Q1 2024 Yum China Holdings Inc Earnings Call

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Speaker Change: Thank you for standing by and welcome to the Yum, China first quarter 2020 full earnings conference call. All participants are in a listen only mode.

Operator: Thank you for standing by, and welcome to the Yum China First Quarter 2024 Earnings Conference. 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 star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Florence Lip, Investor Relations Senior Director. Please go ahead.

Speaker Change: There will be a presentation, followed by a question and answer session.

Speaker Change: If you wish to ask a question you will need to press the stocky followed by the number one on your telephone keypad.

I'd now like to hand, the conference I very to Florence lip Investor Relations Senior Director. Please go ahead.

Florence Lip: Thank you, Operator. Hello, everyone.

Florence: Thank you operator, Hello, everyone. Thank you for joining Yum, China's first quarter 2024 earnings conference call on today's call, our CEO, Ms Joey Wat and our CFO, Mr. Andy Yeung.

Florence Lip: Thank you for joining Yum China's first quarter 2024 earnings conference. On today's call are our CEO, Ms. Joey Wat, and our CFO, Mr. Andrew Hu. I'd like to remind everyone that our earnings call and investment materials contain forward-looking statements, which are subject to future events and analysis. The actual results may differ materially from these four.

Speaker Change: 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.

Speaker Change: Actual results may differ materially from these forward looking statements.

Speaker Change: All forward looking statements should be considered in conjunction with the cautionary.

Florence Lip: All forward-looking statements should be considered in conjunction with a cautionary, [inaudible] This call also includes certain non-capital measures. Carefully consider the comparable Reconciliation of Non-Gap and Gap Measures is included. You can find the webcast of this call and the PowerPoint presentation on our IRC. Please note that during today's call, all year-over-year growth results exclude the impact of subpoena. Now, I would like to turn the call over to Joey Wat, CEO of Yum China.

Speaker Change: Statements in our earnings release and the risk factors included in our filings with the M. D C.

Speaker Change: This call also includes certain non-GAAP financial measures you should carefully consider the comparable GAAP measures and.

Speaker Change: Reconciliation of non-GAAP and GAAP measures is included in our earnings release.

You can find the webcast of this call and all of my presentation I will now I hope with that.

Speaker Change: Please note that during today's call are year over year growth without the impact.

Foreign currency unless otherwise noted.

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

Florence Lip: Hello, everyone, and thank you for joining us today. I'm proud to share that we turned in a solid performance in the first quarter. System sales grew 6% year-over-year, on top of 17% growth last year. Our revenue reached US$3 billion in the quarter, an all-time high. Co-operating profit improved to $396 million from a high base of $392 million last year. Adjusted operating profit in quarter one of last year was the highest in the 30 quarters since our spin-off. This quarter was the second highest.

Joey Wat: Hello, everyone and thank you for joining us today.

Joey Wat: I'm proud to share that we turned in a solid performance in the first quarter.

Joey Wat: System sales grew 6% year over year on top of 17% growth last year.

Joey Wat: Our revenue reached 3 billion U S dollar in the quarter, an all time high.

Joey Wat: Core operating profit improved to 396 million U S dollar from a high base of 392 million last year.

Joey Wat: Adjusted operating profit in quarter, one of last year was the highest in the third quarter since our spin off.

Joey Wat: This quarter was the second highest.

Joey Wat: We achieved these results in a challenging and competitive environment, thanks to our resilient business model and our team's agility and hard work. We demonstrated once again our ability to adjust to changing conditions and deliver solid results. We continued to invest to accelerate growth, adding a record number of stores. We reached and surpassed the milestone of 15,000 stores. And at the same time, we returned a record amount of cash to our shareholders through share repurchases and cash dividends, totaling $745 million.

Joey Wat: We achieved these results in a challenging and competitive environment.

Joey Wat: That's true our resilient business model and our team's agility and hot work with.

With them on straight that once again, our ability to adjust to changing conditions and deliver solid results.

Joey Wat: We continued to invest to accelerate growth adding.

Joey Wat: Adding a record number of stores.

Joey Wat: We reached and surpassed the milestone of 15000 stores.

At the same time, we returned a record amount of cash to our shareholders through share repurchases and cash dividends totaling 745 million U S. Dollar.

Joey Wat: Let me start with our store opening strategy. We remain bullish on China. We see the Chinese market as offering us white space for years to come. We intend to fill it in by expanding our school portfolio. In Quarter One, we passed the 15,000 store milestone, opening 378 net new stores. I am proud of how we have been able to accelerate. It took us 25 years to build the first 5,000 stores in China.

Speaker Change: Let me start with our store opening strategy.

Speaker Change: We remain bullish on China, we see the China market as offering us white space for years to come.

Speaker Change: We intend to feeling by expanding our store portfolio.

Speaker Change: In quarter one with.

Speaker Change: Uh huh.

Speaker Change: 15000 store milestone opening 378 net new stores.

Speaker Change: I am proud of how we have being able to dress satellite.

Speaker Change: It took us 25 years to build the first 5000 store in China.

Joey Wat: Eight years to build the next 5,000 stores, and just four years for the last 5,000 stores. We are well on our way to another 5,000 stores by 2026. Contrary to select recent reports, China continues to develop rapidly, with hundreds of new shopping malls, residential complexes, and commercial developments opening every year. Urbanization and long-term consumption upgrades in Tier 2 cities and below present particularly attractive opportunities for us. Housing and Living costs are more affordable there.

Yes to build the Knicks 5000 stores.

Speaker Change: Just four years for the last 5000 stores.

Speaker Change: We are well on our way to Atlanta 5000 stores by 2026.

Speaker Change: Contrary to select lead them report China continues to develop rapidly.

Speaker Change: With hundreds of new shopping malls residential complexes.

Speaker Change: In commercial the vitamins opening every year.

Speaker Change: The nice Asia, and long term consumption upgrade in tier two cities and below present, particularly attractive opportunity for us.

Speaker Change: How old they are living causes a more affordable there.

Speaker Change: Tremendous consumption potential has yet to be unleashed.

Joey Wat: Tremendous consumption potential has yet to be unleashed. We expect roughly 30% of our new stores this year to be in new cities or strategic locations, such as transportation and tourist destinations. Our flexible store models and franchise partnerships give us the tools to capitalize on every opportunity. Let's take a closer look at each of these. Our flexible store models enable us to expand across city tiers and penetrate further. In Quarter 1, two-thirds of new store openings were in smaller store formats.

Speaker Change: We expect roughly 30% of our new stores this year to be in new cities or strategic locations, such as transportation and tourist locations.

Speaker Change: Our flexible store models and franchise partnerships give us the tools to capitalize on every opportunity.

Taking a closer look at each of these.

Speaker Change: Our flexible store models enable us to expand across city tiers and penetrate further.

Speaker Change: In quarter, one two source of new store openings were in smaller store format.

Speaker Change: On average our newest store now I'll take just one point you to 1.5 million I'm be kept us to bill.

Joey Wat: On average, our new store now takes just 1.2 to 1.5 million RMB in capital to build. And we are always pushing for even lower capacity and innovating new formats. KFC has recently developed a small time mini model for lower tier cities. With a simplified menu and optimized equipment, per store capex can get as low as half a million RMB. Pizza Hut has just 3,400 stores and holds significant potential for further expansion. We have developed a compact model.

Speaker Change: And we are always pushing for even lower capex and innovating new format.

Speaker Change: Kashi has reasons to be develop a small time many model for lower tier cities.

Speaker Change: With a simplified menu and optimized equipment Pearsall cat pets can't get as low as half a million M D.

He said.

Speaker Change: That's just 3400 stores.

Speaker Change: Holds significant potential for further expansion.

We have developed a comes up model.

Speaker Change: It is smaller than our standard stores.

Joey Wat: It is smaller than our standard stores but features more dining space and menu choices than our satellite model. These promising new models enable us to add store density and enter smaller cities more flexibly and profitably. Transportation and tourist locations represent just single digits of our store mix right now.

Speaker Change: A small dining space and menu choices down all satellite model.

Speaker Change: These promising new models in April are.

Speaker Change: So Ed thought density and into smaller cities more flexibly and profitably.

Speaker Change: Transportation and tourist locations represents just single digit of our store mix right now.

Joey Wat: But they are key to capturing the spike in travel volume during the holiday period. Flamestore sales at these locations grew around 20% during Chinese New Year. We are opening more stores at highway service centers in over 20 provinces, capitalizing on the opportunity presented by the rising car ownership. Some of our stores will be opened through franchising. In fact, partnering with franchisees is key to unlocking opportunities in lower tiers, remote areas, and other strategic locations.

But there are key to capturing the spike in travel volume during holiday periods.

Speaker Change: Same store sales at these locations grew around 20% during Chinese new year.

Speaker Change: We are opening more stores at highly service center in over 20 provinces.

Speaker Change: Capitalizing on the opportunity presented by the rising car ownership.

Speaker Change: Some of our stores will be opened through franchising.

Speaker Change: But partnering with franchisees is key to unlocking opportunities in lower tier remote areas and other strategic locations.

Joey Wat: At our investor day last year, we estimated that about 15 to 20% of our net new stores in the next three years will come from franchising. In quarter one, this mix has reached 19% at KFC. A disciplined approach backs our accelerated expansion. Payback periods have remained consistent at two years for KFC and improved from three years to two to three years for Pizza Hut.

Speaker Change: At our Investor Day last year, we estimate that.

Speaker Change: About 15% to 20% of our net new stores in the next three years will come from franchising.

In quarter, one this mix has reached 19% HFC.

Our disciplined approach, that's all our salaried or expansion.

Paid that pure it have remained consistent at two years for KFC.

Speaker Change: And improved from three years to two to three years for Pizza hut.

Joey Wat: We track these KPIs very closely to help ensure we open high-quality new stores. Now, let's spend some time on our brand strategy. We have devised robust strategies to meet diverse demands in China. We satisfy our customers' taste buds with delicious, innovative food, and we build an emotional bond with them.

Speaker Change: We track these kpis very closely to help ensure we opened high quality new stores.

Speaker Change: Yeah.

Let's now spend some time on our brand strategy.

Speaker Change: We have devised robust strategies to meet diverse demand in China.

We satisfy our customers' tastes bus with delicious innovative food.

Speaker Change: And we've built an emotional bond with them.

Joey Wat: Through a combination of premium and affordable options, we make sure there's something for everyone. We recorded over 460 million transactions in the first quarter alone, representing a 15% increase year over year. It was not easy.

Speaker Change: Through a combination of a premium on affordable options, we Miss Shaw, there's something for everyone.

Speaker Change: We recorded over 460 million transaction in the first quarter alone, representing a 15% increase year over year.

Miss Shaw: It was not easy.

Miss Shaw: Well all restaurants remained open this year than last year.

Joey Wat: While our restaurants remained open this year and last year, there were a lot more other restaurants opening during the holidays this year, but our customers responded well to our offerings. The strong transaction growth also reflects our successful strategy to spread our price points into lower ticket orders, and that will allow us to capture more market shares. Now, let me spend some time on each brand.

Miss Shaw: Then with a lot more other restaurants opening during the holidays this year.

Miss Shaw: But all our customers responded well to our offerings.

Miss Shaw: The strong transaction growth also reflects our successful strategy to threat all price points expanding into lower ticket odors.

Miss Shaw: And that will allow us to capture more market share.

Miss Shaw: Now, let me spend some time on each brand beginning.

Joey Wat: Beginning with KFC, our primary growth engine. Delicious, innovative food and amazing value have been the keys to our success. Our high-ticket average products sold very well in quarter one. KFC's beef burger and whole chicken sales grew double digits. We take a holistic approach to drive traffic while protecting our ticket average.

Miss Shaw: Beginning with KFC.

Our primary growth engine.

Miss Shaw: Delicious and the latest food.

Amazing value have been the keys to our success.

Hello, Hi ticket average brought us so very well in quarter one.

Miss Shaw: Kevin sees beef Burger and whole chicken cells grew double digit.

Miss Shaw: We took a holistic approach to drive traffic, while protecting our ticket average.

Joey Wat: We launched the Super Juicy Pineapple Beef Burger.?? The combination of pineapple and beef tastes exotic, and customers like it. At the same time, we add Entry Price Beef Burgers to our weekday value combo. So, we have both value and premium options to meet diverse consumer needs. Our six-year-old signature crazy Thursdays continue to drive major traffic to KFC. Thursday is now even a perform weekend.

Miss Shaw: We launched the Super Juicy Pineapple beef booger.

Miss Shaw: How's your boss is a whole new ball.

Miss Shaw: The combination of pineapple and beef taste is exotic.

And customers liked it.

Miss Shaw: At the same time, we add entry price be bogus into our weekday value Campbell.

So we have both value and premium options to meet diverse consumer needs.

Oh six years, those signature Crazy Thursday continue to drive major traffic to Caf see.

Miss Shaw: Thursday's now even outperform weekends.

Joey Wat: Leveraging full chicken utilization, we offer great value to customers at sustainable costs. Our delivery business remains strong. Delivery sales have grown double digits every year for the past decade. We identify smaller orders as an area of opportunity. To top it all off, KFC reduced its delivery fee and expanded one-person meal options in late February. The initiatives attract strong incremental traffic, capturing more market share, especially in lower-tier cities. To offset the lower delivery fee, we have taken action to reduce our overall operating costs for riders.

Miss Shaw: Leveraging food chicken utilization, we all are of great value to customers that sustainable cost.

Miss Shaw: Oh, the lotteries business remains strong delivery sales have grown double digits every year for the past decade.

Miss Shaw: We identify smaller older as an area of opportunity to tap it kept sealy Hughes is delivery fee.

Miss Shaw: Expand one person meal options in late February.

Miss Shaw: The initiatives attract strong incrementals tropic, capturing more market share, especially in lower tier cities.

Miss Shaw: To offset the lower deliveries E. We have taken actions to reduce our overall operating costs for writers.

Joey Wat: This includes introducing platform riders at selected locations, where their quality actually matches our dedicated writers. We can serve more customers while maintaining service quality and sustainable margin. We are constantly searching for new growth pillars. K-Coffee continues to grow nicely, achieving a 30% increase in cups sold in quarter one.

Miss Shaw: This includes introducing transform writers and selected locations, where they have quality actually matches our dedicated riders.

Miss Shaw: We can serve more customers.

Miss Shaw: Maintaining service quality and sustainable margins.

Miss Shaw: We are constantly searching for new growth pillars.

K coffee continues to grow nicely.

Miss Shaw: Achieving a 30 from the increased income so in quarter one.

Joey Wat: We are excited about further penetrating this segment of the growing coffee market. To this end, we have developed a side-by-side K-Coffee model; we call it Jian Bing Jian. Its distinct storefront and dining area cultivate a cafe ambience. Surrounded by Coffee Aroma, these shops are connected to KFC stores so that we can share a kitchen to keep the investment and operating costs down. Using KFC equipment, we can serve unique products like coffee flows, Xue Ding coffee, and sparkling coffee, Qi Pao Mei Shi, without additional investment in equipment.

Miss Shaw: We are excited about further penetrating that segment, although growing coffee market.

Miss Shaw: To this and we have developed a side by side K coffee model, we call Jim <unk> Jim.

Miss Shaw: It's the state storefront and signing area coda lays a cafe N be honest.

Miss Shaw: Surrounded by coffee aroma.

Miss Shaw: These jobs are connected to KFC stores.

Miss Shaw: So that we can share our kitchen to keep the investment and operating cost down.

Miss Shaw: Using caffeine equipment, we can serve unique products like coffee flows shutting coffee and sparkling coffee she promised it without additional investment and equipment.

Joey Wat: Summer is coming, so we really encourage our friends to try this very refreshing sparkling coffee, which is indeed one of our best-selling coffee already. We have seen initial success with 100 side-by-side stores across 80 cities already. And we intend to roll this model out aggressively. Next is Pizza Hut, which now has over 3,400 stores and is ready for accelerated growth. In the past 12 months, Pizza Hut has opened over 400 stores and increased city coverage by 10% to over 750 cities.

Miss Shaw: Some of it's coming so we would encourage a friend to try this very refreshing sparkling coffee.

Is indeed, one of our best selling coffee already.

Miss Shaw: We see at least those process.

Miss Shaw: 100 side by side stores across 80 cities already.

Miss Shaw: And we intend to roll this model out aggressively.

Miss Shaw: Next is pizza hut, which now has over 3400 stores only and is ready for accelerated growth.

Miss Shaw: In the past 12 months Pizza hut at over four new stores and increased city coverage by 10% to over 750 cities.

Joey Wat: We aim to broaden its addressable market with a strong value proposition for mass market appeal. Our strategy emphasizes widening price points, expanding into new categories, and delivering emotional value to consumers. We are widening price points. We enriched our entry-prize pizza offerings. Sales from below 50 RMB pieces grew double-digits in Q1.

We aim to broaden its addressable market with a strong value proposition for mass market appeal.

Miss Shaw: Our strategy emphasizes widening price points, expanding into new categories, and delivering emotional value to consumers.

Miss Shaw: Sure.

Why isn't in price point.

We unleashed our entry priced pizza ovens.

Miss Shaw: South from below 50 M. B pieces grew double digit in quarter one.

Joey Wat: Our Bolognese Pizza. Yishi Roujiang Pizza, priced at 39 RMB, has quickly become one of our top five best-selling pieces. It's a familiar taste inspired by our spaghetti, well actually our signature dish for the past 30 years, and it has become a customer favorite.

Miss Shaw: Our botany pizza.

Miss Shaw: He's a real jump she's a cry.

Miss Shaw: Priced at 39, a M. B has quickly become one of our top five best selling she says.

Miss Shaw: It's a familiar taste inspired by a spaghetti well actually our signature dish for the past 30 years.

It has become a customer favorite.

Joey Wat: These results give us confidence that we are on the right track. Our higher ticket offerings also offer abundant value. We brought back our popular All-You-Can-Eat deal for five days. With beef wellington, durian pizza, crayfish, and other very delicious options to choose from, this campaign generated a lot of social buzz and became a strong sales driver, particularly for those people who love to indulge themselves with the all-you-can-eat deal.

Miss Shaw: These results give us confidence that we are on the right track.

Miss Shaw: Our higher ticket offerings.

So all of a bundled value.

Miss Shaw: We brought back our popular all you can eat deal at 178, RMB four five days with beef Wellington Durian Pizza crayfish and other very delicious options to choose from this campaign generate a lot of social buzz and became a straw.

Miss Shaw: Long sales driver.

Miss Shaw: Particularly for those people, who love to indulge themselves.

Miss Shaw: With the all you can eat deal.

Miss Shaw: We are also expanding offerings to capture share of growing one person meal occasions.

Joey Wat: We are also expanding offerings to capture a share of the growing one-person meal occasion. Just last week, we launched the pizza dough burger pizza box in around 2000 stores with existing ingredients. This made-to-order burger features pizza dough buns freshly baked in store on a daily basis. The inspiration actually comes from Chinese funds. So, our pizza dough bun is chewy and fluffy.

Miss Shaw: Just last week, we launched the pizza dough booger piece that ball in Iran, 2000 stores with it's the state ingredient.

Miss Shaw: This made to order booger features pizza adult funds rashly bake install on daily basis.

Miss Shaw: Integration actually comes from Chinese spot.

Miss Shaw: So our pizza adult bonds is chewy and fluffy is very unique and very different.

Joey Wat: It's very unique and very different. It perfectly complements our juicy beef and chicken patties. The result is good, and we are confident that we'll unlock incremental sales. We aim to offer emotional value to our customers beyond delicious food. In quarter one, we more than doubled the number of IP collaborations with top animations and games. These campaigns attract a wave of young customers eager to join the fund. Now, let's turn to La Basta.

Miss Shaw: It's perfectly complement our juicy beef and chicken patties.

Miss Shaw: The result is.

Yes.

Good.

And we are confident that will unlock incremental sales.

Miss Shaw: We aim to offer emotional value to our customers beyond delicious food Inc.

Miss Shaw: In quarter, one we more than doubled the number of I P collaborations with top animation and games.

Miss Shaw: These campaigns are trapped wavell young customers eager to join the fun.

Miss Shaw: Let's turn to Lovaza.

Miss Shaw: Nevada do you growth engines coffee shop in retail.

Joey Wat: Lavazza Steel Grove Engines, Coffee Shop, and Retail are making good progress and thriving synergies. We further reduced the capex of our latest small store format, and improved Store Economics. Our retail business expanded to premium outlets such as five-star hotels and Michelin-star restaurants by growing the true business. We are building the Lavazza brand in China. Looking forward, Lavazza Group and we are planning to partner with a local roastery for fresher beans, more competitive costs, and a smoother operation.

I'm, making good progress in driving synergy we further reduced the capex of our latest small store format.

Miss Shaw: And improved store economics.

Miss Shaw: Our retail business expanded to premium outlets, such as five star hotels, and Michelin starred restaurants.

Miss Shaw: Growing the two businesses.

We are building the Lovaza brand in China.

Miss Shaw: Looking forward Lovaza group and we are planning to partner with a local rose parade for fresher beans, more competitive kohl's and smooth operations.

Miss Shaw: Now, let's briefly touch on our Chinese dining Brian.

Joey Wat: Now let's briefly touch on our Chinese dining brand. Little Sheep and Huang Jihuang had a strong recovery last year. Huang Jihuang remains a very resilient model with strong growth potential. Little Sheep has made good progress with their new one-person hotpot module.

Miss Shaw: Little sheep and quasi one had a strong recovery last year.

Miss Shaw: Once you have them remains a very resilient model with strong growth potential little sheep has made good progress with our new one person how pulp module.

Miss Shaw: We achieved initial success with our pilot stores in Shanghai, resulting in a robust put nine with our franchisees.

Joey Wat: We achieved initial success with the pilot stores in Shanghai, resulting in a robust pipeline with our franchisees. We are also expanding internationally, such as entering the U.S. with a new little sheep store in New Jersey. As we expand to serve more customers and capture incremental traffic, we are pursuing greater operational efficiency to make our business even more resilient. In the spirit of our Restaurant General Manager No. 1, or our RGM No.

Miss Shaw: We are also expanding internationally.

Miss Shaw: Such as me entering the U S with a new little sheep store in New Jersey.

Miss Shaw: As we expand to serve more customers and capture incremental traffic, we are pursuing greater operational efficiency to make our business even more resilient.

Miss Shaw: In the spirit of our restaurant general manager in number one or all G. M number one philosophy, we launched project fresh eyes to assess our operational processes through their fresh eyes off all else yeah.

Joey Wat: 1 philosophy, we launched Project Fresh Eye to assess our operational processes through the fresh eyes of our RGM. Our goal is to empower our LGMs, supporting them better and faster. The scope covers all aspects of our restaurants to supply chain and back office. We aim to improve efficiency, enhance agility, and drive cost effectiveness. We are streamlining processes and integrating resources to promote synergies across regions and functions. Technology will continue to play a big role in driving efficiency.

Our goal is to empower our algae them supporting them better and faster.

Miss Shaw: The skull compass, all aspects from a restaurant to supply chain and back office.

Miss Shaw: We aim to improve efficiency.

Hans agility and drive cost effectiveness.

Miss Shaw: We are streamlining processes and integrating resources to promote synergies across regions and functions.

Miss Shaw: Technology will continue to play a big role in driving efficiency.

Joey Wat: We're starting to use generated AI to develop creative marketing and facilitate our recruiting processes. In addition, we benchmark against the industry to identify areas of opportunity and develop targeted strategies. We aim to be best in class and Best in Course, passing on any cost savings to our customers and other stakeholders. Our ability to address our consumers' ever-evolving needs allows us to connect with them emotionally and continually. Our pioneering digital capabilities, proprietary supply chain management, and unmatched operational efficiency enable us to do this on a massive scale. These qualities set us apart from our competition and help us drive sustainable growth in this dynamic market.

Miss Shaw: We are starting to use generated a I could develop creative marketing and facilitate our recruiting processes.

In addition, we benchmark against the industry to identify areas of opportunity and develop pogatetz strategies.

We aim to be best in class.

Miss Shaw: And best in cost passing on any cost savings to our customers and other stakeholders.

Miss Shaw: Our ability to address consumers' ever evolving needs allows us to connect with them emotionally and continually.

Miss Shaw: Our pioneer digital capabilities for parts really surprising management and unmatched operational efficiency enable us to do this on a massive scale.

Miss Shaw: These quantities set us apart from our competition and help us drive sustainable growth in this dynamic market with that I will turn the call over to Andy Andy. Thank.

Joey Wat: With that, I will turn the call over to Andy. Andy. Thank you, Joey.

Andy: Thank you, Joey, and hello everyone. We delivered solid results in the first quarter. Driving sales, co-opting profits, and EPS growth despite a higher base. During the action-packed first quarter, we launched exciting offerings and took bold strategic actions to expand our addressable market. At the same time, we are pressing on with our core structure rebasing, driving operational efficiency to support long-term, sustainable growth. Let's now look at our first quarter performance in more detail.

Thank you Joey and Hello, everyone.

Ka Wai Yeung: We delivered solid results in the first quarter.

Ka Wai Yeung: Driving sales and profit and EPS growth despite a high base.

Ka Wai Yeung: During the action packed with corner, we launch exciting offerings and talk bold strategic actions to expand our addressable market.

Ka Wai Yeung: At the same time, we're pressing on with our cost structure, we basically driving operational efficiency.

Ka Wai Yeung: Long term sustainable growth.

Yes.

Ka Wai Yeung: Let's now look at our first quarter performance multi Utah.

Ka Wai Yeung: System sales increased 6% year over year.

Andy: System sales increased 6% year-over-year, led by 8% net new unit contribution. I think store sales were at 97% of our year-ago levels. Again, a very strong performance last year. By brand, KFC system sales increased 7% year-over-year. Driven by Net New Star Contribution. KFC's portfolio reached 10,603 stores, adding 307 net new stores in the quarter.

Ka Wai Yeung: 8% net new unit contribution.

Ka Wai Yeung: Same store sales were at 97% of argue level against a very strong performance last year.

Speaker Change: Hi, Brian KFC system sales increased 7% year over year.

Speaker Change: Driven by net new store contribution.

Speaker Change: Yes.

Brian: Which 10603 so.

Brian: 300, and some new store in the call.

Brian: Right.

Brian: Same store sales were at 98% over prior year levels with 4% same store traffic and a 6% lower ticket average.

Andy: Same store sales were at 98% of the prior year level with 4% same store traffic growth and a 6% lower ticket average. Putting this into perspective, our ticket average in the quarter was 42 RMB. This is sequentially higher than 39 RMB in the fourth quarter last year due to how they impact customers, and is also higher than 39 RMB in the first quarter of 2019. Now, in line with our strategy to drive incremental traffic, we offer higher-ticket average products like whole chicken and beef burgers while enriching entry-level combos. We also lower our delivery fees to capture a smaller ticket order.

Brian: Putting this into perspective.

Speaker Change: I'll take that average in the quarter.

Speaker Change: 42 RMB.

Speaker Change: Sequentially higher than 39, RMB in the fourth quarter last year due to hold anything back.

Speaker Change: And he is also higher than 39, R&D no first quarter 2019.

Speaker Change: In line with our strategy to drive incremental topics, we offer higher ticket average phone like whole chicken and beef Burger mountain ditching entry level home.

We are also lower.

Speaker Change: To capture smaller.

Speaker Change: And we had a nice rebound.

Andy: And we had nice rebounds in breakfast, coffee, and ice cream sales, which have a lower ticket average. These have system sales increased 4% year-over-year. Driven by net new unit contribution, His portfolio reached 3,425 stores, with record first quarter net new stores of 117.

Speaker Change: [laughter] coffee and ice cream sales, which have a loyalty.

Speaker Change: The Pos system sales increased 4% year over year.

Speaker Change: Driven by net new unit contribution.

Speaker Change: These hospital folio, which 3425 schools.

Speaker Change: Well first quota that's useful.

Speaker Change: 100 <unk>.

Speaker Change: Same store sales were at 95% occupied.

Andy: Theme hotels were at 95% of the prior year level, led by strong traffic growth of 8% and a 12% lower ticket price. As Joey mentioned, we are strategically enriching our Entry Price Picker statement with smaller party size options and a one person view at Pizza Hut.

Speaker Change: You bet.

Speaker Change: Strong traffic growth.

Speaker Change: Defense and.

Speaker Change: And a 12%.

Speaker Change: As Joey mentioned we are.

Speaker Change: Physically reaching our entry price pizza steak.

Speaker Change: I'll have hardy fast action and.

Speaker Change: One person U S Pizza hut.

Speaker Change: These help you.

Andy: This is how Pizza Hut taps into underserved customer segments and rolls out to more locations, capturing incremental traffic. Operating profit was $324 million. Our offering margin as a percentage of revenue was 12.6%. We're delighted that our call offering office was not only stable but also grew by 1% on top of their very strong performance last year. That's a reminder. Co-operating profit excludes foreign exchange impact, special items, and other items affecting comparability. Xiaopo's Active Savings in G&A Expenses partially offset the year-over-year low in restaurant bars. That's Joey Manchin.

How into underserved customers.

Speaker Change: Oh, two more locations capturing incremental trial.

Speaker Change: Operating profit was $374 million.

Speaker Change: Our operating margin estimates.

Speaker Change: Percentage of revenue was 12, 6%.

We are delighted that our office coffee with not only stable, but also.

Speaker Change: 1%.

Speaker Change: Very strong performance last year.

Speaker Change: As a reminder.

Speaker Change: Core operating profit excludes foreign exchange impact, especially I D.

Speaker Change: Items affecting compatibility.

Speaker Change: Okay.

Speaker Change: And G&A expenses.

Speaker Change: How should we offset a year over year little restaurant market.

Speaker Change: We mentioned, we'd have changzhou also who strive for higher efficiency.

Andy: We have challenged ourselves to strive for higher efficiency so that we can drive sustainability. Now, let's go to our restaurant margin and key cost items. Our Russian margin was 17.6%.

Speaker Change: You can drive.

Speaker Change: Great.

Now, let's go through our restaurant margin and T com.

Speaker Change: Our restaurant margin was 17, 6%.

Andy: 230 basis points lower than last year, or 170 basis points lower on a comparable basis. The year-over-year difference was mainly due to the high cost of sales and cost of waiver, while our occupancy and other costs continued to improve. Out of sales was 32.1%, 200 basis points higher year-over-year, or 170 basis points higher on a comparable basis. We increase the value of money offered. Favorable commodity costs, superb procurement, and efficiency gained from Project FreshEye allow us to pass the savings back to customers. The cost of labor was $25,000.

Speaker Change: 230 basis points lower than last year.

Speaker Change: 120 basis point lower on a comparable basis.

Speaker Change: The year over year difference was mainly due to high cost wholesale and coastal labor why.

Speaker Change: Occupancy and other costs continue to improve.

Speaker Change: Okay.

Speaker Change: $32 one.

Speaker Change: 200 basis points higher year over year, well, what kind of a 70 basis point higher on a comparable basis.

Speaker Change: We increased volume for money offering.

Speaker Change: Favorable commodity cost.

Speaker Change: Procurement and efficiency gains from refresh I allow us to pass the savings to come.

Speaker Change: Yeah.

Speaker Change: Also if labor was 25, 4%.

Speaker Change: 80 basis points higher year over year, or 60 basis points higher on a comparable basis.

Andy: 80 basis points higher, EOBX, or 60 basis points higher on a comparable basis. This was mainly due to last year's wage increases for front-line staff and higher rider costs as the delivery mix went up. We improve our labor productivity, which more than offsets the sales leveraging. Altium Fentanyl and Otter was 24.9%.

Speaker Change: This was mainly due to last year's wage increases for frontline staff and higher royalty costs.

Speaker Change: Mixed right now.

Speaker Change: We improve our labor productivity.

Speaker Change: I'll step back.

Speaker Change: You bet.

Speaker Change: Occupancy in August was 24, 9%.

Andy: 10 basis points lower EOB, or 60 places lower on a comparable basis. This improvement came from lower rent expenses, as well as lower marketing and advertising expenses. Our G&A expenses decreased 10% year-over-year because of operational efficiency gains across the organization and a Lower Performance Base Conversation. G&A expenses as a percentage of revenue were 4.7% in the quarter, improving from 5.6% a year ago. Obviously, the ratio would fluctuate with seasonality itself, but for the full year, we aim to keep the GNA ratio at around 5%. Our effective tax rate was 26.9% in the first quarter. The lower tax rate on a year-over-year basis was due mainly to fewer non-tax deductible expenses.

Speaker Change: 10 basis points lower you'll be.

Speaker Change: Well, it's 60 basis points lower on a comparable basis.

Speaker Change: This improvement came from lower rent expenses, as well as mobile marketing and advertising.

Expenses.

Speaker Change: Our G&A expenses decreased 10% year over year, because all operationally efficiency gains across the organization.

Speaker Change: Lower performance based compensation this year.

Speaker Change: G&A expenses.

Speaker Change: Vintage of revenue was 41, 7% in the quarter.

Moving from five 6% a year ago.

We see the ratio would fluctuate with seasonality.

Speaker Change: But for the full year, we aim to keep G&A ratio to be around 5%.

Speaker Change: Oh effective tax rate was 26, 9% in the fourth quarter.

Speaker Change: The lower tax rate on a year over year basis.

Speaker Change: Due mainly to less non tax deductible expenses.

Andy: We expect the 4-year effective tax rate to be in the high 20s, valued at EPS $0.71, growing 10% year over year. Moving on to our second quarter outlook. As a reminder, the second quarter of last year was a phenomenal quarter. System sales increased 32% new year in the second quarter last year.

Speaker Change: We expect full year effective tax rate to be.

Hi.

Speaker Change: E P S.

The one thing.

Speaker Change: Well with 10% year over year.

Speaker Change: Moving on to our second quarter outlook.

Speaker Change: As a reminder, the second quarter of last year.

I'm a little corner.

Speaker Change: Cause themselves increased 32% year over year in the second quarter last year.

Operating profit last year was the highest among all second quarters.

Andy: Offering profit last year was the highest among all second quarters. We also benefited from strong demand around Labor Day and Children's Day holidays last year. We recorded around $12 million in temporary relief and VAT deduction benefits, which is not expected to recur this year. So all these, again, from a high-based comparison.

Speaker Change: We also benefited from strong demand around labor day, and children's aid holiday last year.

Speaker Change: We recorded around 12 noon and temporary relief and be a benefit which is not expected to recur this year.

Speaker Change: So all of these again from a high base of comparison.

Andy: Looking ahead to the second quarter of this year, we expect the tide to remain choppy, and this will test our ability to adapt.

Looking ahead to the second quarter of this year, we expect the tide will remain choppy.

Speaker Change: We will test our bogie go dark.

Andy: We will continue to execute on our strategy to drive incremental traffic with great value for money offers. Consumers are indeed more rational in their spending in the new normal, but they do respond well to our exciting offerings and campaigns. On the operational side, we will continue to work hard to improve efficiency across the organization and pass along the savings to customers. For the full year, with a strong store pipeline, we are expecting to open 1,500 to 1,700 net new stores.

Speaker Change: We'll continue to execute on our strategy to drive incremental traffic.

Speaker Change: Great value for money offerings.

Speaker Change: Consumer.

Speaker Change: Indeed, more rationale in their spending and the new normal, but they do respond well to our exciting offerings and campaign.

Speaker Change: On the operational time, we will continue to work hard to improve efficiency across the organization and pass along the savings.

Speaker Change: Customers.

Speaker Change: For the full year with a strong store pipeline, we are expecting to open 1500 to something Hungered nothing useful.

Speaker Change: In addition to investing for growth. We also returned a record $145 million to shareholders in the first quarter, including buying back 16, 6 million shares which is equivalent to more than 4% of all shares outstanding.

Andy: In addition to investing for growth, we also returned a record $745 million to shareholders in the first quarter, including buying back 16.6 million shares, which is equivalent to more than 4% of our share outstanding. Our strong cash flow generation and healthy cash position are what made this possible. At the end of the quarter, we had $3.1 billion in net cash. We are committed to return $1.5 billion to the shareholders in 2020 and continue to drive our long-term growth. With that, I will pass it back to Fon.

Speaker Change: Our strong cash flow generation and healthy cash position of what made this possible.

Speaker Change: The end of the quarter, we had $3 $1 billion in net cash.

Speaker Change: We are committed to return $1 $5 billion of shareholder in 2024 and continue to drive our long term.

Speaker Change: Okay.

Speaker Change: With that I will pass it back to Paul.

Florence Lip: Thanks, Andy. 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.

Paul: Thanks, Andy.

Paul: Now we will open the call for questions in order to get more people with a chance to ask questions. Please limit your questions to one at a time operator, please start the training.

Speaker Change: Thank you if 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 then two.

Operator: 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 then 2. If you're using a speakerphone, please pick up the handset to ask your question. The first question today comes from Michelle Cheng from Goldman Sachs.

Speaker Change: If youre using a speakerphone please pick up the handset to ask your question.

Speaker Change: The first question today comes from Michelle Cheng from Goldman Sachs. Please go ahead.

Michelle Cheng: Hi Joey and Dion, congrats on the still very resilient results; a very tough call. My question is about the Sam's Store sales and consumption trend. Given we know the offline traffic has been very bad year to day, but our Sam's Store sales, especially KFC, are still pretty healthy. And you share the higher ticket size items going by like a double digit, and the transportation hub growth during Chinese New Year is pretty strong at 20%.

Michelle Cheng: Hi, I totally anti on congrats forest, the still very easy to resolve its all very tough call. All my question is if all those same store sales and consumption trend given we know the offline traffic has been very bad yesterday, but all same store sales, especially KFC is still pretty healthy.

Michelle Cheng: And your share of the higher ticket size items going by like Oh about data at Endo transformation hop alcohol Stewing Chinese people are pretty strong at 20% Oh wonder whether you can share more color about that different people gosh you are including.

Michelle Cheng: I'm wondering whether you can share more colors about the different performance, including TLCDs, day parts, consumer cohorts, or holiday versus post-holiday sales. And is there any color on the month-to-day trend and what we should expect into the second quarter and Labor Day, given Andy just mentioned that we also had a tough calm last year? Also wondering how we should look at the second quarter Sam's Store sales. Thank you.

Michelle Cheng: And Cody like a T. L. C D day parts, Oh come from a cohort or holiday buses uphold holiday sales.

And.

Michelle Cheng: Any color on most of the day trend and how we should expect into our second quarter and they but they keep on and you just mentioned that we had but we also had a problem I'll call them last year. So I'm wondering how we should look at the second quarter Central health. Thank you.

Speaker Change: Thank you Michelle Oh, a recap a little bit of.

Joey Wat: Thank you, Michelle. I would recap a little bit of the Chinese New Year and then and then go to the quarter, to what we are seeing right now. So, as mentioned in the quarter four earnings release called LARGE last time, we anticipate a tough Chinese New Year because it was a very high base. The situation was unique last year with the reopening, and then there's pent-up demand for traveling, and then also we are a bit more well-prepared with the store opening than our peers.

Chinese new year, and then and then go to the quota.

Speaker Change: Oh, well, Yeah C right now so as measure on the quota for earning release collage.

Speaker Change: Last time, we anticipate a tough Chinese new year, because it was very high base. The situation was unique last year with the reopening and then there's pent up demand.

Speaker Change: On traveling and then also we are bit more well prepared with our newest so with us opening up yet.

Joey Wat: And yet, we deliver 6% system sales growth on top of 17% growth last year's quarter one, mainly led by the Robust Transaction Group. And that's very encouraging, and with from from the growth of the total 15% is transaction growth. For the 2024 Chinese New Year, we see a return to normal trading, with more stores available for consumers. Trading was robust, and the transportation hub, etc. Business was booming.

Speaker Change: Yep.

Speaker Change: We love, our 60% of system sales growth.

Speaker Change: On top of a 17% growth lies.

Speaker Change: He is quite a while.

And made me leading left by the robust transaction growth.

Speaker Change: That's very clear.

And.

Speaker Change: With with with.

Speaker Change: From from the growth of the total 15% transaction growth.

Speaker Change: We see you'll see.

Well the 'twenty 'twenty four a Chinese new year, we see the return to normal trading with more so available for consumer trading was robust and the transportation hub et cetera.

Speaker Change: The business was booming.

Speaker Change:

Joey Wat: And then we also see diverse demand, which I mentioned in my prepared remarks. You know, on the one hand, customers like the value for money for the high-ticket items, but at the same time, the functional need with a lower ticket average is equally appreciated. And that's a very strong recovery of the smaller ticket items, from delivery all the way to coffee, breakfast, ice cream, et cetera. So all these are good. And then we also see the trend, continue to see the trend of consumer behavior during holidays. So during the holidays, they stretch, and then after the holidays, they tighten up the belt a little bit.

Speaker Change: And then.

We also see that Louis demand, which I mentioned in my prepared remarks.

Speaker Change: You know on the one hand customer lifetime value for money for a high ticket item, but at the same time, a bunch no meet up with lower check average is equally appreciate it.

Speaker Change: And that's very strong recovery.

Speaker Change: A smaller ticket item.

Speaker Change: Hum.

Speaker Change: Literally all the way through coffee breakfast I think that's true. So all these sounds good and then we also see the trend continues to see the trend of consumer behavior.

Speaker Change: During holidays.

Speaker Change: So during holidays, they stretch and then after the holidays, they tighten them up about a little bit.

Speaker Change: But the the trading in March sequentially in food.

Joey Wat: But the trading in March sequentially improved. And then if we move to the next trend, it's about the region, city, tier, location, etc. We see the regional recovery from the north recovered best because that was lapping on a lower base the year before. And eastern China, the eastern part of China, continued to be very resilient, which is brilliant. And then, of course, all regions across China improved themselves. By city tier, as we have mentioned a few times before, tier two still performed the best. And lower tier cities lapping strong, CNY last year, you know.

Speaker Change: And then.

Speaker Change: If we move to the next set of trends.

The reason is that each year location et cetera, we we we we see that the regional recovery from the law recovered the best because the debt that was lumpy.

On a on a lower base. So you had the full eastern China Eastern China continue to be very resilient.

Speaker Change: Which is right.

Speaker Change: And then oh across all regions across China grew system sales by city tier as we have mentioned that you have to tie a few times before.

Speaker Change: The tier two are stupid on the best and lowest yesterday lapping strong C N one launch yeah.

Speaker Change: <unk>.

Joey Wat: And the Tier 2 cities with regional hubs, such as, you know, Chengdu, et cetera, continue to do really well, because, as I mentioned, again, in the prepared remarks, the living cost and housing prices there are lower, so trading is very robust, which is good, by location. Sales at shopping malls where we have most stores have surpassed the 2019 level, and trading is robust, and that's also very encouraging because, It's not a record value, but China last year actually added about 400 shopping malls to the base of our 6,000 shopping malls that we are tracking.

Speaker Change: In the tier two cities.

Speaker Change: We've regional hubs such as you know can do et cetera are continuing to do really well because as I mentioned it again in the prepared remarks, they're living calls in housing prices are lower so the trading is very robust, which is which is good by location.

South a shopping mall, where we have most all have a deposit funding 19 level and the training is robust and that's also very encouraging.

Speaker Change: Because.

Speaker Change: It's not recall volume, but China last year.

Actually at about 400 shopping malls to the base of all 6000 shopping more than we are trucking and I don't think that many countries are still building that many shopping malls and for 'twenty 'twenty four and that trend will continue we estimate to a few more hungry shopping won't come in China.

Joey Wat: And I don't think that many countries are still building that many shopping malls. And for 2024, that trend will continue. We estimate that we will have a few more hundred shopping malls coming to China. So, and one other trend, delivery continues to do very well, and as you can see, KFC delivery sales actually increased by 14%, which is massive. 14%. That is consistent growth for a decade in this delivery business. And it's driven by smaller order delivery, which is something that we again mentioned in the previous quarter earnings release. That was part of our strategy and worked really well. And going to the quarter two, I think Andy can make a few comments about the quarter two. Hey, thanks.

Speaker Change: And.

Speaker Change: So and one other trends delivery continuing to do it well and as you can see.

Speaker Change: Hefty delivery sales actually increased by 14%, which is massive well, 10% that is a consistent grower for us what that K English business and is driven by the smaller order Oh locally which is something that we are again mentioned in.

Speaker Change: The previous previous quarter, earning release that that was all of our product.

Speaker Change: And what would be well.

Speaker Change: And going into the quarter to I think N D can fill.

Speaker Change: Your comments about the quota to Jesse thanks.

Andy: Thanks, Michelle, for the questions. So, I think for Quora 2, as we mentioned, we're committed to, you know, delivering compelling value to the consumer and, again, like we said, it worked really well. We're going to introduce more products and then try to execute some more engaging marketing campaigns to drive sales. You know, as we now prepare our remarks, we have mentioned that we continue to see consumers be more rational in spending, but they do respond positively to, you know, our new product instructions, you know, our value propositions, and also, you know, some of the fun marketing campaigns as well. So, that's what we're going to do more of.

Jesse: Thanks, Michelle for questions, if that's all right.

Speaker Change: Next we'll go to <unk> as we mentioned you know we're committed to delivering compelling value to consumers and again you know what this shows you what are we well are we doing it.

Speaker Change: Could use more products and they try to execute.

Speaker Change: So while engaging mountain camping to try it so L. O S. T now prepared remarks, we have medicines.

Speaker Change: We just see no consumer to be more rationale spending, but they do respond positively to our new public suffering.

Speaker Change: Our publishing and also are you know some of that fund marketing camping as well. So that's what we're gonna do more and and come up you know like a quota for $2.

Andy: And in terms of, you know, like the quarter for this year, you know, just remind everyone, you know, we had a very high base last year. Last year, we actually saw a 32% increase in our system sales and then also a record profit last year in the second quarter, which was held by some very strong performance during the Labor Day and Children's Day holiday sales. As well as, you know, last year, we also had some one-time expenses of about $12 million, which we're not expecting that to occur again this year.

Speaker Change: This year you know just Miami one you know we have a very a high base last year last year. We are actually we have seen you know 32% increase you know see themselves.

Speaker Change: Then also what the path it last year in the second quarter would you tell by some very strong performance during the labor day, and shouldn't say holiday sales as well as you know last year. We also had some one time about $12 million, so which we'd not not expecting that to you to occur this year, so I'm blowing at all.

Andy: So, all in all, you know, we will have a high base. But despite, you know, these challenges we mentioned, we focus on, you know, our strategy, our values, new product introductions, and campaigns that resonate well with consumers. And then, as we mentioned in the prepared remarks, we have a fresh eye and will further both our efficiency and, again, as we mentioned, we will try to find more savings so that we can pass on to the customers.

Speaker Change: We will have a high base you know.

Speaker Change: But the Spike you know these are trying just mentioned we focus on you know Oh now chassis values Newport introductions campaigns.

Speaker Change: Meanwhile, consumer and then we also have mentioned in the prepared remarks, we have a pause et cetera.

Speaker Change: And to put it both our efficiency and again as we've mentioned we would try to find more savings. So that we can pass along to your customer and we do plan to you know continue to improve our G. And H are expenses are obviously, you know that would fluctuate quarter by quarter the ratio up a photo.

Andy: And we do plan to, you know, continue to improve our G&A expenses. Obviously, that would fluctuate, you know, quarter by quarter. But for the full year, we intend to keep it around 5%. So, yeah, so this is, you know, the plan there. But a couple of things I want to mention that are worth keeping in mind. One is that our new store contributions, you know, the revenue structure is changing as we increase the mix of smaller stores and also franchise stores, which would change the mix between franchise fees versus company fees. And also, foreign exchange, you know; our operating currency is the RMB, and our foreign currency is the U.S. dollar. So, you know, we will continue to be impacted by currency exchange fluctuations.

Speaker Change: Full year B, we intend to use to be below 5%. So yeah. So are you.

Speaker Change: He says you know what was happening there.

Speaker Change: The plunder, but a couple of things I wanted to mention is.

Speaker Change: That is worth keeping in mind when you start a new store contributions I know that wasn't your structure.

Speaker Change: He was changing a S V increase the mix of smaller store and and also that's high school right, which would change the mix between Suntrust feeds listed company, So and also foreign exchange offering.

Speaker Change: Our operating countries heartbeat, and alcohol and currency is U S. Dollar. So no we will continue to be impacted by the coffee.

Speaker Change: Exchange fluctuation.

Joey Wat: Thank you, Joey. Thank you, Andy, for the detailed explanation.

Speaker Change: Yeah.

Speaker Change: Thank you Troy you. Thank you Andy for that detailed explanation.

Speaker Change: Thank you. The next question comes from Brian Bittner from Oppenheimer.

Operator: Thank you. The next question comes from Brian Bittner from Oppenheimer. Please go ahead. Thanks.

Brian John Bittner: Please go ahead.

Brian John Bittner: As it relates to the operating environment, I realize it's a very competitive and promotional environment, which I think is driving a lot of the pressure on your average check, but at the same time, it is also helping you drive traffic growth. Your same store traffic was up 4% in the quarter, which is impressive, and I'm curious where this traffic is coming from. Is it new customers, or is it coming from loyalty customers, or just more frequency from existing customers? Can you unpack where the traffic growth is coming from? And Andy, as it relates to the average check decline, how long do you expect Average Check to be a headwind for your same store sales?

Brian John Bittner: Thanks, as it relates to the operating environment I realize it's a very competitive and promotional environment, which I think is driving a lot of the pressure to your average check but at the same time. It is also helping you drive traffic growth your same store traffic was up.

Brian John Bittner: 4% in the quarter, which is impressive and I'm curious where this traffic is coming from is it new customers or is it coming from loyalty customers just more frequency from existing customers can you unpack, where the traffic growth is coming from and Andy.

Brian John Bittner: As it relates to the average check declines.

Brian John Bittner: How long do you expect average check to be a headwind to your same store sales.

Andy: Thank you, Brian. So I will take these questions. First of all, I would like to point out that, you know, the overall average aligns really well with our strategic goal, which is to drive incremental traffic to our store. You know, as you mentioned, we have seen pretty impressive things in terms of transaction growth, you know, both at KFC and Pizza Hut. Demonstrate that you know what's working and you know the strength of. If you look at C, for example, you experience a 4% increase in same-sell traffic, and Pizza Hut, 8%. So that's good.

Ka Wai Yeung: Thank you, Brian and so I think discussions and that's all I would like to point out that the overall average aligns really well with the goal which is to drive incremental traffic to our store you know as you mentioned as you know we have seen pretty impressive things though.

Ka Wai Yeung: Can't see at Pizza hut.

Ka Wai Yeung: Which demonstrated that you know actually I was working and you know the strength of the opposite.

Ka Wai Yeung: You know if you look at the for example, you know experience focus and crazy things that traffic and Pizza hut, 8%.

Speaker Change: So that's good.

Speaker Change: Good.

Andy: Now, when we talk about TA, the ticket average, it is very important for us to note that the yield-weight comparisons are influenced by a mix of factors, including delivery mix, product mix, and also order size, in the post-COVID recovery. So, however, I think it's worthwhile to look at the longer-term trend because, you know, it would provide a clear perspective on our strategy there. For example, for KFC, the overall TA was, you know, 42 RMB in the quarter, very healthy, with, you know, that was a sequential increase from, you know, 39 RMB in the fourth quarter due to how they impact, obviously. It's also higher than the 39 RMB in the first quarter of 2019.

Speaker Change: Now when we talk about you know T E ticket Abby a.

Speaker Change: Third point was to lift that they usually comparisons are influenced by you know a mix of factors, including like delivery mix product mix and also order size.

Speaker Change: In the post Covid recovery.

Speaker Change: Uh huh.

Speaker Change: However, you know I think it's worthwhile to look at the longer trend, which is the only kind of trend because you know.

Speaker Change: Hawaii clear perspective.

Speaker Change: And that will stretch there for example for KFC. The oboe if he a was 42 M b a new quota they healthy.

Speaker Change: You know that you're saying sequential increase from <unk> 39, and be in the fourth quarter, our future. How they impact obviously is also higher than the 39, a M. B a first quarter 2019, and so like vehicle.

Andy: And so, like, we are managing the TA at KFC through a balanced approach over the long term. Our strategy has been, you know, focusing on value for money, introducing new products, and also launching promotional campaigns when necessary to meet consumer demand. Now, we have also reduced the delivery fees to capture more smaller-ticket-sized delivery orders.

Speaker Change: And they used the T a tip seafood I suppose over the long term strategy.

Speaker Change: You know focusing on value for money are introducing new products.

Speaker Change: Also launching promotional campaign.

Speaker Change: To meet customer demand now we also have we've used to deliver he used to capture more smaller ticket sizes delivery older.

Andy: And, you know, and also, you know, after the pandemic and the reopening, we definitely see, you know, some strong rebound in our sales for breakfast, coffee, and ice cream items, as we have mentioned before. At the same time, we also have mentioned, you know, our high-ticket items, like whole chicken and beef burgers, continue to do well going, you know, the sales at a double-digit rate in So, this is a balanced approach positioned as well to enhance custom volume and then also expand our market.

Speaker Change: And.

Speaker Change: And then also you know after the pandemic and then be opening we definitely see strong rebound not even ourselves in breakfast and coffee and ice cream is a message. We have mentioned before at the same time. We also had mentioned as you know are high ticket items like whole chicken beef Burger continues to wellpoint.

You know the sales at a double digit rate in.

Speaker Change: In a quarter. So this is a balanced approach a position us well to in hand.

Speaker Change: Cut some volume.

Speaker Change: And then also expand our market reach now on an on Pizza hut side are you know as.

Andy: Now on the side, I have a side, you know, as As the brand continues to grow its network beyond 3,000 stores, we are transforming the business from a relatively premium casual dining business into a more mass market operation. So we are realigning, you know, our market position with our pricing. We have expanded our price range and also our product range, offering more pizzas and other items below 50 RMB. We are also providing more options for consumers, such as our recently launched burger, making Pizza Hut products more suitable for smaller party sizes.

Speaker Change: That's a brand continued to grow its network beyond 2000 installed we are transforming the business from what you ought to be premium casual dining business into a more mass market operation. So we are realigning our market positioning with our pricing people are we.

Have expanded you know our price range and also product rich offering more pizza and other items below 50 Army. We are also providing more options for consumers such as our recently launched you know Burger.

Speaker Change: Making pizza hut call it more suitable for smaller parties side now you suppose I think should help us to expand our addressable market segments. We are glad to see that you know I always thought that your pricing strategy has been successful driving a solid transaction growth in the quarter.

Andy: Now, this approach, I think, should help us to expand our trustable market segment. We are glad to see that, you know, our strategic pricing strategy has been successful in driving small transaction growth in the quarter. So, but, you know, while we are driving the ticket average lower at Pizza Hut, our focus remains the same: driving incremental sales and Protecting Profits and Market. Thank you.

Speaker Change: But you know while we are driving to ticket average lower at Pizza hut, our focus remain the same driving incremental sales.

Speaker Change: And what I think of it.

Thank you.

Joey Wat: Thank you. I mean, our KFC and pizza business both are very big, so I just find it helpful maybe to highlight one or two things in the category to show the growth. Although when it translates to a total number, it might not be that big because our business is big. Ryan, give me an example other than what Andy just said.

Speaker Change: I mean, Oh, Oh temps in Pes have been both a very thick. So so I just find it helpful. Maybe to highlight one or two things.

Speaker Change:

Speaker Change: In the category two two to show.

Speaker Change: The growth, although when they translate to a total number it might not be that day, because our basis.

Speaker Change: So Brian Thank you.

Speaker Change: Example, a other than what Andy just a our coffee business for Kathy K coffee.

Joey Wat: Our coffee business for KFC, the number of cups of coffee actually grew by 30%. I mean, it does not show it in a big number, but for coffee, it's brilliant. So we sold about, what, 50 million cups of coffee for the quarter one alone. 30% growth. Brilliant.

Speaker Change: Number comes out coffee actually grew by 30%.

Speaker Change: I mean, it does not show it in a big number but a coffee it is brilliant.

Speaker Change: So we we sell about 50 million cups of coffee quota one alone.

Speaker Change: For example, with <unk>.

Speaker Change: Very promising.

Joey Wat: Very promising category, and we only have 100 of those sign-by-signs sold right now. And, as I mentioned earlier, we intend to grow it very aggressively. One highlight here is the lower-priced pizza, which is something that we mentioned in the previous quarter. The pizza price is below 50 RMB. We have seven choices in that category for prices less than 50 now, and this small group of pizzas, and we, of course, intend to launch more at this price point.

Speaker Change: Category, and we only have 100 or so side by side, So right now and as I mentioned earlier.

Speaker Change: We intend to grow it.

Speaker Change: And Pizza hut are well highlight here is the lower priced pizza.

Speaker Change: We mentioned in the previous quarter anyway.

Speaker Change: The pizza right below you know Andy we have some choices in that category.

Speaker Change: That's what the price lower than 50, now and this small group of Pizza and we of course intend to.

Speaker Change: Launch more at this price point it gave us double digit so scope for pizza hut well the T. G growth, which is the question you asked of course is even better.

Joey Wat: It gave us double-digit sales growth for Pizza Hut. Well, the TC growth, which is the question you asked, of course, is even better. So that gives you a sense of how focused we are on driving transaction growth.

Speaker Change: So so so that that gives you a sense.

Speaker Change: Oh, how focused we are on right.

Speaker Change: I think that transactional growth. Thank you.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: Thank you. The next question comes from Chen Luo from Bofa. Please go ahead.

Chen Luo: Good morning, Julien and my question is on the competition side. So in the past two quarters completion has always been a key investor concerns.

Joey Wat: Thank you. Thank you. Thank you. The next question comes from Chen Liu from B of A. Please go ahead. Good morning, Joey and Andy. My question is about the competition.

So we also know what he starting to eat in the recent few months our promotional intensity has increased so based on our observation compared with our last earnings call. The weekend competition has actually further intensify or still largely stable at the moment. Thank you.

Operator: Thank you. The next question comes from Chen Liu from B of A. Please go ahead.

Chen Luo: Um, well, honestly, competition has always been very intense throughout that Unknown Speaker. We will continue to learn and evolve and grow with our competitors, but I just want to highlight it again and again that it's good to see competitors up their game and increase the investment in the industry. You know, last year, 2023, the industry actually grew by 20%, although it was rarely reported in the mass media. And then for this year, or the year before 2023, the industry always grows at a very nice number, like, you know, double digits or much faster than the GDP growth of 5% or whatever the GDP growth is. So naturally, it attracts both domestic and international investors to continue to invest in this industry. So it's really not a bad thing at all.

Chen Luo: Yeah.

Well honesty competition has always been very intense about decade.

Chen Luo: Hmm.

Speaker Change: We we will we will continue to to learn and evolve and grow.

Speaker Change: With our competitor, but I just wanted to highlight it again and again that is.

It's good to see competitors up their game and our increased investment in our industry.

Speaker Change: You know last years 2023 the industry actually grow at 20%, although it was really reported in the mass media.

Speaker Change: And then well this year.

Speaker Change: Or the year before the 2023 the industry always grow at very nice number like you know double digit oh are much faster than the GDP growth of 5% or whatever that you didn't call. It.

Speaker Change: So naturally attract both domestic and international investors to continue to invest in the industry. So he's really nor the bad thing at all.

Speaker Change:

Joey Wat: I think what is important, Warton, here is that we have to remain quite open-minded and continue to learn and reconnect with our consumers. And that's exactly what we have been doing, and we'll continue to do that. And you know, in the last few years, you can see that we learn from local players who launched, you know, the Chinese burger. We know about it. We learn from other players about the possibility of the whole chicken.

Speaker Change: I think what is important to hear it.

Speaker Change: We have to remain a quite open minded and continue to reload and reconnect with all consumer and that's exactly what we have been doing and will continue to do that.

And you know we we in the last few years you can see that we learned from a local player.

Speaker Change: <unk> launch you know the Chinese spoke up we learned that we learned from other play Oh about the puts affinity off the whole chicken we learned from our other competitor in pizza category are the the the focus on the lower priced pizza.

Joey Wat: We learn from other competitors in the pizza category, focusing on lower-priced pizzas. And that's how we compete in this market, and we'll continue to stay agile. And the market will always be choppy, but that's okay. You know, we are here to stay, and it will continue to test our ability to compete. And our strategy is always very consistent for KFC. That is, in the long term, we make sure that our ticket average is relatively stable by having high ticket average items such as beef burgers, whole chicken, and then have the entry price product to grow the transaction, et cetera.

Speaker Change: And that's how we how we.

Speaker Change: Compete in this market and we will continue to stay agile and the market will always be choppy, but that's okay. You know we are here to stay and it will continue to test our ability to compete and our strategy is always very consistent oh, okay. I see that ticket is about in the long term.

Speaker Change: We and make sure that all the ticket average is it relatively stable side by having high ticket average item such as the Bogo whole chicken and then have to entry priced product to grow the transaction and and and etcetera and then well.

Joey Wat: And then for pizza, again, it's very consistent to drive down the TA. In 2017, our TA was 132, now it's 90. We'll continue to drive it down because that TATC strategy has to be consistent with our mass market store growth strategy. So we'll have the sort of a stable and consistent strategy to compete in this market. Thank you.

Speaker Change: Pizza Hut again is very consistent and to drive down the T. A actually a 2017 O T. A 132 mommies 90 will continue to drive at that because that P. A T. C strategy has to be consistent with our mass market.

Speaker Change: So well try to cheat, so the well well well well have them.

Speaker Change: I thought the stable and consistent strategy to compete in this market. Thank you.

Speaker Change: Thank you.

Operator: Thank you. The next question comes from Lillian Lou from Morgan Stanley.

Speaker Change: Thank you. The next question comes from Lillian Lou from Morgan Stanley. Please go ahead.

Lillian Lou: Thanks, Joey and Andy. I have a question about Joey commented on the diversified consumer demand right now, and there has been some widening so-called holiday effect. And are we seeing from store performance as well, given that situation, there is more gap between the best-performing stores or relatively worse-performing stores, the stores in different locations, for example, the heavy traffic hubs, the tourists, so more of an underlying bigger gap in terms of store performance?

Oh, Thanks, a J and N B I have a question about Joe your comment it sounds like that wasn't part of the consumer demand right now and the data there has been some widening so called the holiday effect and are we seeing oh actually probably stole performance as well given that the situation.

Speaker Change: Yeah, a small gap between best performing stores are around here the worst performing stores all stores in different locations. For example, the heavy traffic Pops of course, so more of the underlying you go back in terms of the store performance and reacting.

Lillian Lou: And reacting to that, we continue to deliver better efficiency and cost savings. So trying to understand better this challenge of more diversified store performance or customer demand, how we manage to keep saving more. I think Andy and Joey mentioned a little bit about trying to develop a little bit better understanding of the ongoing cost-saving program. Thank you. Thank you, Lillian.

Speaker Change: We are acting to that's all we continued to deliver better efficiency on the cost savings and so trying to understand that so from this challenge of well diversified that's helpful for them as a customer at the noncore, we manage to keep the odds saving more I think I'd be until you mentioned, a little bit, but trying to give him a little bit better.

Speaker Change: Understanding for the ongoing cost saving programs. Thank you.

Speaker Change: Thank you Lydia well first of all I would like to.

Joey Wat: Thank you, Lillian. Well, first of all, I would like to report that for the more diverse demand between the sort of splurge consumption during the holiday and a bit more tightening of the belt after the holiday, that is not that unique. I spent 10 years in the UK. Consumers there are exactly the same despite the cultural difference or language difference. So we just learn to trade our business better and better. So how do we deal with that?

Speaker Change: Recall that for the more diverse the mom between well the the sort of the sludge consumption during the holiday and a bit more hardening tightening the belt after the holiday.

Lydia: Not that you would need I spent 10 years of UK consumer they are exactly the same despite the cultural difference of language difference.

Lydia: So we just love.

Lydia: And to train our business better and better so how do we do live that how do we meet the diverse demand during the holiday we focus on the high ticket.

Joey Wat: How do we meet the diverse demand? During the holiday, we focus on the high ticket, high ticket trading, like the buckets, the whole chicken, and beef burgers, so that our customers can splurge. But at the same time, we will also drive the TC, like Chen is a good example. The location where customers first find it is actually a lower tier city in the transportation hub and tourist location, but in tier one city, it's still very functional. And China is a very big country.

Lydia: I think that trading like the buckets are.

Lydia: The whole chicken beef spoke so that our customer can turn sludge.

Lydia: But at the same time, we will also drive the T C. Like China is a good example.

Lydia: The location welcome from Us, but actually is launched yesterday and the transportation hub and tourist location, but in tier one city is still very functional and.

Lydia: China's outside the country.

Joey Wat: So, so, so, we just will see what the trend is, and then we will match, and we will deliver what customers want. And then, in terms of going forward, and you can see in our store opening strategy, we're going to continue to accelerate and, probably further accelerate our store openings in strategic locations like the transportation hub and tourist destination. And also the mini-store model, and these are very, very good models. The mini-store model is what I mentioned earlier in the repair remark; it is a very low-cost investment, half a million. Our normal investment is about 1.2 to 1.5 million RMB now.

Lydia: So so so so we just we'll see what the trend and that we match and we deliver what customer work.

Speaker Change: Not being judgmental about it at all.

Speaker Change: And then in terms of going forward and you can see in our store opening strategy well, we're going to continue.

Speaker Change: To accelerate them.

Speaker Change: Probably further SRA are still opening in the soft tissue location liked that transportation hub and ancillary location and also the Mimi the mini store model and these are very very good model the meaningful muttered, well I mentioned earlier in the prepared remarks.

Speaker Change: Low cost investment half million, our normal our normal investment is about one point to the $1 5 million and B not just the smartest way is a half million is the modem, we test it and and we were happy with that and that's for Kashi and that's very good for that's what T J okay.

Joey Wat: So the smallest one is half a million, is the model we tested, and we are happy with that, and that's for KFC. And that's very good for the strategic location because the investment is low, and it's also very good for the low-tier city because we see customers are going to more and more low-tier cities right now. So we respond to it, and we are very agile, very fast. And, of course, to make the mini-model work, efficiency has to work.

Speaker Change: And because they must myself and it's also very good for the low tier city cause me see customers. According to a more a more low tier city right now.

Speaker Change: So we respond to it and we we are very agile, there's not and of course to make the many motor would've cost efficiency has to have to work on and again to be specific yet it's a meaningful amount of the menu is the only half of the menu Oh no normal cat C.

Joey Wat: And again, to be specific here, the mini-store model, the menu is only half of the menu of the normal KFC. And that certainly helped, and then in smaller stores, the operating cost, including rent and labor, is lower. Therefore, it works.

Speaker Change: And that that certainly helps.

Speaker Change: And then and then modest or the operating costs, including rent and labor. It's Louis therefore, it what and for Pizza hut.

Joey Wat: And for Pizza Hut, I mentioned it in my previous remarks, but it might not be clear enough. After many years of delivering new store returns within three years, I hope you guys realize that in this particular quarter, we changed that to two to three years. So if you remember, when we started the Pizza Hut new store opening, the payback time was more than three years, three to four years. Then we improved to three years.

Speaker Change: I mentioned it in my prepared remarks.

Speaker Change: Might not be clear enough.

Speaker Change: After many years of delivering news, though beta within three years.

Speaker Change: I Hope you you guys realize that in this particular quarter, we change that.

Speaker Change: That two two to three years.

Speaker Change: So if you remember when we stopped the PS the hot news the opening.

Speaker Change: The payback time is more of a three year three the kits that we include them to see it at all this quarter.

Joey Wat: And as of this quarter, 2024, quarter one, Pizza Hut has finally improved to two to three years, which is brilliant. So it also means that we are more flexible to open this kind of better payment venue in the strategic location that we want, and also with better cost efficiency. We can go through line by line, but you know, the new store payback, they say, oh, thank you, Lillian.

Plenty plenty full quota one pizza hut has finally improved to two to three years, which is brilliant.

Speaker Change: So it also means that we are more festival to open this kind of better payback lewisville industrial teacher location that we want and also with better cost efficiency. We can go through line by line, but you know our newest they'll payback if at all.

Speaker Change: Thank you Lillian.

Lillian Lou: Thank you.

Operator: Thank you. The next question comes from Anne Ling from Jefferies. Please go ahead.

Lillian Lou: Okay.

Lillian Lou: Thank you. The next question comes from Anne Ling from Jefferies. Please go ahead.

Kin Shun Ling: It's regarding the cost side. We noticed that in terms of the cost of goods sold, there's actually some increase in terms of food cost. I'm just wondering whether it is because of the promotions that we are offering that result in a higher promotional cost, a higher COS, or is it because there are some new items, for example, with the lowering of the delivery cost. We are also charging this one or two RMB packaging cost.

Kin Shun Ling: Hi, Thank you Hi management team thanks for.

Kin Shun Ling: So for me, it's a chance to to to pick up to ask a question regarding.

Kin Shun Ling: Regarding the cost side and I would notice that our the cost of goods sold them. They there actually that you know some increases in terms of cost I'm. Just wondering like can all of what's out there just because of the.

Kin Shun Ling: The promotions that we're offering them that result in the higher promotional costs, a higher C. O S or is it because I like you know there are some new item for example, with the lowering of the delivery costs and now we are also charging this 102 dollar what else you might be.

Kin Shun Ling: I'm not sure whether this is also reflected in the cost of goods as well. Maybe you can share with us what the outlook for food costs is, given the fact that if we look at the chicken price,

Andy: And thank you for the questions. So when we look at, you know, the first quarter cost of sales is around 32.1%. You know, it's a lot like what we have, you know, if you stop what we're talking about, like 31 plus minus, 1% range. You know, in fact, you look at, KFC is actually with me that and and he has a little bit higher and you know obviously both as we have mentioned on you know the repair remark both you know a brand focusing on driving slow traffic driving you know transaction growth in in a store and so we have you know step up you know value for money campaigns we also have new product introductions So the result is good, we've seen system sales growth of 6% overall for the company.

Kin Shun Ling: Packaging cause I'm not sure whether this also are reflected in the cost of Oh cost of goods as well. So maybe you can share with US now what is the outlook of the foot cost at all given the fact that now if we look at the chicken price at all what I'm here to say it was actually down 11%. So any chance that we will see some savings in there on that front.

Kin Shun Ling: Yeah.

And thank you for the questions. So when we looked at you know the first quarter cost of south are somewhere around 32, 1% no.

Speaker Change: Well I don't like what we have you know he's off what we're talking about like 21 plus minus.

Speaker Change: 1% range, you know are eating talk to us a little bit.

Speaker Change: Oh, Yeah, Yeah, that's what we what's been done and and you've had a little bit higher.

Speaker Change: Obviously, both are as we have mentioned on the prepared remarks about no our Brian are focusing on driving store traffic shopping.

Andy: Now in terms of commodity prices, we do have a favorable commodity price in the quarter, and for poultry, we also have a favorable commodity price. We do lock up, you know, our supply contract a quarter or so ahead of time. So, you know, we know that, you know, in the second quarter, we probably would also have variable commodity prices as well. However, because the chicken life cycle, or raising the chicken life cycle, is about like, you know, almost a quarter, and so we cannot provide a longer-term outlook for you.

Speaker Change: And in the store and so we have no step up no value for money campaigns. So we also have new product introductions.

Speaker Change: Well, you'll have 50, so the do it yourself is good we've seen you know cause themselves cool. Six example, overall for the company.

Speaker Change: <unk> now are in some of our you know the commodity prices Oh, we do have favorable commodity prices are you know how did the quarter end and and.

Speaker Change: For poultry are we also are also stable commodity prices that we do lock up you know our supply contracts a quarter or so upon so now we know that it would probably would also have favorable commodity prices, that's well however, because the chicken.

Speaker Change: Lifecycle or waiting to spend lots of who use is about like you know.

Andy: Now, in terms of the gain that we got from, you know, those commodity, variable commodity prices and whatnot, as we have mentioned before, we do intend to pass the savings back to the consumer so that they can get good value. Now, for a piece of the hype, a little bit higher for the quarter, you know, it's because, you know, they did bring the all-you-can-eat, five-day all-you-can-eat campaign, which is, you know, great consumer demand, but, you know, the cost of sales is a bit higher over there. And we'll continue to calibrate, you know, obviously, the supply chain and make it more efficient over time so that we can both drive sales and drive growth and protect profit.

Speaker Change: Almost like a quarter and so so we tend to Hawaii.

Speaker Change: With her so.

Speaker Change: I'll look for you now in terms of.

Speaker Change: The thing that we got from you know those are commodity type of commodity prices and whatnot as we have mentioned before.

Speaker Change: Do you intend to pocket savings back to your consumer I forgot that.

Speaker Change: You can get a quick volume does he have novel PS.

Speaker Change: People have a little bit higher for the quarter are you know because you know they get the all you can eat all you got to campaign, which is great.

Speaker Change: A couple of them with you man.

Speaker Change: But you know the cost up with higher over there will continue to calibrate you know obviously you know the the supply chain and make it more efficient overtime. So that we can both drive sales and drive woven pretax profit as well.

Speaker Change: Okay.

Speaker Change: Thank you by the way and one last comment the.

Joey Wat: Thank you. By the way, and one last comment. The reduction in delivery speed has a rather minimal impact on the margin because we have the 14-plus sales growth in delivery in KFC to offset that, so it's okay. And, of course, before we launch it, we test it, and we know it's going to be okay.

Speaker Change: The reduction of the delivery fee has rather minimal.

Speaker Change: Minimal impact on the margin because we.

Speaker Change: We have the 14th.

Speaker Change: And it sounds grows in the luxury and courtesy to offset that.

Speaker Change: So it's okay I'm of course before we launch it we tested it and we know there's going to be okay. Okay.

Andy: Okay, I got it. Thank you.

Speaker Change: Okay got it thank you.

Operator: Thank you. The next question comes from Ethan Wang from CLSA.

Speaker Change: Thank you. The next question comes from Ethan Wang from CLSA. Please go ahead.

Yushen Wang: Thank you. Good morning. Hi Joey. Hi Andy.

Thank you good morning, Hi, Joe Hi, Andy. So my question is numerous services. So post COVID-19. There was some concern that the deliveries of contribution might come down, but actually in the first quarter. It held up pretty well so as mentioned soon.

Yushen Wang: So, my question is about delivery services. So, post-COVID, there was some concern that delivery sales contribution might go down, but actually, in the first quarter, it held up pretty well. So, has management seen any trend that delivery sales are more resilient than offline dining? And, in that case, is that going to affect our planning on salary expense going forward? And I relate to that one because we mentioned that in some cities, we are now cooperating with platforms. So, how should we think about that? Is that a deliberate kind of planning in terms of cost control? How is that going to help? Thank you.

Speaker Change: And trend that deliberate sandwiches.

Speaker Change: Julien and then.

Speaker Change: Offline partners.

Speaker Change: And pace.

Speaker Change: Is that gonna Sneinton.

Speaker Change: Salaries experience going forward and I really want because we.

Speaker Change: Mentioned that in some cities we are now cooperating with platforms. So how shall we think I apologize.

Speaker Change: Deliberate kind of flattened in terms in terms of course controlling how's that gonna help. Thank you.

Thank you even in terms of the luxury and the peso.

Joey Wat: Thank you, Yifan. In terms of delivery as potential sales, as I mentioned in the previous question, they have continued to improve and increase in the last 10 years. So the trend is not going away, and KFC right now is about 60 percent from delivery and takeaway, and then about 30 percent from dining. And our store portfolio emerged to reflect that, right? Because our stores have become smaller, you know, become more delivery-focused, same as Pizza Hut; we have the satellite store that is very delivery-driven, and for Pizza Hut, the delivery business, you know, of course, is in the high 30s, too.

Center itself as I mentioned in the previous question.

Speaker Change: Right.

Speaker Change: They have continued to.

Speaker Change: Improving crazy [laughter] 10, yes.

Speaker Change: The trend is not going away.

Speaker Change:

Speaker Change: And you can see right now is about 60.

Speaker Change: 60% is from delivery and takeaway and then about 30% from finding and I would still prefer a portfolio in much to reflect that right because I still becomes smaller and not become more deliberate everybody. Okay famous pizza Hot we have to set a nice though that it is.

Speaker Change: Very deliberate driven.

Speaker Change: And and and for Pizza hut.

Speaker Change: There is a great business of course is in the high Thirty's to so they will continue to grow.

Joey Wat: So they will continue to grow, and there are two things that I would like to mention about our delivery sales going forward. One is that we are going for the smaller order size of the delivery business. Because you will notice that, traditionally and historically, our ticket average for delivery business for both KFC and Pizza Hut is very high, and probably slightly too high. So, for KFC, we have reduced the delivery fee, tested in quarter four last year, and we will roll it out in quarter one this year to encourage and grow the smaller order delivery business.

Speaker Change: And bad.

Speaker Change: There are two things that I would like to mention them.

Speaker Change: In our delivery sounds going for one is are.

Speaker Change: We are going forward.

Speaker Change: Now all the size of what that looks like.

Speaker Change: Because you you would notice that traditionally and historically our ticket average for the luxury business, but both cats, and besides very hot and and probably slightly too high.

Speaker Change: So okay I see we have Vicki was the delivery fee.

Speaker Change: It has the in quarter four last year, and we really out.

Speaker Change: In quarter, one this year to encourage and and he broke the smaller older business and what because.

Joey Wat: And it works because it's hard for customers to make the choice when the delivery fee is too high when the order size is smaller. So it will, so we'll continue to do it. And then Pizza Hut has a bit more work to do because we have to have enough one-person meal choices to make that happen. So, well, look at it in a positive way; we have even more opportunity here.

Speaker Change: This is harper cause them not to to to make their choice when the delivery fee is too high when the order size is smaller.

Speaker Change: So it will so we'll continue to do it and then pizza hut.

A bit more work to do because we.

Speaker Change: We have to have enough one person newer choice for us.

Speaker Change: To to make that happen so.

Well look at it in a positive way even more opportunity here.

Speaker Change: So one opportunity is the is there an oil price either that.

Joey Wat: So one opportunity is the lower-priced pizza, which helps because that incurs smaller orders. Second, if you're in China, you will know that we just launched a burger business, which, by the way, is very exciting. I love the burger from Pizza Hut as well. I love the burger from KFC; it's very different. The KFC one is more juicy, and the Pizza Hut one is very unique. It's hard to describe how unique it is until you try it. So I would encourage you to cross the border center and try it. The dough is made of pizza, well, the pizza bread and pizza bun are made of pizza dough.

That helps.

Speaker Change: Does that interest you or order second is you if you're in China, you would know that we just launched our Burger business, which by the way is very exciting I don't know.

Speaker Change: I loved that Boca Hope you guys, well I love the people love their phone.

Speaker Change: From can't be a it's.

Speaker Change: As far as they were going to see much more juicy and then pizza hut. One is very unique and it's hard to describe how you name. It is until you try it I would encourage you to cross the border centre and try it.

Speaker Change: The thought is make a pizza well the pizza threat piece of fun is made all the pizza dough.

Joey Wat: So it's freshly baked in the store, and that alone is very unique, and the beef itself is brilliant. And other than a great product, it's a one-person meal because the average ticket size for Pizza Hut is more than one person. So with that, we will continue to grow to sort of the smaller order delivery. And both are the right thing to do, and have quite a bit of knowledge there.

Speaker Change: So, especially break and they're still and that alone was very good and then b it sounds it's brilliant.

Speaker Change: And in other than great crowded.

Speaker Change: One person meal.

Speaker Change: Because the average ticket size for Pizza hut is a more than one person. So with that we will continue to grow to a sort of.

Speaker Change: A smaller order.

Speaker Change: And both on the right thing to do.

Speaker Change: And has quite a bit of a mindset when it comes to the plasma rider.

Joey Wat: When it comes to the platform riders, you guys know that for years and years, we insist on using our own delivery riders because of the quality, although it's slightly higher cost. We know that. However, time has changed.

Speaker Change: You know you guys know that or yes, and yes, we insist on using our own Elizabeth rider because of the quality, although it's slightly higher comps we know that.

Speaker Change: Uh-huh ton has changed we have learned that when we did I didn't catch it and so that we know that is the case instead, let location a some type of rider.

Joey Wat: We have learned that when we did again test it. And so that we know that is the case in select locations, some platform riders; the quality is very good. So we tested them in quarter four last year, and then we will continue to test them in quarter one this year. Why is this important? Because this is Chinese New Year, when demand is very robust, and we have to make sure that even when demand is high, the quality is still good, and we are very happy with the test.

Speaker Change: The quality is very good.

Speaker Change: So we were testing them in another quarter for last year and that we continue to test it in quarter. One this year why this is important because this is Chinese new year. When the demand is very robust and we try to make sure even when the demand is high.

Speaker Change: Quantities feel good and we are very happy with the test. So full kenzie, we'll continue to roll that out in select location on the condition that the quality is as good but they are more affordable so a help and help manage to the deliberate deliberate business margin.

Joey Wat: So for KFC, we'll continue to roll that out in select locations on the condition that the quality is as good, but they are more affordable, so it helps manage the delivery business margin. And then, piece of heart, we have not stopped the platform rider mix practice yet. So that will be something to be followed. So I will pause here. Thank you so much, Yif.

Speaker Change: And then pizza hut, we have not stopped the access on ride to our mix.

Speaker Change: Prepped it yet so that would be a that would be something to be follow so our our posture. Thank you so much.

Joey Wat: Sorry, I know we're running out of time. So when we mentioned selected locations, they're currently high-tier cities, I assume? Sorry, I could not hear you.

Speaker Change: Sorry, I know, we're running out of time, so when we mention selected locations. They're currently hardships shouldn't start issue.

Speaker Change: Sorry, I cannot hear you select the location.

Operator: Sorry, I could not hear you. Select a location. Oh, it's everywhere. We just, you know, we evaluate based on the quality. So it could be high-purecity or low-pure.

Speaker Change: Oh it is everywhere.

He says you know.

Speaker Change: By the way based on the quantity, so it could be high tier city or or loss.

Yeah.

Speaker Change: Got it thank you Gerry.

Operator: Thank you. The next question comes from Sijie Lin from China International Capital Corporation Ltd. Please go ahead.

Speaker Change: Thank you again.

Thank you. The next question comes from <unk> Li from China International Capital Corporation Limited. Please go ahead.

Sijie Lin: Thank you, Joey and Andy, and congratulations on another solid quarter result under a challenging base. So I have one question about the key coffee. We are very happy to see that we already have 100 independent or so-called side-by-side key coffee stores in a short time. And could you please tell us a bit more about the positioning and development strategy of key coffee? So, regarding the pricing, the manual design, the store format, the store location, etc., what are our similarities and differences compared with the current main coffee players? And how could we give full play to our own advantages? What's the plan for future store expansion? Thank you. Sijie, I think...

Li: Oh, Thank you Joey and Andy Congrats for another solid quarter results under a challenging base also I have one question on the key policy wherever ever happy to see that all we already have 100 independence or so called Oh side by sides K coffee sourcing of short lines and could you. Please tell us.

Li: They're more about style positioning and development strategy of coffee also like like regarding the pricing the man who designed the store formats are the store location et cetera, what towers similarities and differences compared with the current main coffee players and how can we give full play to our own.

Li: [noise] advantages Oh, what's the plan for the future store expansion. Thank you.

Joey Wat: This is Jie. I think the best way to find out is if you come to some of our cake, coffee, side-by-side stalls. Then you'll figure out all of these very quickly. So let me mention again, for the K coffee, cups of coffee, the number of cups of coffee increased 30% for quarter one, which is a very significant number, so we are very grateful for our customer support. So right now, we have 100 K coffee stores side by side. Let's start with the result, then we'll go to the details.

Li: So yeah, I think the best way to to find out is if you come to some of all K coffee side by sides, though Daniel figured all these very quickly.

Speaker Change: [laughter]. So let me ask Pablo mentioned, a gain for the K coffee cups of coffee.

Speaker Change: The number of cups of coffee increased 30%.

Speaker Change: For the 401, which is a very significant number so we are very grateful for.

Well our customer support so right now we have 100 days K coffee was almost nine five times.

Speaker Change:

Speaker Change: That's that would result, then we'll go to the either the result is that.

Joey Wat: The result is these are all profitable additions. Even at the price of 9.9 yuan for a lot of coffee, we make our cost structure work. So as a shareholder, you don't have to worry about the impact on the overall margin.

Speaker Change: These are all profitable efficient.

Speaker Change: [laughter], even at the price of $9 nine yeah, well a lot of our coffee, we make our cost structure was a so so oh shall hold the <unk> don't have to have to worry about the impact on the on the overall margin.

Joey Wat: So the way that it was is, you know, despite selling K-Coffee in all the KFC stores, but we also see the need for a dedicated space for customers. And you know what defines a coffee store versus a fried chicken store? The coffee store has this very lovely coffee aroma; it's the smell, and the lovely space. So we create that space, and at a very small incremental cost, because you right now see more of these side-by-side K-Coffee stores in lower-tier cities and top-tier cities because we open so many new stores every year.

Speaker Change: So the way that it was his young despite we sell K coffee in older Cats East, though but we also see the need for a dedicated space.

Speaker Change: <unk> customer and and you know what the fine our coffee Starbucks is the fried chicken.

Speaker Change: K coffee is though is that it is having this very lovely coffee aroma, it's the smell and the lovely space. So we create that space.

And a very small incremental cost.

Speaker Change: Because you see more of these side by side take home he's brought in lower tier city and top tier city.

Speaker Change: Because we opened so many new stores every year. So we took advantage of the fact that the vitamin E and we will have to still fun.

Joey Wat: So we take advantage of that development, and we will have two storefronts. One is KFC, and next to it is K-Coffee. And the trick here is we share the kitchen. So there's no incremental investment in the kitchen. And you know that within our investment, the biggest... This portion of the cat path is actually the kitchen. So that helps.

Speaker Change: One is that hey, it's Jesse and next to it is K coffee and the trick here is we share the kitchen. So there's no incremental and that's the main kitchen and you'll note that within our investment.

Speaker Change: The biggest.

Speaker Change: Portion of the Capex is actually the kitchen.

Speaker Change: So so so that helps and then the pricing is very similar to what we sell are in other testing all the coffee is very affordable.

Joey Wat: And then the pricing is similar to what we sell in other cafe stores. The coffee is very affordable. The menu, it has everything you need, though.

Speaker Change: The the menu.

Speaker Change: Have something you'll need, though so you'll come to a L. K coffee shop, Michel you try our Columbia thought at that part of the gigantic pie.

Joey Wat: So if you come to our K-Coffee shop, make sure you try our, the gigantic egg tart. You know we sell millions and hundreds of millions of egg tarts every year. But we also realize that this gigantic egg tart is a brilliant sell. It's a big portion of our K-Coffee sale right now. So we do have some very unique products for the K-Coffee shop, and we'll continue to do that. If I say K-Coffee Shop for 2024, it would be a threat. And what is aggressive? You'll see by the end of the year. Thank you.

Speaker Change: No we sell millions of hundreds of millions of it every year, but we also realize that this gigantic eight tie is a brilliant. So it is a big portion of our K coffee and so right now. So we do have some very unique you need a product for their take coffee shops, and we'll continue to do that.

And again as I mentioned in the prepared remarks our.

Speaker Change: Hello strategy well.

Speaker Change: Type I say take coffee shop full of tiny tiny spoke would be a threat.

Speaker Change: And what is aggressive you'll see by the end of the year.

Speaker Change: Yeah.

Speaker Change: Thank you Jerry.

Florence Lip: Thank you. That does conclude today's Q&A session. I'll now hand the conference back to Florence Lip for any closing remarks.

Speaker Change: Thank you that does conclude today's Q&A session I'll now hand, the conference back to Florence lip for any closing remarks.

Florence Lip: Thank you. Thank you for joining the call today. For further questions, please reach out through the contact information in our earnings release and on our website. Thank you very much.

Florence Lip: Thank you. Thank you thank.

Florence Lip: Thank you for joining the call today.

Florence Lip: Your question, please reach out to the contact information in our earnings release and on our website.

Florence Lip: Thank you very much thank you.

Okay.

Florence Lip: Okay.

Florence Lip: Okay.

Florence Lip: Okay.

Florence Lip: Okay.

Florence Lip: Okay.

Florence Lip: Yeah.

Florence Lip: Okay.

Florence Lip: [noise].

Okay.