Q3 2025 Yum China Holdings Inc Earnings Call
Good day and thank you for standing by. Welcome to Yum China's third quarter 2025 earnings conference call.
At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session to ask a question during the session. You need to press star 1, 1 on your telephone. You're done here automated message advising. Your hand is raised.
Call over to our first Speaker today. Miss Lauren sleep. Please go ahead.
Thank you, operator. Hello everyone and welcome to Yum China's third quarter 2025 earnings conference call. With me on the call are our CEO, Ms. Joey Wat, and our CFO, Mr. Adrian Ding.
Before we begin, I need to remind everyone that our remarks and investment materials contain 4 looking statements.
These are subject to future events and uncertainties, and actual results may differ materially.
Please consider these 4 looking statements together with the cautionary statement in our earnings release and the risk factors included in our SEC filing.
You can also find both the webcast replay and a PowerPoint presentation on our IR website.
Please note that all year-over-year growth rates discussed today exclude the impact of foreign currency unless we mention otherwise.
With that. I'll now turn the call over to Joey watt CEO of Yamcha. Joey
Hello everyone, and thank you for joining us.
Um, building on our first half momentum, we achieved another solid Q3.
Accelerating store opening.
Driving growth in both same. So and system sales.
And expanding margins.
But we made it happen.
System sales, grew 4% year-over-year.
In the China restaurant industry.
Same-store sales grew for the second consecutive quarter.
Restaurant margin expanded to 17.3%.
These gains drove an 8% year-over-year increase in operating profits to $400 million.
A quarter 3 record for adjusted operating profits.
These results reflect the resilience of our established GM strategy, which stands for Resilience, Growth, and Most.
And the step size execution of our teams in a dynamic Market.
Store expansion accelerator in Q3.
With 536, net new stores.
Our total store count exceeds 17,500 stores.
Keeping us on track to reach. 20,000 stores by the end of 2026.
as we promised in our last investor day,
Leveraging our portfolio of brands and flexible store formats.
We are penetrating deeper into more cities while enhancing convenience in existing cities.
by brand KFC is as resilient as ever with 2%, same store, sales growth
Strong and steady restaurant margins.
And a year to date record pace of new store openings.
Pizza Hut accelerated store, openings from the first half of 20125.
Surpassing the 4,000 store Milestone while expending restaurant margins year over year for the 6 consecutive quarter.
Starting with our sales initiative.
We have delivered, same store transaction growth every quarter since 2023.
11 in a row.
Notably Pizza Hut has achieved 17% same store transaction growth for 3 consecutive quarters.
These results highlight the success of our pricing strategy.
Relatively steady and lowering them, a Pizza Hut.
Amite improving restaurant margins.
By making our food, more accessible to more consumers. We attract more traffic.
At the same time, we have transformed our operations for better efficiency.
Great Value and great prices must be accompanied by Innovative, good tasting food.
Our Focus spends, 3, key areas.
Hero products.
Limited time authors and New Growth drivers.
First.
Our hero products. Remain powerful growth drivers.
And Inspire strong, repeat purchases.
At KFC, chicken wings have been one of our core categories.
Featuring our hero products, roasted wings and hot wings.
We extend this core category with the launch of the latest crackling, Golden Chicken wings.
Extra crispy outside juicy inside this Chinese star Wing is packed with a sweet and spicy garlic. Punch.
During the promotional sales, the new Wings surged.
Matching the popularity of our roasted wings and showing great potential as a future growth engine.
A Pizza Hut.
Pizza account for over 40% of sales.
With double digit, sales growth this quarter.
We serve a broad range of pizza.
Including pan and stuffed crust to satisfy diverse taste.
Most recently our new handcrafted thin crust, pizza. SoJO Pizza.
Became our best-selling crust within, just 2 months of launch. Now making up 1 in every 3 pieces, sold.
Perfectly crispy with abundant toppings. It earned rave reviews and drove promising repeat purchases.
Second is our LTO, or limited time offers.
We keep our core menu focused to ensure operational efficiency while introducing highly selective products for limited time periods to drive, repeat visits.
These offerings are not 1-time wonders.
But a designed for lasting appeal, in some cases, enduring for decades.
Kelsey has developed several classic lto with a proven sales record that return periodically.
Such as chicken taco and double done. Each time we add fresh choices.
Like our spicy beef wrap with crunchy, Lotus root.
Which became a best-selling beef wrap lto in last 4 years.
Third. We are constantly exploring New Growth drivers. New products such as KFC's whole chicken along with Pizza Huts, burgers are showing strong growth.
We also see opportunities across our price ranges.
Entry-level combos at KFC. And entry-level pizzas at Pizza Hut achieved double digit sales growth year to today.
Checking it a step further.
KFC is now exploring satisfying meals. Priced below 20 R&B to better reach customers with tighter budgets via select channels in some regions.
These initiative will also strengthen our relevance and appeal in lower tier cities.
With our menu, innovation, and support supply chain, we deliver outstanding value and drive traffic to our store at solid margins.
Unseen food, packaging and gifts.
Attracting new and young customers.
In quarter 3, delivery sales account, for 51% of total sales.
Up from 40% in the same quarter last year.
While there have been increased promotions on delivery platforms as we discussed before our core brand, maintain a balanced approach.
Driving topline growth while protecting margins.
We took off the cafe, took the opportunity to increase exposure and drive additional traffic, and Lavasa achieved double-digit same-store sales growth in Q3.
Let me now turn the call over to Adrian to discuss our results in detail. Afterward, I will share additional color on our strategy Asian
Thank you, Joey. Let me know after the key highlights by brands
Let me start with KFC.
KFC, open the record of 4029, new stores in quarter 3.
Expanding in its portfolio to 12,640 stores.
System sales, grew 5%.
Same for sales, School 2%.
Led by same-store transaction growth of 3%.
Ticket average was 381.
Down 1%.
Primarily due to the rapid growth of smaller orders.
Our side-by-side modules grew nicely and delivered incremental sales and profits.
K Coffee, Cafe expanded to 1800 locations. Well, ahead of our expectations,
Daily cup sold per store increased 30% year-over-year in Q3.
Driven by strong menu Innovations and platforms promotions.
We saw strong repeat purchases.
Particularly, for our most popular beverages.
Sparkling Americano series.
Riding on strong summer demand.
Sales of this Signature Series grew over 50% quarter on quarter.
Similar to cake Coffee Cafe Cafe.
April also enjoys synergy with KFC.
By showing its store space.
In store, resources and membership programs.
Offering lighter options such as energy bowls, and superfood smoothies.
Kapral is designed to capture the fast, growing light meal Market.
It stands out with its excellent value for money and KFC's plastic, quality standards.
We have expanded kapral to 100 locations.
Initial results have been encouraging.
We're continuing to refine the model and plan to scale it further, primarily across higher-tier cities.
Our membership data indicates that a significant majority of our members have yet to try cake, coffee, and Kapral.
As such, we see huge potential for growth.
Now, turning to Pizza Hut.
Pizza Hut supports the 4,000 store milestone in quarter 3.
Through openings accelerated.
With 298, annual stores year to date.
Keeping us on track for double digit, percentage roles in total store, count for 2025.
System. Sell scrolls, sequentially improved from 2% in Q1 to 3% in Q2 and 4% in Q3.
Same store sales was 1%.
Driven by 17% same store transaction growth for the third consecutive quarter.
Take an average of $70,000 down, 13% year-over-year.
In line with our strategic focus on the mass market segments.
Alongside our investments in food and value for money offerings.
We improved restaurant margin by 60 basis points by streamlining operations and enhancing supply chain efficiency.
Pizza Huts. Wow, has expanded to 250 stores.
Adding nearly 50 stores year to date with its low capex model and streamlined operations.
These openings have taken us into 40 new cities with no prior, Pizza Hut presence.
We'll continue to ramp up new wild store, openings primarily focusing on Lower tier cities.
Let me now go through our quarter, 3 PM.
System Sells school 4% year-over-year.
And same store, sales grew 1%.
Both in line with our targets.
A restaurant margin was 17.3%.
30 basis points, higher year-over-year.
Sales and occupancy in other costs, offset increases in cost of Labor.
Cost of sales was 31.3%.
40 basis points, lower year-over-year.
Average to optimize supply chain efficiency, and favorable commodity prices contributed to the Improvement.
This enables us to pass some of the savings to customers, offering great value for money.
Cost of labor was 26.2%.
110 basis points, higher year-over-year.
While non-rapid?
The higher delivery mix led to higher Rider costs overall.
We continue to optimize store operations to partially offset wage inflation and the impact of higher delivery mix.
Occupancy and other was 25.2%.
100 basis points, lower year-over-year.
As a result of better rent and store capex optimizations.
GMA expenses were 4.5% of Revenue.
Even with the prior year, period.
Our op margin was 12.5%.
40 basis points, higher year-over-year.
To driven by improved restaurants.
Operating profit was 400 million.
Growing 8% year-over-year.
Rate was 27.6%.
30 basis points, higher year-over-year.
In income was 282 million.
5%. Lower year-over-year.
In our investment, inmate 1.
Net income grew 7% year-over-year.
In May, there was a negative impact of $8 million in Q3, compared to a positive impact of $26 million in Q3 last year.
I have a reminder.
We recognized $8 million in interest income in Q3 this year due to a lower cash balance, resulting from the cash we returned to shareholders and lower interest rates.
Diluted EPS was 76 cents.
1% lower year-over-year.
Or up 11% year-over-year, excluding the impact from our Mainline investment.
That's now move on to Capital returns to shareholders.
Year to date.
We returned a total of $950 million to shareholders.
Including $682 million in share repurchases and $268 million in dividends.
In September.
We announced an additional $270 million share repurchase program.
On top of this $866 million, previously announced for 2025.
with a quarterly dividend of 24 cents per share.
We're on track to return a total of approximately $1.5 billion to shareholders in 2025.
From 2024 to 2026.
We are committed to returning approximately 1.5 billion dollars each year to shareholders.
Or annually around 8 to 9% of our current market cap.
Our cash position remains healthy.
with $2.7 billion in net cash as of the end of Q3.
turning to our Outlook.
We accelerated store openings in quarter 3.
Bringing our year, to-day manual store, counts to 1,119.
This keeps us on track for 1600 to 1809 new stores in 2025.
Franchise mix of manual stores year to date, was 41% for KFC and 27% for Pizza Hut.
We expect similar ratios for the full year in line with our target, ranges of 40% to 50% per KFC and 2% to 30% for Pizza Hut.
Our 2025 capex target of $600 million to $700 million remains unchanged.
Continue to decrease.
KFC per store capex has decreased from 1.5 million UN in 2024 to 1.3 to 1.4 million un currently
while Pizza Huts has fallen from 1.2 million in 2024 to 1.0 to 1.1 million, un
For quarter 4.
With solid new store openings. We remain on track for Miss single digit system, sales growth.
Predicting Source sales growth is always challenging.
But our goal is to keep quarter 4 same store sales, growth at similar levels as quarter 3,
We're also working hard toward achieving our 12th consecutive quarter of positive. Same store transaction growth.
On margins.
We continue to expect core op margins for the second half to be slightly higher year-over-year.
With Q4 broadleigh in line with last year.
Due to tougher year-over-year comparisons.
Last year's space benefited from Project. Fresh eye and red eye while High Rider costs. From a larger delivery. Mix remain a headwind.
will focus on enhancing efficiency to mitigate these headwinds
as a reminder.
Quarter 4 is traditionally our low season with smaller sales and profits.
overall, we remain committed to meeting our full year targets of missing go digit system, sales growth and moderately improved margins
With that, let me pass it back to Joey for her closing remarks.
Thank you, Adrian.
Let me share a few thoughts on our strategy.
On the front end, our multi brand portfolio. Diverse modules and offerings catered to a wide range of customer segments and occasions.
Through continuous innovation, we unlock new opportunities that drive incremental sales.
On the back end, we are fostering even greater synergies.
We expect more sharing centralization and consolidation of resources in and across stores regions and even brands
This will enable deeper Market, penetration and faster, more efficient expansion. For example, Mega lgms, manage multiple stores and support rapid store, portfolio expansion.
Side by side modules, share, KFC's install resources and membership programs to drive additional sales and profits.
With lighter investment and operating costs.
We see tremendous opportunity ahead of us.
As we leverage synergies to grow our businesses while protecting margins.
We are excited about our growth potential and look forward to sharing more at our investor day.
Before we turn to Q&A, let me recap, the 3 key takeaways from today, first our due focus on Innovation and operational efficiency and able us to deliver yet another quarter of solid results.
We accelerated store openings?
Record 1%.
Same store, sales growth and expanded margins.
Delivering growth, across all 3, dimensions.
Second, we grew our businesses by leveraging synergies. While protecting margins.
KFC's K Coffee Cafe. Expansion is ahead of plan and both kapro and Pizza Hut vow a building encouraging momentum.
And lastly, our established LGM strategy, resilience, growth, and mold, and our team. Strong execution; we are on track to meet our 2025 target.
While setting the stage for future growth with our deposit back to Forest.
Thanks, Joey. Now let me share a quick preview of our upcoming investor day which will be held in Shenzhen on November 17th.
Joey, Adrian, along with our leadership team, will share updates on our LGM strategy and three-year growth algorithm.
A live webcast of the presentation will be available on our IR website.
Range of store, formats and locations.
Investors will be able to gain firsthand insight into the local market. See our operations in action, as well as sample our signature and innovative manual items.
With that, we will open the call for questions in order to give more people the chance to ask questions. Please limit your questions to one at a time. Operator, please start the Q&A. Thank you.
The first question is comes from the line of Michelle Chen. From Goldman Sachs, please go ahead.
Uh, Hey, Joy, um, agent. Um, congrats again, uh, for these very resilient result. We understand that the environment has been very challenging. Uh, so my question is about, um, the delivery. Uh, so, uh, you, you have been mentioning that, uh, uh, you will be disciplined in managing these, uh, delivery platform subsidy campaign. Uh, but can you share with us, uh, more on your observation on these subsidy impact on the company and the whole Market in the near Trend, and in long term, particularly, I think, uh, there's a, um, uh, another round of concerns on this deflation. So, how should we think about the pricing Trend? And also the, um, context, uh, competitive landscape impact? Uh, so that's, uh, uh, my, my question and, and actually I, I just saw a news coming out regarding young brand, they mentioned, uh, uh, uh, uh, something about pizza house or what they rather. Uh, Joy can also comment that, uh, it looks at, but there's a, a review of the Strategic options for pizza house. So 1
Wondering whether there's any impact on the young, uh, China's top business as well. Thank you very much.
Thank you, Michelle. I would like to make three comments on the delivery and subsidies, and then Adrian can address the feedback questions.
Uh, 3 comments here 1 is we have observed, a more permanent decrease in the subsidies in uh while the delivery Platforms in coffee and cheese but only in slightly decrease in qsl.
Uh, Point 2 is overall we still expect the impact on us to be limited as we have been uh will continue to maintain our strategic focus and balanced approach with our core brand.
That means, uh, we are driving sales growth while protecting margins at the same time.
We will be capturing sales while ensuring long-term brand positioning.
Point 3 in the longer term. Uh, we do see, and we've learned from the, uh,
2017. Last time, similar scenario. Uh, the subsidy will eventually normalize.
Uh therefore uh it's important that we have the discipline and the company as a brand uh to focus on manual Innovation, good quality customer service and protect the price perception particularly for uh well established Brands like ourselves.
So these are all fundamentals to the competitiveness of the business in the long term, Indonesia. Adrian sure, Joy.
Hi. Michelle on a question regarding, uh, people hot and young Brands, uh, announcement earlier today. Uh, we are aware of the development. And, uh, we understand the young Brands will be initiating, a formal review of a range of strategic options.
Obviously, young China and young brands are too independent. Companies, so when nothing is possessed, they are not in a position to come on on their process of strategic review.
But regardless of the outcome, we are confident in the strength of Pizza Hut brand in China and our ongoing operations and significant growth. Potential of people have hearing China, remain unchanged.
Also uh I would like to say that uh young Brands and ourselves have been closed and longtime partners and it will continue to be the case.
And I guess, uh, you know, part of the question, is the impact on China, right? Uh, I'm not sure if you are implying, whether we'll be participating in some way of forming to this strategic review process. Uh, our policy is not to comment on any specific transactions. Uh, with that said, we have always taken a prudent approach as Michelle as you appreciate to evaluate potential investment opportunities and will continue to do. So we we set a very high bar
We'll conduct M&As; only one transaction is strategically sound and expected to create great value for our shareholders. Additionally, all M&A matters are subject to rigorous evaluation and discussions with our board. Thank you, Michelle.
Thank you, Chelsea.
Thank you for the question. The next question comes from Brian Bittner from oppenheim and cool. Please go ahead.
Overview of what you are seeing from a macro perspective, as it relates to um, restaurant industry in China and consumer spending by the China consumer. Um it seems like visibility is improving relative to past quarters and years. Maybe the opposite of what you're seeing with with the US consumer. Um any color there and I think Adrian you said that you expect 4 q. Same store sales to look similar to 3Q. Um just want to confirm you. You said that any additional color on that Dynamic would be helpful. Thanks.
Um, thank you, Brian.
So, the macro, uh, you know, that we have observed in for the 3 and then probably even a little bit on the October holiday, um, the the performance, as we can see the result. And also the, as we can, uh, see a little bit now. It's uh, it it it was good and it's uh, it's in line with expectations.
Uh, the traffic is good, uh, as people uh are traveling around, uh, particularly during the holidays, but consumers still remain value cautious.
And for us, um, if we look into the details, um, of the performance across regions, uh, it's it's similar, um, lower tier city is due, but this upon slightly better, uh, due to Greater domestic travel uh, here. Uh, but again, the consumer I feel better cautious.
So um for us, uh, we have a purely aware that uh, it it's not just about having good price, it's about pricing, right? Uh, providing value for money. Together, we good quality food and emotional value.
Uh so we continue to um uh provide our customer with Innovative products and uh together with breakthrough business models, our Focus uh still focus on delivering the same thought transaction growth and although it's it's nice to have the things of Salesforce as well. Uh it's particularly important to see with 2% things of that sort and then and and along the way. Uh, we will continue to focus on the operational efficiency, uh, and Innovation at the same time,
Thank you. Bye.
Thank you for the question. Our next question comes from Chen Lu of Bank of America. Please go ahead.
Uh, hi Joey and Adria. Congrats again on the solid Q3 result. Uh, my question is again, uh, on our uh, expansion strategy to focus on smaller formats and franchise stores. So, if we do the math, uh, approximately 10% expansion in Q3 lead to around 4% uh, sales growth. Uh so
Can we say that this kind of 40% ratio can be maintained in the coming? Few quarters as we continue to pursue uh a shift to the smaller format. I meanwhile if you look at the franchise stores, I understand that we try to improve the economics to p&l in the future, but where are we now, is there any progress at the moment?
Thank you. Uh, Lan. Uh, firstly, I think the, uh, observation of the system sales growth at around 40% of the store count growth, uh, that would not necessarily be true, uh, down the road because there are a few dynamics in the office.
Uh firstly as I mentioned in the pretor remark about this quarter previous quarter. Uh this year, we have some strategic optimization of the stroke portfolio with closure of some of the large doors with higher sales and opening up some of the stroke smaller stores with the slightly lower sales. And as you correctly Point pointed out new store sales. Is that a, you know, initial initial year at a discount to the mature store. And as I previously, uh, provided the figure, if the ratio is roughly 50 to 60% for the new source in the initial year, obviously in the first 3 year, it will ramp up. So, that's the first Factor, right? The, the strategy optimization. So all else equal even if the level of store is still uh, 10% growth. If we don't have this Factor, the system sells growth would happen a bit higher. So firstly, second thing is the uh timing and opening and closure within the quarter affected the total operating weeks, um, for this quarter. Uh, you know, as you can uh,
Shifted towards a September. So the third month of the quarter, thereby, even with the similar net, new openings, that will impact the store week and that's the system sales growth. And uh for Pizza Huts we're catching up in the store. Openings, this quarter, as well as the store week. Uh, I would say that's more evenly spread across the quarter across the 3 months so you can see with a similar, uh, menu store opening in the system. So this sequentially improved and thirdly as always, we have some little rounding differences. Uh, so in a nutshell uh, you know, the system sells uh, growth as percentage of the, you know, compared to the net new build percentage, the discount will not stay uh, the same down the road and I guess your natural question will be, uh, what is the system? So, uh, well down the road in the coming quarters and years uh, that exactly leads to our, you know, uh, kind of guidance and Outlook in our Reserve day in 2 weeks time. So, uh, please uh, uh, bear with us and look forward to the investor day. Um, I think
Yeah, the second part of the question. Bye. Economic okay. Franchise at Improvement economics. Yes.
So we made some progress in the Improvement in economics for a franchise business. Uh, as I mentioned in previous quarters, uh, currently it's still slightly lower than our Equity business, right? Our offering margin for Equity business and anywhere. Between 10 to 11%, uh, for franchise business is without GNA. The operate margin, uh, is also around 10%.
Basically, you know, 4 or 5% out of 40, 50% of system sales, so around 10%. But it will do a proper genre allocation. The franchise offering margin will be high single-digit percentage of sales of our revenue.
Uh, we did have some progress in the quarter. Uh, obviously I think some of the hours and including ourselves already noticed that we have some slight Revision in our uh uh pricing uh, mechanism for franchisees. Uh, you know, basically sharing some of the savings from from our project, fresh and red eye between franchisees and ourselves. So that's the little progress. Uh, what? We have more savings from these efficiency projects will do a bit more of that and hopefully in the mid to Long Run. Uh, the operating margin for franchise business will be in line with the equity business. And, uh, overall in conclusion, I would say in the short run, there will be no margin dilution uh, from our franchise initiative because it makes it feels more. And the margins are actually very similar already in the mid to long run. Not only, there will be no margin dilution but more importantly, there will be roic improvement over the mid to Long Run, given the efficiency and capital for the franchise business.
Thank you for watching.
Thank you for the questions. 1 moment for the next question.
Our next question comes from Lilian of Morgan Stanley. Please go ahead.
Uh, thanks a lot Joey and uh, Adrian. Um, my question is on the delivery as well but it's more a little bit shorter. So I would like to understand in terms of the, uh, delivery Order Mix, uh, from uh, food aggregators and also from our own system. Uh, because uh, I think in this quarter, the contribution of membership sales, um, kind of jobs sequentially and also on the younger basis. So, is it, uh, are we seeing more orders from for agriculture? Aggregate aggregators? Uh, for the time being given the subsidy program, Etc. And uh, what kind of business initiatives or efforts were making uh, trying to get the customer back. Um, in terms of order generation into our own system and the related to that um want to understand whether there's any cost-saving initiatives uh in terms of all um uh the The Writer's costs uh in the future. Thank you.
Thank you, Liam.
The second part of the question is, uh, you know, the increase in their mix and the rider cost.
Uh yes we are actually not only working on the rider cost per ticket when it which is uh, indeed going down. Uh but the red mix is going up. So that impact of the red mix Going Up, have a higher overall impact thus causing a headwind in our C, by the way, this is exactly uh as we caution the market back in February right before even the the the delivery aggregation was started. Uh, that would have been of delivery cost.
So, you know, we are optimizing the delivery, uh, efficiency. Uh, but in addition, to that on c for the now delivery part, uh, we are doing a lot to, uh, improve the efficiency right in terms of streamlining automating and centralizing processes. Uh, so that the uh, operation efficiency, hopefully more than often not only the wage inflation but also partially off that the impact of the delivery and mix increase. Um but all in all we would say the co continue to face a headwind. Uh you know that's actually been very consistent uh ever since we started to get the guidance back in February. Uh but we'll make all efforts to try to uh achieve uh Society Improvement in both the, UC margin and our modeling Improvement in. Okay, margin for the year. Uh, for, you know, when I'm trying to, uh, and also, as we come as on the later, long run for both Brands, we said that, you know,
Caps, these margins, a wrestle margin will be stable. If you have, there's a good potential for margin improvement. Those common actually do take into account the different scenarios of delivery aggregate, or subsidy, and delivery mix. So, hopefully that addresses your question. Did you? I'll just make two quick comments and Asian talk about all the.
Measures we are doing to, um, protect our pnl. But at the same time, as you can see, uh, we are also, uh, pushing for Innovations and operational efficiency at the same time in the slightly longer term to protect the pnl. So 1 1 example is our uh continue uh assess and acceleration of like April and K coffee.
uh, when we, uh,
Pursue the front end cementation of uh sales. Um and then back in consolidation uh of the operating cost. Uh we at the in the longer term in a more holistic situation, we manage the cost structure and the technician if that makes sense, thank you, Lydia.
Thank you for the questions.
Our next question comes from such a lien from cicc, please. Go ahead.
Uh, thank you, Julian agent. Uh, so, I have one question. Um, we see more and more attempts at, uh, expanding new store formats and new categories. Uh, for example, besides Key Coffee and besides Wall, uh, there are also Key Pro, Fried Chicken Brothers, etc. Uh, so I’m trying to learn more about our, uh, strategic planning and methodologies for these. Um, uh, so whether we have identified a few, uh, promising categories and concentrate our efforts, or, uh, we just try out various options and they may work as a total. Uh, and also, uh, what are the key considerations when we decide to develop a new model or new category? Uh, maybe like, uh, some competitors have proved it's a promising category, uh, or it can create synergy with our other business. Thank you.
Uh, yeah. I think, uh, we will have a more holistic and robust discussion with uh, with this particular Topic in investigate, for sure, it's a focus. However, uh, right here, right now, I, I would like to make a few points here. Um,
We, we have, uh, we have very focused on um, the, the growth initiative, uh, to focus, both of the things for sales and and, and systems up. So kapral is is 1 example. K, copy is another 1 and K copy actually went ahead of schedule.
um, we originally, um, uh
Tried to get to like 1,500 or 1,600 locations. Is that right? Right now, we're there already.
Um uh so so we we'll continue to pursue this.
When we could, and then, uh, and I think take off, you need no for the, uh, the introduction, Kro. It's a cost that we developed 39 years ago.
Consideration of the concept. Uh, so the, the, the thinking behind is, uh, as I mentioned in my prepared remark, and also earlier, uh, we understand we can pursue more growth with front-end cementation of the customer and occasionally.
but at the back end, we just utilize our uh,
uh, equipment resources, um, Labor, uh, on the back end, uh, to deliver the operational efficiency. Um, so, so, so that's 1 way to do it, and, and it works.
I mean, otherwise it's very hard to grow new business. Uh, to deliver incremental stuff and incremental profit.
Uh secondly is the promising category.
Yeah, of course. Um, so we are we are, we are focusing on, uh, Fried Chicken. Uh, but at the same time, people, uh, is a concept that we we, we deliver Alternatives, uh, for customer. Um, and as we can see from the membership, uh,
Or the customer or PayPal at a very high percentage or capable customer. I actually can't be a customer.
But they, they need a choice during once or twice during the week and we provide it for you.
So so, so you know, it's it's close enough. It's the category is Niche and and we also have the food safety um, that that customer uh trust. Uh, so we we just continue to explore but you know, for view category or New Concept of of the success rate is uh is is is uh, it's not 100%. So there's always some trials and then and then figure out how the new new model, new model will work. Um and then you know, Fried Chicken rather whatever it's 1 of those try. It's very very early days um but you know we keep trying different things. Thank you goodbye.
Thank you for the questions. Our next question comes from Singapore. Way from City, please go ahead.
Hi, good evening. Uh, Joey and Adrien, um, I have a question on KFC’s business. If we look at the Q3 results, 2% same-store sales growth goes with 5% system sales growth. That’s very impressive. However, if we look at the restaurant profit growth, which was at 5%, and the OG growth was only at 6%, we didn’t see a lot of positive opportunity, on average.
Shall we say that the delivery driven strong goals, will not have a lot of positive leverage in your business? If that is the case, will you work on something? Try to improve that part of business to expand the Optum margin of the CDP forward. Thank you.
Thank you.
Uh, as we actually guided in the previous quarters earning release, uh, we do expect the second half. Uh, we did expect a second half uh, KFC restaurant margin to be broadly stable year over year. Uh and that's kind of consistent to the Real Results that we see in the quarter. Uh, and uh, 1 key philosophy, we've always been mentioning throughout actually everything in 2019 right over the past 6 years is we expect the KFC restaurant margin to be stable and do make too long 1. Uh, you know, uh, because it's actually at a very healthy level today uh, about 17% for your basis. Uh and it's 1 of the highest, if not the highest in the restaurant industry uh to extend, we have some uh leverage uh you know sales sales, leverage that we generate from KFC uh today. And in the future we do look to share that margin upside with multiple partners. Right including our suppliers landlords Frontline staff and also
Philosophically. You know, in the mid to long run, we do stick to our philosophy of keeping care to deliver from margin. Broadly stable. Um, at a very healthy level. Thank you, support.
Thank you for the question. Our next question comes from Christian Pong from UBS. Please go ahead.
Christian, your line is open. You may unmute locally.
Sorry, I I was muted. Uh, hi. Hi, uh, uh,
So I have a quick question regarding the same Source, sales, growth of kids. The so obviously the 2%, um, same Source sales growth was the, uh, was was upset surprise given our Dream previously mentioned about, um, you know, 0 to 1% same store, sales growth. So, I was just wondering, um, how sustainable you think this type? Uh, this, this, this, this, this level of, uh, same store sells, uh, will be continued going forward. Uh, the reason I ask is because, obviously in the third quarter, there are some benefit from the subsidy, um, uh, provided by delivery platform on the other hand. We also noticed that, um, your, your, your uh management has been very diligent to launch new formats, uh, such as um, the tea coffee, uh, KP Pro. Um, so, so I was just wondering. Um, whether management can provide us some colors in terms of
Of the contributions from delivery subsidy and the new formats we are launching, to this 2% same-store.
Um, you know, sales growth, uh, in in addition to that, if you could talk a bit, uh, about the, uh, kpro economic just briefly, uh, I think that would be very helpful for us, to understand the economic, uh, benefits of this new format. Thank you.
Thank you, Christine.
Uh, so first of all, uh, SSG for KFC 2 present is actually slightly, uh, above our own expectation as well. It's uh, also similar for K Coffee Cafe. Right? We our only expectation is Joe mentioned, was like that 1700 or so. And now in quarter 3, already achieved 18,800 locations for T, Topica base. So, you know, those are actually encouraging results and, uh, we're happy to be wrong. We're happy to be around there, so, uh, so it's slightly above our due to 1% Target. Um, and as to, whether that level is, uh, uh, sustainable, uh, you know, obviously, predicting addresses, she is always difficult. Uh, the market is still quite Dynamic, uh, and consumer space quite rational. Uh, but, uh, as we mentioned, the prepared remarks, we are working very hard to keep the quarter full access. As she has similar levels, the quarter 3 and the achieve 12 concept quarters of things for transaction growth. I think uh transaction growth is uh um I guess slightly more in within our control.
And the 4th Street in overall, it will be subject to different situations, including a different factors including competitive Dynamics, including macro etc. Etc. So, uh, I will not be able to give, uh, Outlook or guidance on whether this level of SSG will be sustainable. Um, and on your second part of the question on PayPal economics, uh, obviously similar to K Coffee Cafe. Kpro is a module. It's a side-by-side module to our KFC, mother's work. Uh, and it contributes incremental sales and incremental profits. Uh, and as 1 can recently expect the incremental sales, contributed by kpro will be larger than the incremental sales Conte, take Coffee Cafe Cafe because it's a, you know, the restaurant concept. Right? So restaurant modules. Uh, but uh, we have not given any guidance on the exact economics for PayPal because, uh, you know, it's still in the early stage, we only have a slightly more than 100, uh, modules for K Pro and uh, be
But the initial uh progress we made is encouraging and uh we'll be ready to share more uh color on the economics and will potential for payroll, as well as other modules or other initiatives as. Uh, some of the analysts are still in the early part of the core in due course, when we think we're ready. So, hopefully that address or question quickly. Oh, I'll add some color to the case of Christine.
um, so so the, the the ease of pay for it, we share, uh, we really
Utilize the Synergy. Uh, we get different. So we leverage cases, those things. The membership programs, the kitchen, the co
And this is incredibly important because then the incremental investment is much smaller than a standalone. So which you you are familiar with around the cake costs.
Incremental sales, incremental profit, but at the same time, you know, after all this year is, whenever we do something new, a new concept, new product, we always look at sales force and profit later and stuff like that. Thank you.
Thank you for the question and the choice of time. We will now take the last question from Linda Huang from Mercury. Please go ahead.
Uh thank you very much for this opportunity. Um, my question to regarding for the sales because uh um we are busy to see that uh in the third quarter, right? Um our sales are 4% faster than industry but are looking ahead. Do you think that we have a chance to accelerate the growth to like high single digits? And if we can achieve this growth rate, um we come from the micro sector or that. Is there any company specific strategy that we can f*** the trend to go faster?
So that's my, uh, the simple question.
Well, actually, you have a
Yesterday in couple of weeks time. Uh, so I'll try to uh, keep some, uh, some secret there. Uh, you know, uh, to to to, you know, to the investor day, uh, in 2 weeks. But, uh, overall speaking as uh, you know, uh, you correctly point out, uh, from a company specific, uh, perspective, we are ready in terms of, uh, lots of mental, uh, improve
Movement, you know, uh, a lot of new modules are ready, new initiatives, have been tested. Uh, you know, the The Innovation, uh, is uh, spread across all different parts of the business name it, right. Uh, mainly Innovation store model, Innovation, uh, emotional value. Uh, you know, the new emotional value, exciting ones. So that also involves Innovation etc. Etc. So, well, I would say, we're very well positioned to capture, uh, future opportunities and uh, obviously, uh, we're not, uh, you know, be settled with the mix single digits, uh, Topline growth system, sales growth. Uh, but as to the exact growth elbow algorithm over the next 3 years uh, that would be some topic. We'll share in 2 weeks time. Um, yeah, so please still stay tuned. Thank you Linda.
I think I just
1 quick. Comment. Here is
New, but the the the biggest growth driver with you from the call Brand myself. Uh, for example, k, k, k KFC. Uh, the small town mini, uh, you know, the different modules and then Pizza Hut the the the the, the the valve that is the, that's doing very well to enter a new city, uh, which we are very excited and then the, the hero product
Uh, you know, we are preparing amounts. We talk about zero products; it's improving. Exciting to again focus on the 5 sample pizza supply, surprise, the pizza.
Uh, the the, the new, the new single pizza. So, so we'll go through the building block for the key modules.
Uh, of these uh, key drivers of the business in the investing. Um, so look forward to it.
Thanks Joey Adrian and also thanks Linda. Uh this concludes our Q&A session. Thank you for joining the call today.
Let us conclude today's conference call. Thank you for your participation. You may now disconnect your lines.
Thank you. Thank you.