Q2 2024 Yum China Holdings Inc Earnings Call
It will be a presentation, followed by 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.
Florence Lip: I would now like turn the conference over to MS. Florence lip. Please go ahead.
Florence Lip: Thank you operator, Hello, everyone. Thank you for joining Yum, China's second quarter 2020 earnings conference call on.
Speaker Change: On today's call, our CEO, Ms Joey Wat and our CFO, Mr. Andy Yeung.
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 statement in our earnings release and the risk factors included in our filings with the SEC.
Speaker Change: This call also includes certain non-GAAP financial measures you should carefully consider the comparable GAAP measures.
Speaker Change: A reconciliation of non-GAAP and GAAP measures is included in our earnings release.
Speaker Change: You can find the webcast of this call and a powerpoint presentation on our IR website.
Speaker Change: Please note that during today's call all year over year growth results exclude the impact of foreign currency.
Speaker Change: Unless otherwise noted.
Speaker Change: Now I would like to turn the call over to Joey Wat CEO of Yum, China Joey.
Joey Wat: Hello, everyone and thank you for joining us.
Speaker Change: Today, Yum, China reported record levels of revenue operating.
Speaker Change: Profit and EPS for the second quarter.
Speaker Change: System sales grew 4%.
Speaker Change: On top of 32% growth in the same period last year.
Speaker Change: Core operating profit grew 12% to $275 million.
Speaker Change: EPS increased 19%.
Speaker Change: I would like to expand our colleagues for their hard work.
Speaker Change: Innovative spirit.
Speaker Change: We are navigating a complex and dynamic environment.
Speaker Change: Yes.
Speaker Change: So we see the many challenges more as opportunities.
Speaker Change: With our industry, leading capabilities and our scale, we are turning these situations to our competitive advantage.
Speaker Change: We have taken aggressive steps to drive revenue and profitability.
I would like to highlight three of them.
Speaker Change: First.
Speaker Change: We took a fresh look at every key process and cost element in our businesses.
Speaker Change: We make congress innovations to improve our operational efficiency.
Speaker Change: Enhanced profitability and increase resiliency.
Speaker Change: We are already seeing results.
Speaker Change: We are achieving major cost savings.
And reinvesting them into foot and value.
Speaker Change: Second.
Speaker Change: We broadened our addressable market.
Speaker Change: And Hell market share with our sharp focus on value for money and innovative products.
Speaker Change: Our transactions and delivery sales both grew by double digits in the second quarter.
Speaker Change: We will continue to innovate across our menu to address customer needs.
Speaker Change: Sure.
Speaker Change: Breakthrough business models, K coffee and Pizza hut Wow.
Speaker Change: Cheat encouraging initial results.
Speaker Change: These stores delivered incremental same store sales and incremental profit.
Speaker Change: They are showing great future potential.
Speaker Change: These strategies are working well Q2 was our most profitable second quarter since our spin off.
Speaker Change: Restaurant margin stabilized <unk> margin expanded to nine 9%.
Speaker Change: Let me first talk about our initiatives to drive operational efficiency.
Speaker Change: These initiatives cover all aspects of our organization.
Speaker Change: First <unk>.
Speaker Change: Project fresh I launched in quarter four last year health.
Speaker Change: Help improve <unk> margins this quarter.
Speaker Change: We are shooting for best in class and best in cost.
Speaker Change: We are assessing our operations from our RPM.
Speaker Change: In other words store managers point of view supporting all our gms better and faster.
Speaker Change: From our restaurants to bet offices, we are reducing complexity and simplifying operations.
Speaker Change: All our major initiatives are now in place.
Speaker Change: The result is fewer unnecessary process burdens on our our gms and better efficiency.
Separately, we launched project.
Speaker Change: At the end of quarter, one to improve our surprising efficiency.
Speaker Change: Our goal is to spend better and by better.
Speaker Change: To spend better we are assessing our operations from a customer's point of view identifying areas that add no value for them.
Speaker Change: We are also simplifying our ingredient skus packaging and menu in a certain segment of stores and select day parts.
Speaker Change: Without compromising sales.
Speaker Change: To buy better we are sourcing directly from farmers and producers for certain categories.
Speaker Change: By systematically examine our operations from fresh perspectives.
Speaker Change: We are uncovering numerous opportunities.
Speaker Change: We are doing all this while ensuring food safety and quality.
Speaker Change: Lastly, AI and automation will continue to play a big role in our business.
Speaker Change: We have automate major restaurant management tasks.
From sales forecasting to labor scheduling and inventory management.
We have rollout I kitchen to all pizza hut stores.
Speaker Change: This integrated AI system enhances food quality and improve operational efficiency.
Speaker Change: We were among the first in our industry in China to adopt generated AI in 'twenty, two 'twenty three to turbo charge, our back office processes.
Speaker Change: We are working on a few dozen generating AI applications, including consumer insight.
Speaker Change: Customer support for safety and new product innovation.
Speaker Change: These tools are already helping us improve efficiency and make more informed data driven decisions.
Speaker Change: We are making great progress with these measures.
Speaker Change: Some have already impacted our second quarter results.
Speaker Change: While others will take more time to bear fruit.
Speaker Change: Importantly, these are structural improvements that will bring long lasting benefit.
Speaker Change: With these measures in place we have the bullet to compete on value and pursue growth in this dynamic environment.
Speaker Change: With that let me turn to our branch strategy starting with KFC.
Speaker Change: In our 37 years in China.
Speaker Change: <unk> has introduced many popular product categories.
Speaker Change: Lisa innovations include our juicy beef burgers and whole chicken.
Speaker Change: Customers appreciate these new products, but they also love the fresh energy, we bring to our iconic classic.
In Maine, we combined our original recipe chicken and mashed potatoes to create a brand new Burger the original recipe chicken Burger Yung Wei key humble by the way the classic way to enjoy kfc's of regional recipe chicken.
Speaker Change: As with mashed potatoes, and lead focus in China.
Speaker Change: In the past they were offered separately.
Speaker Change: Now we've put them together into one focus.
Speaker Change: As one customer told me it is.
Speaker Change: A childhood dream come true.
Speaker Change: This innovative program sold out in many locations in just two days.
Speaker Change: And drove incremental sales and profit.
Speaker Change: <unk>. It was so popular we launched it again for a limited time in June.
K coffee is available in all KFC stores.
Speaker Change: As sales exceed 1 billion RMB in first half of 2024 up 26% year over year.
Speaker Change: During this period, we sold nearly $120 million cut up 36% year over year.
Speaker Change: We have been accelerating the rollout of our groundbreaking side by side K coffee cafe since late last year.
Speaker Change: From just 100 stores in March we tripled the number to nearly 300 in July.
Speaker Change: <unk> K coffee cafes feature at this thing dining area and menu.
Speaker Change: Starting.
Speaker Change: At $9 nine RMB at our campus stores customers can enjoy our innovative coffee and I'll hop off.
Speaker Change: We also.
Speaker Change: Popular sparkling americano to the next level.
Speaker Change: With the introduction of the EIS Orange premium sparkling latte.
Speaker Change: Being 10 ton commercial chip how market very long name.
Speaker Change: The most like.
Speaker Change: Smoothness.
Speaker Change: Birth, and citrus flavor a mind blowing.
Speaker Change: Thanks to our support supply chain and efficient operations, we are making healthy margins too.
Speaker Change: This is a winning model.
Speaker Change: By year end, we expect to rollout our K coffee cafe to 500 to 600 stores.
Speaker Change: The lottery sales continued their double digit growth momentum at KFC.
Speaker Change: We lowered the delivery fee in quarter, one to capture the underserved smaller ticket settlement these strategic move Floof.
Speaker Change: Successful.
Speaker Change: As we gained market share on aggregator platform.
Speaker Change: We drove incremental sales and profit without impacting margins.
Speaker Change: By introducing platform riders as select locations, we optimized rider cost.
Speaker Change: While maintaining service quality and customer satisfaction.
Now turning to pizza huts.
Speaker Change: This quarter Pizza hut achieved its most profitable second quarter since the spin off.
Speaker Change: On the sales side, we were up against an outsized com in April from a successful marketing campaign last year in.
Speaker Change: In May and June same store sales improved.
Speaker Change: Despite sales deleveraging, we improved our profitability by enhancing operational efficiency for.
Speaker Change: For example, we significantly reduced product preparation time by simplifying menu and kitchen operations.
Speaker Change: We also deployed automated Fry rise machine and robotic servers to make our crews what little lighter.
Speaker Change: These are hot just hit the 3500 store Mark.
Speaker Change: We believe pizza hut has huge potential.
Speaker Change: Now present in over 750 cities.
Speaker Change: Via our 1300 cities that have a KFC, but no pizza hut at yet.
Speaker Change: In addition to expanding a footprint pizza is also reaching new consumer groups with amazing value innovative products and business models.
Some highlights.
Speaker Change: First.
Speaker Change: Menu innovation.
Our entry price pizza.
Speaker Change: <unk> previously underserved segments and grew double digit this year.
Speaker Change: Our new Pizza dough Burger Pizza box is attracting many solodyn us.
Speaker Change: This unique burger with a freshly baked pizza adult fun is receiving rave customer feedback.
Speaker Change: In quarter, two with so more Burger <unk>.
Speaker Change: Ryan Pizza one of our signature.
Speaker Change: Encouraged by is the first we will be rolling the pizza dough broker out two or 3500 stores later on this month.
Speaker Change: Second.
Speaker Change: Our pizza hut, while store models.
Speaker Change: A major breakthrough.
Speaker Change: We successfully attract solar diner young people are more value conscious customers.
The model features simpler operations group.
Speaker Change: Alrighty and excellent value for money.
Speaker Change: Is the fast casual format.
Speaker Change: With lighter service.
Speaker Change: Since opening the pilot store just in May we have converted over 100 existing stores to this model by end of July.
The initial result of the while model.
Speaker Change: Encouraging.
Speaker Change: I visited some of our newly opened stores last month.
Speaker Change: Sales were vibrant with customers chewing outside.
Speaker Change: Our first batch of new stores achieved significant same store sales uplift.
Speaker Change: Given the encouraging results.
Speaker Change: We are accelerating the store rollout.
Speaker Change: By year end, we expect to more than double our while store counts.
Speaker Change: Now, let me talk about our store expansion.
Speaker Change: We are seeing fantastic long term growth opportunities in China.
Speaker Change: Our flexible new store formats.
Speaker Change: Now us to penetrate profitably across city tiers and locations.
Speaker Change: Our newest stores maintain good returns there.
Speaker Change: That payback period held steady at two years for KFC and improved to two to three years at Pizza hut.
Speaker Change: 80% of our newest stores achieved monthly breakeven within three months.
Speaker Change: With focus on white space to minimize the impact on existing stores.
Speaker Change: AFC small-time many model is unlocking new site possibilities in lower tier cities.
Speaker Change: We have also identified opportunities in strategic locations like college campuses guests stations Highway service centers and other transportation hub and tourist locations.
Speaker Change: <unk> new store as Shanghai <unk> University gel that for example is enjoying busy on campus traffic.
Speaker Change: We are also leveraging partnerships with franchisees to unlock opportunities in lower tier cities and strategic locations.
Speaker Change: In the second quarter net new stores from franchising reached 25%.
We expect the ratio will go up.
Speaker Change: Slightly exceeding the 15% to 20% target we set at our Investor day last year.
Speaker Change: Now, let me recap the three key messages I want you to take away today.
Speaker Change: First we took actions to drive operational efficiency, which enable us to invest in value for money and to support our margins.
Speaker Change: These efforts were not just one off cost cuts.
Speaker Change: They were structural improvements that should deliver benefits for years to come.
Speaker Change: Second we embrace consumer needs and succeed in driving robust transaction growth. We are confident that our sales initiatives will drive sustainable long term system sales and same store sales growth.
Speaker Change: Third innovation, a new store models will continue to power our long term growth.
Speaker Change: Our Q2 results show that our strategies are working.
<unk> companies.
Speaker Change: <unk> in tough conditions and turn challenges into opportunities.
Speaker Change: I'm confident in our ability to navigate the current environment.
Speaker Change: And emerged stronger than ever.
Speaker Change: Before we move on to our financial results.
Speaker Change: I would like to take a moment to recognize the tremendous contribution that Andy has made to Yum China.
Speaker Change: Andy has played a critical role in enhancing the company's financial strength.
Speaker Change: Establishing robust cost discipline and supporting our growth strategy.
Speaker Change: Under his leadership the finance team further strengthened its core capabilities and upgrade is system and processes in key areas.
Speaker Change: He also successfully led the completion of our listing in Hong Kong.
Speaker Change: I would also like to thank Andy for his commitment to transitioning Adrian thing into the ethane CFO role.
Speaker Change: <unk> join me in wishing Andy the very best.
Speaker Change: I am very pleased that Adrian will step up as acting CFO.
Speaker Change: Adrian is our current Chief investment officer, and general manager of Lovaza.
Speaker Change: Over the past five years, Adrian has led multiple investments and capital markets projects to enhance our portfolio and organizational strength.
Adrian: He was instrumental in establishing the Nevada joint venture and building the Lovaza business in China.
Andy Yeung: With his financial and operational expertise I'm confident that Adrian will support our growth objective to create sustainable value for our shareholders with that I will turn the call over to Andy Andy.
Andy Yeung: Thank you Julie and Hello, everyone.
Andy Yeung: As this will be my last earnings call with Yum, China I want to express my Sincerest gratitude to Joey My colleagues.
Andy Yeung: Shareholder.
Andy Yeung: Hello.
Andy Yeung: Over the past five years it has been a rewarding experience working closely with such a talented and dedicated leadership team.
Andy Yeung: I'm proud of their accomplishment that we have achieved together navigating the challenges posed by the pandemic.
Andy Yeung: Optima.
Speaker Change: Yum, China emerge from the pandemic more resilient and ready to accelerate growth.
Speaker Change: Confidence in the company's continued success under the capable leadership of the existing management team.
Speaker Change: Now, let's turn to our financial results.
Speaker Change: In the second quarter, we deliver a solid performance and set numerous new records, including revenue of $2 8 billion.
Speaker Change: Operating profit of $266 million.
Speaker Change: Operating margins of nine 9% and diluted EPS.
Two devices.
Speaker Change: Thus procure impressive given the current market conditions.
As Joe shared earlier the initiatives that we launch beginning in the fourth quarter of last year to drive sustainable growth improve margin are beginning to pay off.
Joe: While top lumping in current market conditions impacted same store sales.
Speaker Change: Margin stabilize.
Speaker Change: Also growth was led by a healthy traffic.
Joe: Total transactions grew.
Joe: 13%.
Joe: And same store.
Joe: Construction grew 4% year over year in the second quarter.
Joe: Is a testimony to how well our brands product marketing and promotion resonated well with consumers.
Joe: We attract new customers and capture more locations from existing facilities.
Joe: By broadening our product range and offering delicious food at affordable price points.
Despite a lower ticket average restaurant margin was markedly flattish year over year.
Joe: On a comparable basis.
Joe: Core operating margin actually improved year over year, setting a new quality record for operating margin.
Joe: Thanks to our economy of scale.
Joe: Cost measures.
Joe: Taking a longer view our system sales grew 25% compared with the second quarter 2019.
Joe: Performing the restaurant industry.
Joe: Operating profit increased even more by 38% compared to 2019.
Joe: <unk>.
Joe: Now, let's take a closer look at our second quarter performance.
Joe: Our brands KFC system sales increased 5% year over year.
Joe: In both of those were at 97% of prior year levels with 4% same store traffic growth and 7% lower ticket areas.
Joe: Looking at it from a longer term perspective.
Joe: Ticket average in the second quarter was 37 RMB higher than the 35 RMB to get leverage in the second quarter of 2019.
Joe: Our strategy is to widen the price range and capture low ticket average delivery orders.
Joe: Ingalls.
Joe: Our entry price Cobo.
Joe: Drove incremental traffic.
Joe: Delivery sales grew 12%.
Joe: System sales increased 1% year over year.
Joe: Same store sales.
Joe: 92% of the prior year levels with traffic growth of 2% and eight.
Joe: 9% lower ticket areas.
Joe: We will have continue to tap into more volume conscious consumer and solo dining segments.
Joe: <unk> entry price pieces.
Joe: Progress in <unk>.
Joe: The ticket average windows in keeping with our strategy.
Probably improve year over year through our team's relentless efforts to drive efficiency.
Joe: Now, let's go through our module and key customers.
Joe: Our operating margin as a percentage of revenue was nine 9%.
Joe: Highest.
Joe: Second quarter record since our spinoff.
Speaker Change: We do a restaurant margin.
Speaker Change: Proactive savings in G&A expenses helped us achieve that.
Speaker Change: Our restaurant margin was 15, 5% 60 basis points lower than last year were approximately the same on a comparable basis.
Speaker Change: Savings in cost of labor and occupancy and other costs offset increases in cost of sales.
Total sales was 31, 5% 80 basis points higher year over year.
Speaker Change: Or 70 basis points higher on a comparable basis.
Speaker Change: U S was.
A healthy level and consistent with our long term range of 31% plus or minus 1%.
Speaker Change: We manage our fuel as hybrid despite offering more value for money.
Speaker Change: Our innovation capabilities and Super supply chain and allow us to invest in sales driving initiatives and promotions.
Speaker Change: Cost of Labor was 26, 3%.
Speaker Change: 10 basis points lower year over year.
Speaker Change: Improved operational efficiencies more than offset last year's wage increases for our frontline staff.
Speaker Change: In the <unk> market.
Speaker Change: Occupancy and other was 26, 7%.
Speaker Change: 10 basis points lower year over year, or 50 basis point lower on a comparable basis.
Steve: Steve come from lower marketing and advertising expenses and other cost optimization.
Steve: Our G&A expenses decreased 11% year over year.
Steve: We drove operational efficiency gains.
Steve: We also save on.
Steve: Lower performance based compensation this year.
Steve: G&A expenses as a percentage of revenue was 5% in the quarter improving from five 8% a year ago.
Steve: For the full year, we aim to keep the G&A ratio.
Steve: <unk>.
Steve: Our effective tax rate was 25, 2% in the second quarter.
Steve: On par with the same period last year.
Steve: We expect our full year effective tax rate to be in the high <unk>.
Steve: Operating profit was $266 million.
A second quarter record.
Steve: Growing 7% year on year.
Steve: Core operating profit.
Steve: $275 million.
Steve: Growing 12% year over year.
Steve: Diluted EPS was <unk> 55.
Steve: Also a second quarter record.
Steve: <unk>.
Steve: Growing 19% year over year.
Steve: Finally, moving on to our outlook.
Speaker Change: The market conditions remain challenging.
Speaker Change: We will continue to invest in value for money and step up product and marketing innovation to drive transaction growth.
Speaker Change: Our opportunity efficiencies by better and spend better projects are not temporary measures.
Speaker Change: We expect cost savings from project fresh is important.
Speaker Change: To continue in the second half.
Speaker Change: This translates to exchanges.
Speaker Change: Should position us well to remain best in class and best in cost in our business.
Speaker Change: Our value proposition sustainable and profitable new logos.
Speaker Change: Our disruptive new business model like <unk>.
Speaker Change: Side by side, K, Colby cafes, and Pizza hut volatile are plummeting to further same store sales growth with hydro.
Speaker Change: As a reminder.
Speaker Change: We recorded around $50 million in temporary relief and BHP deductions.
Speaker Change: Third quarter of last year.
Speaker Change: We do not expect this to recur this year.
Speaker Change: We expect wage inflation for our frontline staff to remain at low single digits.
Speaker Change: We opened a record 779 net new store in the first half and good fits.
Speaker Change: <unk> thousand 423 total number of stores.
Speaker Change: We are on track to achieve our full year target of 1500 to 17 net.
Speaker Change: Net new stores.
Speaker Change: We are also on track to return $1 5 billion to shareholders.
Speaker Change: In the first half, we returned nearly $1 billion, including buying back $21 seven will ensure.
Speaker Change: This is equivalent to over 5% of our outstanding shares.
Speaker Change: Our strong cash flow generation and healthy cash position continue to power our capital returned to shareholders.
Speaker Change: At the end of the second quarter, we had $3 $1 billion in net cash.
Speaker Change: Our three year growth targets remain unchanged.
Speaker Change: We are committed to returning at least $3 billion to shareholders, while driving long term and sustainable growth.
Speaker Change: So with that I will pass it back to Paul.
Paul: 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.
Speaker Change: If you wish to ask a question. Please press star one on your telephone and wait for your name to be announced.
Speaker Change: If you wish to country a request please press star two.
Speaker Change: If you're on a speakerphone please pick up the handset to ask your question.
Speaker Change: The first question comes from Michelle Cheng with Goldman Sachs.
Speaker Change: Please go ahead.
Michelle Cheng: Hi, Joey MTN Congress for the still very strong and resilient numbers and <unk>.
Michelle Cheng: So my question is about is a new basic format and through our concept and.
Speaker Change: It's really impressive that we have a very aggressive opening all year to day and thank you Joey auto sharing the talking about end of the year, but can you. Please give us more color about the economics and also the contribution I K coffee side by side stores. All in same store sales for those stores, we already have these openings.
Speaker Change: Past few months and the cat is still more value position. So shall we think.
Speaker Change: Think about the economics.
Speaker Change: Shall we see that these calls are raised.
Speaker Change: It will be higher but these will be offset by like more simplified.
Speaker Change: Simplified our cost structures and all payroll and does that math on the module pass back to you. Shortly we will see more upsides for this new model and also are we going to see more new concept. In addition through the K coffee and wall in the next few quarter. Thank you.
Michelle Cheng: Thank you Michelle.
Speaker Change: Is the is truly amazing for our team to have this breakthrough and we are very excited about it.
Speaker Change: And I'll answer your last question first is we are going to focus on these two breakthrough model.
Speaker Change: Out of KFC, and Pizza hut and I think.
Speaker Change: The initial results are very encouraging.
Speaker Change: And we're focused on that for the rest of the year and going forward.
Speaker Change: Come back to the content of the new concept.
Speaker Change: First of all the easiest way is travel to syndrome.
Speaker Change: I encourage all our LLS of just cross the border.
Ivan Cheung: I really just visit the wiring in Ivan Cheung newly center I think.
Speaker Change: Is the piece of Wow.
Speaker Change: And then we have few other K coffee side by side and you can see the menu of the operation and you have very good feel about it.
Speaker Change: So for K coffee.
It has its own menu.
Speaker Change: The menu is very simple.
Speaker Change: And then in terms of.
Speaker Change: The product we have some winning product the sparkling coffee is a fantastic product and food is also important.
Speaker Change: And that comes to the.
Speaker Change: Next the characteristic of K coffee is we share the kitchen and the operation operation with the with the normal KFC store. So the kitchen is sure operation team is sure but it has its own distinct area.
Speaker Change: And then for the for the customer the value for money is amazing and I will highlight.
Speaker Change: One particular offer which I.
Speaker Change: I mentioned in my remarks is the.
Speaker Change: In the in the campus the campus K Cups, K coffee store, we actually offer sparkling coffee with a hotel at $9 nine yeah.
Speaker Change: You might have.
Naturally ask the question how does it work for the margin well think about this way for many years already we offer breakfast.
Speaker Change: At <unk>, we offer the foot and a coffee come comes for free in K coffee is the reverse we sell the coffee a 99 year for Asbury So.
Speaker Change: It's in our surprising capability that we can do these are very.
Speaker Change: Competitive way so the net net the margin is healthy.
Speaker Change: So and then in terms of result at both incremental same store sales and incremental profit.
Speaker Change: Welcome to the <unk> Pizza hut stores, so is it sort of a bit more fast casual with a bit less of us just a little bit.
Ed: Ed how do I described as the foot offering is a bit like pizza hut, but purpose.
Finishing on smaller portion lower price, but if you go in there by yourself you can order a bit more full variety, but total ticket average is less than the normal pizza dough.
Speaker Change: But the traveler is fantastic so.
Speaker Change: Overall, it was and the same store sales.
Speaker Change: The increase is a is very encouraging and for the pizza hut vows store, we just convert some of our pizza hut into this new concept is conversion basically so right now we are.
Speaker Change: We have a 100 store converted by the end of July and we plan to overcome.
<unk> achieved.
Speaker Change: Achieved over 200 by the end of the year and in terms of CLS margin.
Speaker Change: It's actually better although it is early days.
Speaker Change: But the unit economics is better because CLO assets still L. C. L. L. M. <unk> is a bit less so that's what we can share with you right now, but the Nomura suggestions cross the border goes to see something Sanjay. Thank you Michelle.
Joey Wat: Thank you Joey may be looking forward to.
Joey Wat: Your next question comes from Lillian Murray with Morgan Stanley. Please go ahead.
Lillian Murray: Hello, Thanks, Hello, Joey and Andy My question is about the recent trend on the same store sales and also again congratulate congratulations.
Speaker Change: Yes, we have such a good result, and.
Speaker Change: Even under a bit of telling demos so want to understand.
Speaker Change: Getting into third quarter, and fourth quarter, when the top comp kind of elevated our bed and with all these cost efficiencies put in place our ratio will tie the operation on a holistic basis.
Speaker Change: And have they seen a different trends in different tier of markets in terms of the demand.
Speaker Change: And the cost management.
Speaker Change: <unk> in low tier cities. Thank you.
Speaker Change: Thank you again.
Speaker Change: Let me share a lot of the learning from the quarter, one trading pattern and then make few comments about the quarter too.
Speaker Change: By region, the eastern part of China is still the most resilient one by city tier lower tier city recover faster.
Speaker Change: The higher tier city.
Speaker Change: Both year on year and versus longer term like pre pandemic.
Speaker Change: Thousand 19th by location the residential locations are more resilient and shopping center almost back to 2019 levels.
Speaker Change: And moving onto the business environment, that's been a lot of attention to the business environment and consumer sentiment in China.
Speaker Change: We have not seen significant change in market conditions, and consumer sentiment going into quarter two.
Speaker Change: With that said.
Carlos III: Carlos III sorry.
Carlos III: My management team and I am sure one particular philosophy on that.
Carlos III: Yes business is tough right now, but much less much like our life right.
Carlos III: Always tough.
Carlos III: In business as in life, we always expect the.
Carlos III: Unexpected we don't whine about it we accept whatever comes our way and we adapt and do the right thing often in doing so we are able to turn there is disruptions to our competitive advantage by deploying our scale and our capabilities in.
Carlos III: Terms of how to do it et cetera.
Carlos III: I have.
Speaker Change: Cover them in my remarks regarding the specific questions, but the three key points.
Speaker Change: Bear repeating in summary, first of all to answer your question about the cost efficiency, we have toone every process and cost element to drive operational efficiency make our store managers, what low lighter and reinvest into our value for <unk>.
Speaker Change: Only offerings and support our margins.
Speaker Change: Second we have innovative creative new products.
Speaker Change: Which have lovely picture in the Powerpoint that and we widened our price points to broaden our addressable market and drive traffic.
Speaker Change: Sure, we innovate breakthrough store model.
Speaker Change: K coffee cafe, and many stall for small time for KFC and a fast casual model kapisa have out which I just described.
Speaker Change: Power, our future growth of KFC and Pizza hut at all three strategies are showing strong initial results.
Speaker Change: As a result.
Speaker Change: For quarter two this year, we see robust growth, while actually a double digit growth in transaction and delivery sales our restaurant margins stabilized and co op grew by 12% we.
Speaker Change: We see the most profitable quarter to spinoff.
Speaker Change: Despite the industry dynamic thank.
Lillian Murray: Thank you Lillian.
Lillian Murray: Thanks, a lot Gary and our calculations to Andy.
Lillian Murray: The next question comes from Tim <unk> with Bank of America. Please go ahead.
Tim: Hi, Julia and his his term.
And congrats again on the strong result, and also my best wishes to Andy.
Speaker Change: Like to take a deeper look at our margins definitely our Q2 margins beat the expectation.
Speaker Change: And.
Speaker Change: When you are looking into the details our notice first of all.
Speaker Change: Within paper costs as percentage of sales edged down by 60 bps.
Speaker Change: The Q on Q basis.
Speaker Change: Perfect.
Speaker Change: Our promotions seems to be very intense in Q2.
Speaker Change: So what is driving that is just because of the falling.
Speaker Change: Commodity cost or is because of our smart value or.
Speaker Change: Supply chain initiatives.
Speaker Change: And secondly, if you look at the cost of labor.
Speaker Change: Decline big time on a year on year basis for.
Speaker Change: Pizza hut.
Speaker Change: And also for the group is largely flattish versus the usual upward trend.
Speaker Change: So what is also driving all these changes.
Speaker Change: And lastly.
Speaker Change: I notice that our first half retro margin is actually pretty much on par with first half of 290, which is usually regarded by the market as a normalized comparison base is it fair to say that going forward.
Speaker Change: Our margins can be largely comparable for two to $2 19 for the rest of the year. Thank you.
Speaker Change: Thank you.
Speaker Change: For your question.
Speaker Change: And.
Speaker Change: In terms of short term I think.
Speaker Change: Obviously, we are navigating some pretty dynamically.
Speaker Change: <unk> operating environment in the short term and consumers remain very volume countries and so.
Speaker Change: One thing to keep in mind so.
From our perspective, if you look at it.
Speaker Change: Quarter last year was not particularly.
Speaker Change: <unk>.
Speaker Change: Low base, if you think about last year.
Speaker Change: D C.
Speaker Change: Consumers' confidence.
Speaker Change: In late September so that's something to keep in mind. So in the short term obviously.
Speaker Change: This would be an important driver for margin.
Speaker Change: We have mentioned on the call, but nevertheless, as we have mentioned.
Speaker Change: Our prepared remarks, we have taking very decisive actions to adjust our cost structure and so that and then also we have.
Speaker Change: Decisive action to change some of our business model to embrace the market change and so as a result, we're able to see stabilize do you see margins and then and then also we see expansion in our operating margins to the tune that we use the best.
Speaker Change: Now if you look at our initiative.
Those initiatives are not a short term measures.
Speaker Change: Longer term structural change in the way how not only the cost structure, but also how we operate our business make it more efficient.
Speaker Change: In the short term I think.
Speaker Change: If you think about the more price in the short term.
Speaker Change: When commodity prices more favorable.
Speaker Change: But at the same time, we again mentioned over and over again.
Speaker Change: It is important for us to invest in value message.
Speaker Change: And embraced our consumer.
Speaker Change: Oranges.
Speaker Change: And so.
Speaker Change: So some time, if Australia as we have mentioned before.
Speaker Change: We always in our long term targets, 31% plus or minus 1%.
Speaker Change: Now even the fluctuations.
Speaker Change: I think on all our risk view.
Speaker Change: <unk> put up this quarter is around 31, 5%.
Speaker Change: So.
Speaker Change: <unk>, yes.
Quite a bit of improvement in labor productivity and that will continue.
Speaker Change: The focus we will continue to look into our operations simplify some of the procedures and in.
Speaker Change: And make sure that.
Speaker Change: I should add value.
Speaker Change: You don't add value in that valuable the AGM will consumer would take it out.
Speaker Change: So but.
Speaker Change: When we look at in the second half this year, but for the full year. This year, we do expect our inflation at this bottom level to be low single digits.
Speaker Change: And then in terms of Illinois.
Speaker Change: Continue to be.
Speaker Change: Now that we have initiatives to try to improve that but obviously.
Speaker Change: These are composed of many many things right capital allocations for store investment.
Speaker Change: The impact depreciation.
Speaker Change: And then also ranked <unk>.
Speaker Change: We will continue to work on marketing leverage from our digital program and so we will have many initiatives to improve incrementally and so.
Speaker Change: So the one thing I want to remind folks we have and why folks in.
Speaker Change: First quarter earnings call, which is last year, our company enjoy some one times right.
Speaker Change: Right, we'll leave.
Speaker Change: And also production, which was a big deal.
Speaker Change: Our government support policy.
Speaker Change: Policy that we don't.
Speaker Change: <unk> expense in the first half this year and we still expect.
Speaker Change: So that.
Speaker Change: Items like that.
Speaker Change: <unk>.
Speaker Change: For the third quarter last year was about 12 million U S dollar.
In the third quarter is about $50 million U S dollars and so that's I think that's going back to that when you guys look at the model.
Speaker Change: To remind and so <unk> I think as we.
Speaker Change: We have mentioned before we will aim to keep G&A this year.
Speaker Change: 5% of our total sales revenues.
That is a significant improvement compared to last year and it is the improvement even compared to 2019 and so so again.
Speaker Change #100: In the short term is how we look at it but you know longer term I think painful more stable relatively stable margins and look for ways to improve our margins in the long run if possible.
Speaker Change #100: Then we I think we have demonstrated and I think we're confident that we can manage both growth and profitability in good time at that time.
Speaker Change #100: And do we faced challenges in the short term sure.
Speaker Change #100: But we have demonstrated I think from you and you can see the actions that we're taking to embrace the market changes to adjust our cost structure.
Speaker Change #100: Improve our operating efficiencies and also our change our business model. So that I think that <unk> to make decisive changes to embrace change and should help us sustain margins in the long term. Thank you I'll just give to concrete example for you.
Speaker Change #100: Listen for example.
Speaker Change #101: S right.
Speaker Change #102: We in select carrier right now would go straight to the farmer producer.
Speaker Change #103: We get really good.
Speaker Change #103: Ingredient at better price you can totally imagine.
Speaker Change #103: We will continue to do that in a C O L. What other specific thing that you can see in our kitchen.
Speaker Change #104: 80% of our Pizza Hut store right now have automatic Fry rise machine is pretty cool you might consider to have one in your house is actually very small.
It really solve the.
Speaker Change #104: The labor shortage or labor.
Speaker Change #104: The problem, particularly during the peak peak time, and then 50% of our Pizza Hospital right now have robotics of not oldest store can do it because.
Speaker Change #105: Two small cannot benefit from it.
Speaker Change #105: So <unk> from China.
Speaker Change #106: So so so this definitely a structural structural change to the C. O L. And then we have as I mentioned in my prepared remarks.
Speaker Change #107: We have fewer skus at selected they pump.
Speaker Change #108: What is the meat.
Speaker Change #108: It means that we take out some tail for selected Paypal.
Speaker Change #109: Not throughout the whole day, but just through a certain time of the day.
Speaker Change #109: That it has less wastage spend better right last way stage, therefore, less CLS less gol to all makes sense and these are the specific example, thank you Roger.
Speaker Change #109: That's all out Giulia and also look forward to that off the bat here.
Speaker Change #110: Our rights for a machine if it is available on shelf.
Speaker Change #110: Also my best wishes to Andy again.
Speaker Change #111: Thanks, a lot.
Speaker Change #112: Your next question comes from Enlink with Jefferies. Please go ahead.
Speaker Change #113: Hey, Hi.
Enlink: Thank you very much for taking my question. So I have a small one.
Just sort of like get all of the new pharma again.
Speaker Change #115: So I'm moving forward for example for <unk>.
Speaker Change #116: Pizza hut, what does it mean that in.
Speaker Change #117: In the future or the store opening of that because currently you know youre, mainly doing a conversion at the store so moving forward for your new opening.
Speaker Change #118: Was that also means that you know some of the news.
Speaker Change #118: Opening will also be strict on that.
Speaker Change #119: Well based on your current store that way.
Speaker Change #120: How many of them do you think that totally.
Speaker Change #120: As.
Speaker Change #121: You can make this kind of shift.
And how quickly you can do that.
Speaker Change #122: Or like you know at what point we.
You make a decision in terms of like a <unk>.
Speaker Change #123: Salary like get all of this rollout and then four of the of the K coffee store in all of the same question in a second.
Speaker Change #124: Under your current like saw that what how many stores, how many stores actually visible off with this kind of like.
Speaker Change #125: Adjacent store format yeah. Thank you.
Anne: Thank you Anne.
Speaker Change #127: For Pizza hut.
Speaker Change #127: While model.
Speaker Change #128: <unk> is one of the model.
Speaker Change #128: For both KFC and Pizza hut, we actually have multiple store model for multiple.
Speaker Change #128: Locations and formats, and considered tier et cetera et cetera.
Speaker Change #128: Currently for Pizza hut.
Speaker Change #128: Testing.
Speaker Change #128: This model in different parts of the country.
Speaker Change #128: And also top tier city low tier city.
Speaker Change #128: You can imagine.
Speaker Change #128: So we will be a bit more clear later in the year about.
Speaker Change #128: How many of the existing store that have the potential to be converted and you can imagine some of the newest pool if suitable for this model.
Speaker Change #128: We'll open.
Speaker Change #128: Pizza hut is a new store as well.
Speaker Change #129: Similar story for K coffee, but not so similar K coffee is not so much a conversion K coffee cafe is a bit light identify assisting store and we kind of have a side by side and on.
Speaker Change #129: Sort of a thing store to the existing.
Speaker Change #129: KFC store.
But again, we are testing it in different parts of China, right now and the most remote part is in discussing right Cedar Tibet.
Speaker Change #129: And.
Speaker Change #129: In tourist location.
Speaker Change #129: And then handle tones onto handle high speed railway stations and you can imagine so different locations different city tier.
Speaker Change #129: We are testing it and then we are building our food and also the strength of the K coffee as well.
Speaker Change #129: So we have a bit more aggressive number of K coffee, which is by the end of the year of 500 600 U S centers 500 to 600 store.
Speaker Change #129: But this is what we have in online and we'll continue to learn and then we adjust and at that and we are.
Speaker Change #129: Salary does the speed if we if we need to.
Speaker Change #129: And we will continue to learn.
Speaker Change #129: <unk>.
Speaker Change #130: Thank you.
Speaker Change #130: Goodbye.
Dan: Thanks, Dan.
Dan: The next question comes from Brian Bittner with Oppenheimer and card.
Speaker Change #132: Please go ahead.
Speaker Change #132: Thank you Andy it's been a pleasure working with you. Thanks for all the help over the years and wish you the best.
Brian Bittner: I was hoping you guys could put some guardrails on how to think about the second half of the year for same store sales of course, if we look at last year. The comparison gets a lot easier in the third and fourth quarter, but.
Speaker Change #134: Given the operating environment I'm not sure how relevant comparisons are so.
Speaker Change #135: Is there in fact, an opportunity for same store sales to show some improvement in the second half versus first half or is the message from you.
Speaker Change #136: Well it should remain pretty conservative and maybe do you expect more of a similar second half as what we saw in the first half.
Bryan: Hi, Bryan thank.
Speaker Change #138: Thank you so much for your time and then also thank you for your question.
Speaker Change #139: I think in a macro I think that there's a lot of news on the macro side of thing is there are some of the <unk>.
Speaker Change #139: Complexities and conventionally challenges Chinese consumer space, all economies as well as kind of what are we trying to.
Speaker Change #139: We really tried to.
Speaker Change #139: <unk> mentioned on this call you that.
Speaker Change #139: As a company.
Speaker Change #139: We continue.
Speaker Change #139: To be able to take decisive actions.
Speaker Change #139: Two ones, who drive sales and the other one is to control cost.
Speaker Change #139: Those two actually.
Speaker Change #139: Hand in hand, right, so something some of this initiative.
Speaker Change #139: We'll be able to.
Speaker Change #139: More control and then we sell quickly and so as a result, you can see our cost structure has improved.
Speaker Change #139: Significantly.
Speaker Change #139: And I think the strategy is working.
Speaker Change #139: On the other hand, we are also passing along the savings to consumer, especially in the market where consumer are more value conscious and so we'll continue to do that.
Speaker Change #139: I know some of the savings to invest in Bayou campaign and promotional activities to <unk>.
Speaker Change #139: <unk> traffic and I think we.
Speaker Change #139: We also have some results that were pretty encouraging if.
Speaker Change #139: If you look at our traffic growth we achieve.
Speaker Change #139: <unk> traffic growth.
Speaker Change #139: Low single digits this quarter.
Speaker Change #139: And then if you look at our overall profit growth for our franchise overall.
Brian we are seeing.
Brian Bittner: Double digit growth in our store traffic.
Brian Bittner: It's very important for our restaurant industry, because traffic growth is what sustain long term growth and profitability.
Brian Bittner: Our business and so so in terms of the macro outlook I think as Joey mentioned earlier, we don't see significant change.
Joey Wat: Going into the third quarter.
Speaker Change #140: And we my folks that.
Joey Wat: Last year's third quarter was not particularly easy as you put it.
Joey Wat: Because we only begin to see some.
Joey Wat: Softening in the consumer space in late September last year, and so you can if you go back to last year, the trend and what we have come in at that time and so.
Joey Wat: The good news is.
We have a lot of initiative.
Joey Wat: Two to drive that we have some breakthrough in our business model.
Speaker Change #141: Pizza hut bound Mato we've carefully.
Speaker Change #141: K coffee farmers my model and obviously, we also have a lot of initiative on food innovation.
Speaker Change #141: Restaurant industry, leaving.
Speaker Change #141: A leading player.
Speaker Change #142: We're proud of our Waco capabilities and data to drive consumer to the stores and so we'll continue to do that but as we were cautious people.
Speaker Change #141: No.
Speaker Change #141: Be overly optimistic in the second half.
Speaker Change #141: We are not pessimistic, but shouldnt be opioid mistakes.
Speaker Change #141: Thank you Brian maybe are just a few comments here I mean, obviously nobody has a crystal ball here.
Speaker Change #143: And I just want to emphasize the young China is a growing company in a growing market for China.
Speaker Change #143: Is it.
Speaker Change #145: It seems quite suppression of both these stage would be bearish on China.
Speaker Change #145: But I just wanted to add that even at current growth rates, China do account for almost one third of the world's annual growth.
Speaker Change #146: And particularly that the shift to the shift of growth to lower tier city.
Speaker Change #147: Kind of.
Speaker Change #148: Reminds me of the push into the frontier in the U S and part of yesterday's Wild West become today's Silicon Valley and something like that has already happened in Sundance. So I'm confident that it will happen elsewhere in China as well therefore system cells is equally important.
Speaker Change #148: <unk> two systems.
Speaker Change #148: Same store sales and we will try to.
Speaker Change #148: <unk>.
Speaker Change #148: Focus on both system sales and same store sales.
Speaker Change #148: To have a balanced approach and you appreciate that we are also.
Speaker Change #148: Opening a lot of new stores.
Speaker Change #148: And that will have certain sales transfer.
Speaker Change #148: In terms of same store sales.
Speaker Change #148: Our ever even with that we are taking a balanced approach as well because 30% of our new stores.
Speaker Change #148: Chile are more on the strategic location or small tier city.
Speaker Change #148: The sales transfer.
Speaker Change #148: Can be managed better.
Speaker Change #148: And and more than half of our new store in lower tier city, these days and last but not least.
Speaker Change #148: K coffee piece have all actually.
Speaker Change #148: Very focused on.
Speaker Change #148: Growing the same store sales.
Speaker Change #148: So we tried to we tried to focus.
Speaker Change #148: And and have a balanced approach and last but not least you know.
Speaker Change #148: It is not reported in media, but.
Last year alone, China actually open 400 shopping malls.
Speaker Change #149: In mostly in tier two and below a Singapore, how many countries in the world.
Speaker Change #149: These days opened 400 shopping malls.
Speaker Change #149: And for this year alone 2024.
Speaker Change #149: We are.
<unk> another 300 shopping malls.
Speaker Change #149: To be open in China, So when when new shopping mall opened like that we show opened new stores.
Speaker Change #149: Even though it might imply.
Speaker Change #149: Sales transfer from the traditional highest rates with a new shopping malls, because that's how the economy evolves and low tier city developed.
Speaker Change #150: So just try to put some.
Speaker Change #150: Content.
Speaker Change #150: Some content into the background.
Speaker Change #150: Metro yet thank you Brian.
Brian Bittner: And I do appreciate it.
Brian Bittner: Some sales side of the equation, but the.
Speaker Change #151: Unit growth is whats known in the same store sales is kind of what's unknown and that was the issue.
Brian Bittner: Thank you Brian.
Speaker Change #152: The next question comes from <unk> with <unk>. Please go ahead.
Speaker Change #153: Thank you Julia and Andy Congrats for the high operational efficiency and strong bottom line and best wishes to you Andy also and I want to better understand our pricing strategy in the coming quarters, our specialty cap C. Because of our people, how we want to introduce entry level pizza and lower the ticket average vessel.
Speaker Change #154: Go ahead, the Ta is relatively stable over a longer period, although we are expanding price range. So recently, we observed that some all the restaurant companies lay hope to keep all relatively stable.
Speaker Change #155: After a ta Todd's last year, so how about our pricing strategy, especially for Hep C, where we came at a relatively stable or when they saw the increased promotion because elasticity of demand is still high.
Speaker Change #156: And your cost savings to the consumer thank you.
Speaker Change #157: Thank you so yes so.
Speaker Change #158: So the question was about the Ta basically and I presume the Ta hidden question is about the margin.
Speaker Change #159: So the Ta trends for both KFC and Pizza hut is consistent with our strategy to drive traffic.
Speaker Change #159: Driving strong traffic is the most important thing in our business and we see robust same.
Speaker Change #159: Same store transaction growth at both KFC and Pizza hut.
Speaker Change #159: And we see 13% total transaction growth.
For the business and that represents the health of our business by the way.
0.2 is even with the lower Ta Q2 stabilize restaurant margin improved.
Speaker Change #159: Great.
Speaker Change #159: <unk> margin.
Because we take proactive steps to improve the operational efficiency as well so.
Speaker Change #159: So for KFC in the long term, we will take a balanced approach.
Speaker Change #159: To maintain a steady ta.
Speaker Change #159: Ta fluctuate quarter by quarter.
Speaker Change #159: And particularly.
Speaker Change #159: Compared to pandemic. However, if we take a long term view.
Speaker Change #159: Q2 quarter to Ta actually RMB 37.
Speaker Change #159: It's still higher than the quarter to Ta of 2019 that pre pandemic and Thats 35, so in the long term.
Speaker Change #159: HFC, we have a very balanced approach, but in the short term, we will have sharp focus value.
Widen the price price range, because but what well and that drove traffic as we can see.
Speaker Change #159: However, with that said, we also will continue to all the higher ticket items with strong value for money such as whole chicken family buckets, because they continue to do well and they balance out the ta as well.
Speaker Change #160: For Pizza hut Ta come down by design since 2017.
Speaker Change #160: Every year, we want to take that down a bit.
Speaker Change #161: Fourth quarter, two is probably a bit more.
Speaker Change #161: And we expect it but it's okay and let me at the Pizza hut actually.
Speaker Change #161: April same store sales ta suffer because of our size.
Promotion campaign last year.
Speaker Change #161: April and May and June actually it recover.
Speaker Change #162: I think it assumes ourselves.
Speaker Change #163: Pretty close to KFC.
Speaker Change #164: At Pizza Hut, we will continue to tap into more value conscious consumer and solar diners segments with entry price Pizza burgers, and one person meal et cetera, and now of course, the pizza hut, while by the way for the entry price Pizza, which is below 50, RMB, which we talk about it in the last earnings.
Speaker Change #163: Please.
This particular price Pan Pizza is growing at double digit for us a very nice because it's expanding our market share in that particular segment. Thank you Susan.
Susan: Thank you Jerry that's very clear.
Susan: Okay.
Speaker Change #166: Last question comes from Bill <unk> with <unk> with Citigroup. Please go ahead.
Speaker Change #166: Alright.
Speaker Change #167: Hey, Jamie.
Speaker Change #166: Yes.
Bill: Yeah. Okay. Thank you for taking my questions. This shop OEM Citigroup.
Speaker Change #169: A lot of things have been discussed in the prepared remarks.
Speaker Change #169: For Q&A.
Speaker Change #171: I just want to understand that it's still given this environment a lot of things have been done by Julian a team on the efficiency improvement.
Speaker Change #172: Have you have you thought about any disposal of a small business in this environment because.
Speaker Change #173: With small business in the past.
Speaker Change #174: Awards was intended for expansion of the business, but to give you all the grim environment on our focus on efficiency.
Speaker Change #174: <unk> business may be.
Speaker Change #174: Distraction of the resources.
Speaker Change #175: I just wanted to seek Jewish thinking on this perspective. Thank you.
Paul: Thank you Paul.
Paul: Thing is is.
Speaker Change #176: It's completely along the line of our thinking we constantly review our portfolio of the smaller business.
Speaker Change #176: And then.
Speaker Change #177: If I would like to make a few comment here is if we sample the new retail amid some package package food.
Speaker Change #177: Smaller business.
Speaker Change #177: <unk> serve us well during the pandemic.
Speaker Change #177: We can now open any stores in certain markets. However, now business sort of more back to normal and we can see the historical mission of the packaged food.
Speaker Change #178: Probably accomplished so we are going to probably.
Speaker Change #178: <unk>.
Speaker Change #178: Reduce our a malls and netted by fit.
Speaker Change #179: Very soon so Thats. One example, and therefore other smaller business, we always have a very disciplined approach, which Andy have share in previous.
Speaker Change #180: Interactions with our shareholders and analysts, we only invest a very small percentage of our.
Speaker Change #179: Profit on the small business.
Andy Yeung: While it gives us the opportunity the smaller business gives us opportunity to learn to train our staff and to fail.
Andy Yeung: It is not set up to fail, but smaller business is very challenging.
Andy Yeung: So so we will continue to review our portfolio.
Speaker Change #181: <unk> actually is making really good progress.
Speaker Change #182: Have more significance anymore breakeven. So this year than last year, we're happy about it the retail being business of Lovaza.
Speaker Change #182: Is that should in turning profitable in quarter two of 2024, and we expect meaningful sales growth this year and for Lovaza, We actually are moving coffee bean production from Italy to China, So that we have fresh or being more nimble innovation and lower cost et cetera.
Speaker Change #182: <unk> will continue and.
Speaker Change #183: It takes time to build a good business, but it's really building step by step and then frankly in Ohio.
Speaker Change #183: <unk> is a very resilient business.
Speaker Change #184: Adding 15, new stores in the first half, bringing our total to over 800 stores globally and little sheep. We have this new model tons on goal is to convert part of the store, sometimes a new store to serve one person and has achieved initial success.
Speaker Change #184: And we are building more stores this year.
Speaker Change #185: And then Taco Bell.
Speaker Change #185: Is having a bit of a harder time, because it is indeed a bit more.
Speaker Change #185: Foreign concept to the Chinese consumer.
Speaker Change #185: So we need a bit more time, and we are starting out of the portfolio.
Speaker Change #185: Two to further improve the business model and Thats, where we are but shuffle, we're constantly reviewing the health of the of the smaller business. Thank you so much.
Speaker Change #185: Bit more there.
Speaker Change #185: Any capital deployment in our company, we've been disciplined about it install model, albeit the brands.
Speaker Change #185: We have demonstrated in the past and continue to that which as you know.
Speaker Change #185: When we see something that have potential will continue to invest and we don't have a we don't have a requirement. They way you either need to be possible for smaller brands.
Speaker Change #185: For example, doing a coffee brand in China with a client right, but we see quick progress.
Speaker Change #186: The reimbursement.
Speaker Change #186: We also have software we have closed some Brian may Sanjay.
Speaker Change #186: The thing we need to consolidate our resources to focusing on the coffee business in Nevada and <unk>.
Speaker Change #186: For you at the low end of the coffee business and so yes, so like capital deployment, including for the brand for the store.
Speaker Change #186: Our portfolio will continue.
Speaker Change #186: Disciplined power to make sure that capital deployed efficiently for our shareholders.
Speaker Change #187: Thank you <unk>.
Jeremy: Thanks, Jeremy Thanks, Andy.
Speaker Change #189: All the best.
Speaker Change #190: Thank you so much. Thank you. Thank you. Thank you for joining the call today for further questions. Please reach out through.
Speaker Change #190: The contact information in our earnings release and on our website.
Speaker Change #190: Yes.
Speaker Change #191: Thank you so much guys.