITAS Andy just Oh, there went through with you a few minutes a minute earlier.
Speaker Change: And we'll continue to do that and we want more content there's parts of it.
Speaker Change: On every other line.
Speaker Change: What is out there is resilience.
Speaker Change: More profit.
Speaker Change: We are going to open more stores, obviously across all set each year.
Andy Yeung: And so, you know, obviously, there's some fluctuation, but in the long term, we aim to keep labor costs relatively stable in the long run. Again, the emphasis here is on that, because in the short term, it's always going to be impacted by it. Thanks a lot.
Speaker Change: To you know improve to utilize the scale of our business to get better rent to get better cause ourselves if that's right that's right.
Speaker Change: Then next is resiliency.
Speaker Change: We want to build a very resilient business, even more resilient than now and resilient at Pepsi.
Speaker Change: Well, it's a very challenging goal, but unfortunately, when you have two brothers and of course, two brothers compete with each other it's just not.
Andy Yeung: Now, occupancy and others, this goes the same for KFC and the same for Pizza Hut. It's an area where we will have opportunities. And compared to pre-pandemic, as I mentioned earlier, we improved by almost 300 seat bases; the run of sales ratio is 1. We have, you know, a good long-term contract. And then we also have optimized our stock portfolio. As we expand into lower-tier cities, they generally also come with lower rent. As we mentioned, the rent in Changsha is a lot lower than in Tier 1 cities.
Speaker Change: So so for example, one charter and should we keep it to ourselves, which we we we got it already plenty of 'twenty, three and we want each quarter to be profitable because pizza hut is quite a seasonal business, even more seasonal than techy.
Speaker Change: So you can see that for the full time to 'twenty three.
Speaker Change: We remain profitable and it's very important because I just don't like it.
Speaker Change: Even though that's a small quarter.
And that will continue to improve that Cincinnati and we even continue to improve the resolve this location during the peak hour and so out of the day and that's how we improve the resilience of the of the business not only for the shareholder at buckle, all employee as well. Thank you.
Andy Yeung: And then we also have more flexible formats that target delivery and take-away that are smaller and also more cost-efficient in terms of rent-to-sales ratio. Now, depreciating costs are another one we continue to work on. As you can see, every year, our capex per stall has improved. Compared to a few years ago, it was around $2.5 million RMB.
Speaker Change: Your next question comes from Kevin <unk> with J P. Morgan. Please go ahead.
Kevin: Thank you thank you Jerry and Andy.
Kevin: My question is on the Asps. Okay. It's good to see the ticket size went up from 39 to 42, which is very good about where we like to better understand that yes.
Speaker Change: Fourth quarter 'twenty three.
Andy Yeung: Today, it's around $1.5 million RMB per new stall. So our depreciation cost also improves. And, you know, marketing leverage and so on. So I think for Pizza Hut, obviously, labor potentially is an improvement opportunity there. O&O, definitely.
Speaker Change: It's a bit different vessels before so for example.
Speaker Change: Like for like basis, KFC average ticket size Dom what percentage and chocolate can call me back by what by what percent of your points. So just try to quantify.
Speaker Change: In the fourth quarter Asps Inotropic attack, Okay, and secondly, also like to know your thoughts for 2020 for your conviction level to maintain flattish same store sales growth in 2024, and if we considering the contribution from G&A cost cutting et cetera, what's the minimum same store sales growth.
Joey Wat: As I mentioned before, KFC is already running at a very high operating level, so the room for improvement potentially will be in the old adult area. Let me give an overview and take a step back again. We've been very consistent with the Pizza Hut strategy since 2017, when we embarked on the pizza turnaround. It sells first, profit later, and then resilience comes after that. Sales, obviously, you remember. We work on a product, we work on a marketing campaign, we work on the business model, we work on the unique economics of each of the stores.
Speaker Change: <unk> level for us to maintain their restaurant margin in 'twenty.
Speaker Change: How much.
Speaker Change: Okay, Kevin Thank you for the questions so a little bit.
Kevin: The first.
Kevin: Ah patient all the T E N smoke you difference right. So so for KFC. Our we have a same store sales growth of about 3% and and transaction with T. C has increased by 16%.
Kevin: And then the average ticket size.
Joey Wat: Now once we turn around the same store sales within 18 months after we make that promise, then we really turn the focus to profit because sometimes they have to do the trade-off, particularly at the very beginning of the turnaround or building a brand. The trade-off is always sales first, profit later. So later on, we work on the cost lines, all the details Andy just went through with you a minute earlier. And we'll continue to do that. And we want a bit more profit, bit by bit, on every line. What is needed is resilience. We are going to open more stores, obviously, across all 30 chairs, to utilize the scale of our business to get better rent, to get better costs of sales, et cetera, et cetera. And then, next, is resilience. We want to build a very resilient business, even more resilient than now and as resilient as we can. Well, it's a very challenging goal. But unfortunately, when you have two brothers, and, of course, two brothers compete with each other, it's just normal.
Kevin: 11%.
Kevin: For Pizza Hut Ah you know to same store sales growth was about six with it and then the Tropic broke Oh, it was 15% and the average ticket.
Kevin: Change was about 8%.
Kevin: So.
Kevin: But as I've mentioned before.
Kevin: The T a trend everything could trend.
Kevin: Consistent with our overall strategy.
Kevin: Uh huh.
Kevin: Our market reach.
Kevin: And you know Joe you mentioned, you know the strategy to impose used to expand our footprint, especially in the small city.
Kevin: Pending our pricing on our end.
Kevin: Then you know offer consumer more options to drive incremental traffic.
Kevin: So.
Kevin: So you know there's significant growth that we have observed both in short section and overall system Southwell.
Kevin: Remind everyone for both KFC and pizza hut sick themselves.
Kevin: All of that 20%.
Kevin: And Oh, Oh, you know in the fourth quarter, but also for the full year. So obviously you know if you've looked at the sales number now strategy, it's working effectively now.
Kevin: Now when we look at the ticket every changes on a on a year over year basis, It's worth noting that 2023, obviously, a what's the first yep you're opening so.
Joey Wat: So for example, one challenge we give to ourselves, which we got in 2023, is we want each quarter to be profitable because Pizza Hut is quite a seasonal business, even more seasonal than KFC. So you can see that in quarter 4, 2023, we remain profitable. And it's very important, because I just don't like businesses that make a lot, even though that's a big and small quarter.
Kevin: This is a important context to keep in mind, when we look at the th movement.
Kevin: And you know as we have mentioned before Caf seats, we're seeing favorable bus ticket average in the fourth quarter 39 on beef, which is consistent with the third quarter.
Kevin: Both what we have seen in the prepaid debit.
Kevin: In fact, it's kicked that average as we have mentioned earlier I've been pretty consistent.
Joey Wat: And then we'll continue to improve the seasonality, and we'll even continue to improve the resource allocation during the peak hour and the slow hour of the day. And that's how we improve the resilience of the business, not only for the shareholders but for our employees as well. Thank you. Your next question comes from Kevin Yin with J.P. Morgan. Please go ahead.
And over the past five years, obviously with the recovery in the di himself who has struggled this year coupled with sharp assortments in our breakfast and coffee south has coach which on a year over year movement of the average ticket size, Okay I see.
Kevin: It's also consistent with our approach to expand that pipe a wage.
Kevin: And outside of auctions that you know again, you start to see coal federal but tropical off let me just add a little bit here about the quota for ticket average and a N D kit and.
Kevin Yin: Thank you. Thank you Joey and Andy. My question is about the ASP.
Wrap up this question.
Operator: Okay, so good to see the ticket size was up from 39 to 42, which is very good, but we'd like to better understand if the fourth quarter 23, is it a bit different versus before. So, for example, on a like for like basis, KFC average ticket size down by what percentage, and traffic coming back by what percentage points? So just try to quantify in the fourth quarter, ASP down, and traffic is back, OK? And secondly, I'd also like to note your source for 2024, your convection level to maintain flat-ish things as growth in 2024. And if we're considering the contribution from the GNA, cost cutting, et cetera, what's the minimum same source as growth level for you to maintain the rest of the margin in 2024? Thank you very much.
Kevin.
Kevin: Ticket average of our political is not that unusual as well.
Kevin: As Andy just putting out 2022 is the unusual year because it was still a lot of times. It's 42, that's that's very hot it let's go back to 'twenty 'twenty. One cortisol is 38 like this.
Kevin: The 2023 quota for is 39, but 2021 quality for its 38 'twenty 'twenty. Four is 38 2019, which is one of our best yes. So ticket average for cortisol is 37, so its not that different I mean, so all are feeling.
Kevin: It's the the the market is getting more promotional if that's right that's right, but as I went through in great detail that we're the market leader and when we do we'll try to strike that were just not new to us by the way, we always have a combination of.
Kevin: Good promotion a good product good good good mechanism to protect the Ta et cetera et cetera. Therefore, we are able to maintain the ta even during the portable across multiple yes. Thank you right.
Kevin: I can show you like again like your starting point to you know keep that context in mind.
Because as you know you remember is it seems like.
Kevin: A long time ago, but it was only fourth quarter 2023, that's about 22 that we have is we opening a big surge in infection.
Andy Yeung: Okay, Kevin, thank you for the question. So a little bit of a presentation on the TA and 4Q differences, right? So, for KFC, we had same-source sales growth of about 3%, and the transactions, the TC, could have increased by 16%. And then the average ticket size was down 11%. For Pizza Hut, the same-source sales growth was about 16%, and then the hurricanes broke out, and then everything that changed was about 8%. So, but as I mentioned before, you know, the TA trend, the average ticket trend, is pretty consistent with our overall strategy and to broaden our market reach. And, you know, as Joey mentioned, the strategy approach is to expand our stock footprint, especially in a small city, sending our pricing point. And then, you know, offer consumers more product options, drive incremental traffic, and so.
Kevin: At that time, it will be also experience some labor shortage because of infection right. So and then to pick up I think the delivery. It makes at that time was 45% which is very high.
Kevin: And so those are the contract for that and then turning to Pizza hut right. If you look at you know Pizza hut is a very consistent strategy for it seems $2 27, with Oh total Oh strategy.
Kevin: Which is you know too as Joey mentioned earlier drive customer traffic first and South and then finally interesting public movie. So we have successfully met those creek always people got a without a Moreover, as opposed to it's very much in line with our latest strategy would you aim to reach underserved.
Kevin: Segment by expanding our price range, especially for pizza that use less than 50 odd beat the category and we also want to offer more options. You know for you know for consumer that are suitable for smaller size of individual alright. Thank you. Thank you Kevin.
Yeah.
Kevin: Your next question comes from Chandler with Bank of America. Please go ahead.
Andy Yeung: So, you know, the significant growth that we have observed, both in transaction and overall system sales growth. I remind everyone, for both KFC and Pizza Hut, system sales grew by a large difference, and on both, you know, in the fourth quarter, but also for the full year. So obviously, you know, if you look at the sales numbers, you can see how the strategy is working effectively. Now, when we look at the ticket average changes on a year-over-year basis, it's worth noting that 2023, obviously, was the first year of reopening. This is an important context to keep in mind when we look at, you know, the TA group.
Chandler: Uh huh.
Chandler: Thank you Julia and Andi am sorry actually in my line got distracted discussions just now although I actually thought I E to the car at 630 a M. In the morning. So forgive me if I ask some questions about how we're already being asked previously so.
Chandler: So basically it's actually own margins. So I know what he saw our restaurant margins for tool twenty-three absolutely. It has already recovered to a level even slightly higher than 2019, so Mickey to the third highest margin since our spinoff, but compared with five years ago.
Chandler: Our margin structure has significantly changed so our labor cost as a percentage of revenue has great reason to sleep, but oh could pause in August.
Andy Yeung: And, you know, as we have mentioned before, KFC, we're seeing a very robust ticket average in the fourth quarter, 39 RMB, which is consistent with the third quarter and is above what we have seen in the pre-pandemic period. In fact, the XKG average, as we have mentioned earlier, has been pretty consistent over the past five years. Obviously, with the recovery in the dye-in cells, there is strong..., coupled with strong performance in breakfast and coffee sales, has contributed to the year-over-year movement of the average ticket size for KFC. It's also consistent with our approach to expand the pricing range and our product options, which, again, effectively show very robust traffic growth. Let me just add a little bit here about the quarter 4 ticket average, and then Andy can wrap up this question. Kevin, the ticket average for a quarter full is not that unusual. As Andy just pointed out, 2022 is an unusual year because it was still in lockdown. It's 42.
It was significantly so going forwards.
Do we think that there's room for us to maintain a largely.
Chandler: Stable labor to sales ratio, especially given that recently our channel checks suggests.
Chandler: We have taken all the measures to control the rider costs, such as the introduction of ultimately to why I'm, a little on that as our future vendors, that's why I asked.
Chandler: Our continued rollout of the Aussie yet a mega program. So do we think there is room for us to see a largely stable labor cost.
Chandler: As a as opposed to the rising labor cost trend in the past few years.
Chandler: Meanwhile, AR I noticed stock hour with them people caused us touch on revenue has risen by 50 bps 80 bps for T. F C. As it would be best for the whole group keeping them very promotional environment.
Chandler: <unk> is going to be a new normal for the entire year of 220 <unk>.
Chandler: For.
Joey Wat: That's, that's very high. If we go back to 2021, the quarter full is 38. Like this, the 2023 Q4 is 39, but 2021 Q4 is 38. 2020 Q4 is 38. 2019, which is one of our best years, the ticket average for Q4 is 37. So it's not that different.
Chandler: And lastly, just now Oh.
Chandler: I heard about our guidance for largeness Satish <unk> for the full year, excluding FX and one off items.
Chandler: But then if you looked at a reported level I remember.
Chandler: Last year, we booked a one off gain of 27 million.
Chandler: Now, okay, that'd be actually two Oklahoma mid single digit impact.
And then Cleveland as taxes, another 5% impact so is it fair to say that on the reported level.
Andy Yeung: I mean, the overall feeling is the market is getting more promotional, et cetera, et cetera. But, as I went through in great detail, we are the market leader. And when we deal with challenges like that, which is not new to us, by the way, we always have a combination of good promotion, a good product, good service, a good mechanism to protect the TA, et cetera, et cetera. Therefore, we are able to maintain the TA even during the fourth quarter across multiple years.
Chandler: Actually the old P&A, possibly decline by around 10% ish of course I think this is this should be the the worst case, but hopefully if everything is going in the right direction, the actual decline could be better than that as.
Speaker Change: So these are all my questions. Thank you.
Speaker Change: Thank you Laura and.
Speaker Change: Actually answered one question that Kevin and another and Brian asked earlier I now come to your question is about the same store sales growth. Let me just point all of that.
Andy Yeung: Thank you. Right. Thank you, Joey. Again, it's very important to keep that context in mind, because as you remember, it seems like.
Andy Yeung: A long time ago, but it was only in the fourth quarter 2022 that we had this reopening and big surge in infection. At that time, we also experienced some labor shortage because of the, and then the ticket. I think the delivery mix at that time was 45%, which is very high. And so those are the context for that.
Speaker Change: 60%, although store in our portfolio right not portfolio right now are built after 2019.
Speaker Change: So that's that's the reason why we really you know we'll continue to drive the things ourselves, but the system sales growth is incredibly important.
Speaker Change: Oh for fitness.
Speaker Change: And they'll come to and of course I am.
Speaker Change: Mainly.
Speaker Change: Oh I know.
Andy Yeung: And then turning to Pizza Hut, if you look at Pizza Hut, it's been a very consistent strategy for us since 2027 with the turnaround strategy, which is to, as Joey mentioned earlier, drive customer traffic first, then sales, and then finally, improve profitability. So we have successfully met those three goals, if you look at our results. Moreover, this approach is very much in line with our latest strategy, which is aimed at reaching underserved customer segments by expanding our price range, especially for pizza that is less than 50 R&D subcategory. We also want to offer more options for consumers that are suitable for smaller sizes or individual signings.
The labor cost well, let's talk about Oh, no first we have.
Speaker Change: We have been operating with a guiding principle that we always have sincere about giving the best food to.
Speaker Change: So our customer pass all the saving.
Speaker Change: Past a lot of savings to a customer. So if you looked at our cost of sales.
Speaker Change: Over the last few years.
Speaker Change: It has been very stable.
Speaker Change: Very very stable.
Speaker Change: No better time or more challenging times, so if I start with plenty of 19 pre pandemic.
Speaker Change: Ah well 2019 pre pandemic smell that time 2000, 1931, 3% 2000, 2031, 7% 2021, 31, 4% 2020 to 31, 1%.
Speaker Change: 23 31.
Speaker Change: It's really like.
Speaker Change: Less than 1% swing around the 31, it's always there.
Andy Yeung: So thank you. Your next question comes from Chen Luo with Bank of America. Please go ahead.
Speaker Change: Whenever we have saving we packed a failing silica my throughput. So you can be assure that we'll continue to stay around 31% about the cause of itself because if my team go significantly below that number they will have a very hard time for myself.
Chen Luo: Bye. Bye. Bye.
Andy Yeung: Thank you, Joey and Andy. And sorry, actually, my line got disconnected just now, although I'm actually dialing this call at 6.30am in the morning. So forgive me if I ask some questions that have already been asked previously.
Speaker Change: And they all know that.
Speaker Change: Second is cost of labor.
Speaker Change: Closed the labor you know in a year like this year, yes. It has increased because there are a lot of thought off the insurance et cetera et cetera. All these costs are going up.
Chen Luo: So basically, it's actually on margins. So I noticed that our restaurant margins for 2023 have already recovered to a level even slightly higher than 2019, so making it to the third highest margin since our spinoff. But compared with five years ago, our margin structure has significantly changed.
Speaker Change: And labor costs is always sort of a going up that I I I spent 10 years in the UK, even when the GDP was growing cells. During the five year old opinions that worked their labor costs were still going up. So we have to every year to find ways to help our start to become more productive.
Andy Yeung: So our labor costs as a percentage of revenue have risen significantly, but our occupancy and others have reduced significantly. So going forward, do we think that? There's room for us to maintain a largely good day, as opposed to the rising labor cost trend in the past few years. And meanwhile, I noticed that our food and paper cost as tax and revenue has risen by 50 bits, 80 bits for KFC and 50 bits for the whole group, given a very promotional environment. Do you think it's going to be a new normal for the entire year of 2020?
Speaker Change: Well, we have been doing that and going for what you can see we even go as far as one store manager managing multiple system. It has gone up viewpoint 2019, as 'twenty 'twenty 2.8, and then go out to 'twenty three 'twenty five 'twenty six now it's staying at 26% of lives lost too yes.
Speaker Change: And the way that we run this business, we generate savings from Ono from Bang from depreciation from everything that we can say and then put the saving two hours that we pay them at behr paint and we've hopefully pay them well, we'd give them really good.
Chen Luo: And lastly, just now, I heard about guidance for largely sluggish OAPs for the full year, excluding FX and one of IT. But then, if you look at the reported level, I remember last year we booked a one-off gain of $27 million in our operating profit. That may actually lead to a missing single-digit impact.
Speaker Change: Health insurance et cetera et cetera.
Speaker Change: Because we want to have the best start to provide the best service for our customer so that will be the direction will continue to drive in terms of O P. A.
Speaker Change: As a result, foreign exchange et cetera, I'm, sorry cannot forecast that it would be all our companies to liquidity. So we will do everything we could two two to generate sales and to manage costs and then produce the result.
Andy Yeung: And then, given the effects, there's another 5% impact. So is it fair to say that, on the reported level, actually, the OP may possibly decline by around 10%-ish? Of course, I think this should be the worst case, but hopefully, if everything is going in the right direction, the actual decline could be better than that. So these are all my questions.
Speaker Change: As a result of a bunker asphalt thank you Melissa.
Speaker Change: Thank you that is all the time, we have for questions today, I'll now hand back to Ms. Chen for closing remarks.
Michelle Cheng: Thank you Ashley and thank you everyone for joining the call today for further questions. Please reach out through the contact information in the earnings release and our website.
Andy Yeung: Thank you. Thank you, Lawton. Let me actually answer one question that Kevin and Brian asked earlier, and then I'll come to your question. It's about single-celled growth.
Speaker Change: Great day.
Michelle Cheng: Thank you thank you Mike.
Speaker Change: That does conclude our conference for today. Thank you for participating you may now disconnect.
Speaker Change: Okay.
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Joey Wat: Let me just point out that 60% of our stores in our portfolio right now are built after 2019. So that's the reason why we really, you know, we'll continue to drive the symptom cells, but the system cell growth is incredibly important for well thickness. And then we come to the cost side, mainly cost and O&O. The labor cause, well, let's talk about O&O first. We have been operating with the guiding principle that we are always sincere about giving the best food to our customers, passing all the savings, and passing a lot of savings to our customers. So if you look at our cost of sales over the last few years, It has been very stable. Very, very stable, through better times or more challenging times. So if I start with 2019 pre-pandemic, or even, well, 2019 pre-pandemic throughout the time, 2019, 31.3%, 2020, 31.7%, 2021, 31.4%, 2022, 31.1%, 2023, 31.4%. Hey, sweetie, like less than 1% swing around the 31%.
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Joey Wat: It's always there because whenever we have savings, we pass the savings to the customer through food. So you can be assured that we'll continue to stay around 31% of the cost of sales because if my team goes significantly below that number, they will have a very hard time for me, and they all know that.
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Joey Wat: Second is the cost of labor. Post-labor, even in a year like this year, yes, it has increased because there is a lot of sort of insurance and et cetera, et cetera, all these costs are going up. And labor cost is always sort of going up. I spent 10 years in the UK.
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Joey Wat: Even when the GDP was going south during the five years out of 10 years I was there, labor costs were still going up. So we have to every year find ways to help our staff to become more productive, which we have been doing. And going forward, you can see we even go as far as one store managing multiple stores. It has gone up a few points. 2019 is 22.8 and then it goes up to 23, 25, 26. Now it's staying at 26% the last two years.
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Joey Wat: And the way that we run this business, we generate savings from O&O, from rent, from depreciation, from everything that we can save and then pass the savings to our staff. We pay them a fair wage, and we, hopefully, pay them well. We give them really good health insurance, et cetera, et cetera, because we want to have the best staff to provide the best service for our customers. So that will be the direction we'll continue to drive. In terms of OP, As a result, foreign exchange, etc., I'm sorry, but I cannot forecast that. It's beyond a company's capability to do so.
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Joey Wat: So we will do everything we can to generate sales, and to manage costs, and then produce a result as a result of our good effort. Thank you, Lawton. Thank you. That is all the time we have for questions today.
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Operator: I'll now hand back to Ms. Chen for closing remarks. Thank you, Ashley, and thank you, everyone, for joining the call today. For further questions, please reach out through the contact information in our earnings release and our website. Have a great day. Thank you. Thank you. That does conclude our conference call for today.
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Operator: Thank you for participating. You may now disconnect, http://TheBusinessProfessor.com www.thevenusproject.com We hope you enjoyed the video! If you did, be sure to give us a like and subscribe to our channel for more great content! www.globalonenessproject.org, Andy Yeung, Rebecca Ding, Xiao Wei, Lillian Lou, Xiao Wei, Debbie Ding, Xiao Wei, Rebecca Ding, Xiaopo Wei, www.globalonenessproject.org www.mytrendyphone.co.uk www.globalonenessproject.org www.youtube.com.au www.mytrendyphone.co.uk www.globalonenessproject.org www.thevenusproject.com www.globalonenessproject.org www.microsoft.com. Thank you. Thank you for watching. We'll see you next time. www.larryweaver.com. Thanks for watching!
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