Q1 2026 Yum China Holdings Inc Earnings Call

April 29, 2026

Operator: Good day, and thank you for standing by. Welcome to the Yum China Q1 2026 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. Please be advised today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Senior IR Director, Florence Lip. Please go ahead.

Speaker #1: After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *1 and 1 on your telephone.

Speaker #1: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised today's conference is being recorded.

Speaker #1: I'd now like to hand the conference over to your first speaker today, senior IR director, Florence Lip. Please go ahead. Thank you, operator. Hello, everyone, and welcome to Yum China's first quarter 2026 earnings conference call.

Florence Lip: Thank you, operator. Hello, everyone, and welcome to Yum China's first quarter 2026 Earnings Conference Call. With me on the call are our CEO, Ms. Joey Wat, and our CFO, Mr. Adrian Ding. Before we begin, I will remind everyone that our remarks and investor materials contain forward-looking statements. These are subject to future events and uncertainties. Actual results may differ materially. Please refer these forward-looking statements together with the cautionary statement in our earnings release and the risk factors included in our SEC filing. We will also be talking about non-GAAP financial measures. We encourage you to review the comparable GAAP measures along with the reconciliation of non-GAAP and GAAP measures provided in our earnings release, which is available on our investor relations website at ir.yumchina.com. You can also find both the webcast replay and our PowerPoint presentation on our IR website.

Speaker #1: With me on the call are our CEO, Ms. Joey Wat, and our CFO, Mr. Adrian Ding. Before we begin, I'll remind everyone that our remarks and investment materials contain forward-looking statements.

Speaker #1: These are subject to future events and uncertainties, and actual results may differ materially. Please refer to these forward-looking statements together with the cautionary statement in our earnings release and the risk factors included in our SEC filing.

Speaker #1: We'll also be talking about non-GAAP financial measures. We encourage you to review the comparable GAAP measures along with the reconciliation of non-GAAP and GAAP measures provided in our earnings release, which is available on our investor relations website at ir.yumchina.com.

Speaker #1: You can also find both the webcast replay and our 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.

Florence Lip: 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 Wat, CEO of Yum China. Joey.

Speaker #1: With that, I'll now turn the call over to Joey Wat, CEO of Yum China. Joey? Hello, everyone, and thank you for joining us. Once again, we delivered solid results in a dynamic environment.

Joey Wat: Hello, everyone, and thank you for joining us. Once again, we delivered solid results in a dynamic environment, reflecting the successful execution of our RGM 3.0 strategy, which balances resilience, growth, and moat. In Q1, revenue grew 10% and operating profit increased 12% in reporting currency, supported by a positive foreign exchange impact. We opened 636 net new stores, more than one-third of our full year target and ahead of schedule. Even as we accelerated store expansion to capture market opportunities, we maintained a dual focus on same-store sales growth and system sales growth. Same-store sales growth was slightly positive, though rounded to zero. Same-store transaction grew for the 13th consecutive quarter. Excluding foreign exchange impact, system sales grew 4%. Operating profit increased 6% and operating profit margin expanded 20 basis points year-over-year.

Speaker #1: Reflecting the successful execution of our RGM 3.0 strategy, which balances resilience, growth, and moat. In quarter one, revenue grew 10% and operating profit increased 12% in reporting currency.

Speaker #1: Supported by a positive foreign exchange impact. We opened 636 net new stores—more than one-third of our full-year target, and ahead of schedule. Even as we accelerated store expansion to capture market opportunities, we maintained a dual focus on same-store sales growth and system sales growth.

Speaker #1: Same-store sales growth was slightly positive, though rounded to zero. Same-store transactions grew for the 13th consecutive quarter. Excluding foreign exchange impact, system sales grew 4%.

Speaker #1: Operating profit increased 6%, and operating profit margin expanded 20 basis points year over year. This marks the eighth consecutive quarter in which we delivered growth across all three metrics at the same time.

Joey Wat: This marks the eighth consecutive quarter in which we delivered growth across all three metrics at the same time. By brand, KFC remained resilient. Same-store sales grew 1%, the fourth consecutive quarter of growth. System sales increased by 5%, and restaurant margins remained very healthy at 19.1%. Pizza Hut continued to grow in scale and profitability, delivering 18% operating profit growth on top of 27% growth in Q1 last year, both in reporting currency. Same-store transactions grew for the 13th consecutive quarter, while restaurant margins improved 60 basis points year-over-year to 15%. I would like to say a big thank you to our team for delivering solid results in this fast-changing environment. We maintain a strong deal focus on innovation and operational efficiency.

Speaker #1: By brand, KFC remained resilient. Same-store sales grew 1%, the fourth consecutive quarter of growth. System sales increased by 5%, and restaurant margins remained very healthy at 19.1%.

Speaker #1: Pizza Hut continued to grow in scale and profitability. Delivering 18% operating profit growth on top of 27% growth in quarter one last year. Both in reporting currency.

Speaker #1: Same-store transactions grew for the 13 consecutive quarter, while restaurant margins improved 60 basis points year over year to 15%. I would like to say a big thank you to our team.

Speaker #1: For delivering solid results in this fast-changing environment, we maintain a strong dual focus on innovation and operational efficiency. Let me share a few updates on our key initiatives.

Joey Wat: Let me share a few updates on our key initiatives, then I will hand it over to Adrian to go through our results in more detail. It always begins with good food and great value. During Chinese New Year, we offered a wide range of options to cater to both group gatherings and solo diners. At KFC, in addition to our signature golden buckets, we launched classic limited time offers, LTOs, such as shrimp burger, beef wrap, and wing bucket to drive additional traffic. Building on last year's hugely successful LTO campaign, Crackling Golden Chicken Wings, became the first new permanent product we introduced during CNY to our menu. KFC's innovative side-by-side modules are scaling rapidly, delivering meaningful incremental sales and profit. KCOFFEE cafes are now in over 2,600 locations, and KPRO in more than 280 locations.

Speaker #1: And then I will hand it over to Adrian to go through our results in more detail. It always begins with good food and great value.

Speaker #1: During Chinese New Year, we offered a wide range of options to cater to both group gatherings and solo diners. As KFC, in addition to our signature golden buckets, we launched classic limited-time offers.

Speaker #1: LTOs, such as shrimp burger, beef wrap, and wing bucket, to drive additional traffic. Building on last year's hugely successful LTO campaign, Crackling Golden Chicken Wings, 薄脆金沙鸡翅, became the first new permanent product we introduced during CNY to our menu.

Speaker #1: KFC's innovative side-by-side modules are scaling rapidly. Delivering meaningful incremental sales and profit. K Coffee Cafes are now in over 2,600 locations, and K Pro in more than 280 locations.

Speaker #1: K Coffee Cafes generate around mid-single-digit sales uplift and K Pro around 20% to their parent KFC stores in quarter one. Our consumer insights help us identify consumer needs.

Joey Wat: KCOFFEE cafes generate around mid-single digit sales uplift and KPRO around 20% to their parent KFC stores in Q1. Our consumer insights help us identify consumer needs, and our front-end segmentation and back-end consolidation approach help us meet these needs effectively. By sharing resources with the parent stores, these modules cross-sell existing members and require far lower investment and operating costs, making them attractive business models. Adrian will provide more updates on these two modules later in the call. At Pizza Hut, alongside our classic Super Supreme campaign for Chinese New Year, we collaborated with popular IPs like Gundam and Butterbear and launched our signature All You Can Eat campaign. In Q1, Pizza Hut accelerated expansion with 207 net new stores. That's nearly half of last year's full-year net new openings.

Speaker #1: And our front-end segmentation and back-end consolidation approach help us meet these needs effectively. By sharing resources with the parent stores, these modules cross-sell existing members and require far lower investment and operating costs.

Speaker #1: Making them attractive business models. Adrian will provide more updates on these two modules later in the call. At Pizza Hut, alongside our classic super-supreme campaign for Chinese New Year, we collaborated with popular IPs like Ganda and Butter Bear and launched our signature all-you-can-eat campaign.

Speaker #1: In quarter one, Pizza Hut accelerated expansion with 207 net new stores—that's nearly half of last year's full-year net new openings. Over 100 new stores used the Wild format, most of them in new cities.

Joey Wat: Over 100 new stores used the WOW format, most of them in new cities. Its lower CapEx model and simpler operations, supported by franchisee model, open up opportunities in lower tier cities. We also continued to fine-tune the WOW model and enhance the menu, adding signature items from Pizza Hut's main menu while keeping its most popular value items to strengthen both relevance and appeal. Let me now turn the call over to Adrian. Adrian?

Speaker #1: Its lower-capacity model and simpler operations supported by franchisee model opened up opportunities in lower-tier cities. We also continued to fine-tune the wild model and enhance the menu.

Speaker #1: Adding signature items from Pizza Hut's main menu, while keeping its most popular value items, to strengthen both relevance and appeal. Let me now turn the call over to Adrian.

Speaker #1: Adrian?

Speaker #2: Thank you, Joey. Let me update key highlights by brand. Starting with KFC, in quarter one, KFC's system sales grew 5%. Same-store sales increased 1%, marking its fourth consecutive quarter of growth.

Adrian Ding: Thank you, Joey. Let me update key highlights by brand, starting with KFC. In Q1, KFC system sales grew 5%. Same-store sales increased 1%, marking its fourth consecutive quarter of growth. Same-store transactions also grew 1%, while ticket average was down 1%. The rapid growth of smaller orders was largely offset by the increased delivery mix, which carries a relatively higher ticket average. KFC's breakthrough side-by-side modules continue their strong momentum and drive incremental sales and profit to their parent stores. We added around 400 KCOFFEE cafes in Q1, bringing the total to over 2,600 locations across all city tiers. With broader coverage and rising daily cups sold per store, KCOFFEE Cafe sales more than doubled year-over-year.

Speaker #2: Same-store transactions also grew 1%. While ticket average was down 1%, the rapid growth of smaller orders was largely offset by the increased delivery mix.

Speaker #2: Which carries a relatively higher ticket average. KFC's breakthrough side-by-side modules continue their strong momentum. And drive incremental sales and profit to their parent stores.

Speaker #2: We added around 400 K Coffee Cafes in quarter one. Bringing the total to over 2,600 locations across all city tiers. With broader coverage and rising daily cup sold per store, K Coffee Cafe sales more than doubled year over year.

Speaker #2: We expect K Coffee Café to keep growing rapidly to unlock further potential, and reach 5,000 locations by year-end 2027—two years ahead of our original target shared at last year's Investor Day.

Adrian Ding: We expect KCOFFEE to keep growing rapidly to unlock further potential and reach 5,000 locations by year-end 2027, two years ahead of our original target shared at our last year's Investor Day. KPRO also gained momentum, reaching 280 locations, up from 200 at the end of 2025. While primarily focused on Tier 1, Tier 2 cities, we're expanding into select Tier 3 cities as well, especially in eastern or southern China, where the demand for light meals is stronger. KPRO is performing well and showing margin improvement, driven by agile module iteration, including menu innovation and reduced investment requirements. With that, we're raising our KPRO target to 600 locations by year-end, an increase of 200 compared to our plan shared earlier this year. Now, moving on to Pizza Hut.

Speaker #2: K Pro also gained momentum. Reaching 280 locations, up from 200 at the end of 2025. While primarily focused on tier one and tier two cities, we're expanding into select tier three cities as well.

Speaker #2: Especially in eastern and southern China, where the demand for light meals is stronger, K PRO is performing well and showing margin improvement, driven by an agile module iteration including menu innovation and reduced investment requirements.

Speaker #2: With that, we're raising our K Pro target to 600 locations by year-end, an increase of 200 compared to our plan shared earlier this year.

Speaker #2: Now, moving on to Pizza Hut. In quarter one, system sales grew 4% year over year. And same-store sales were 99% of the prior year period's level.

Adrian Ding: In Q1, system sales grew 4% year over year, and same-store sales were 99% of the prior year period's level. This year's CNY took place considerably later than usual. Pizza Hut as a casual dining concept saw a modest impact as dining and gathering patterns shifted around the Chinese New Year holiday. In March, we brought back our popular All You Can Eat campaign for a limited time. Now, in its fifth year, this campaign has become a signature, attracting consumers to try new dishes, effectively driving traffic, and broadening appeal. Same-store transactions grew 5% in Q1, marking its 13th consecutive quarter of growth. Ticket average was down 5% year over year, in line with our mass market strategy and driven mainly by better value for money offerings.

Speaker #2: This year's CNY took place considerably later than usual. Pizza Hut, as a casual dining concept, saw a modest impact as dining and gathering patterns shifted around the Chinese New Year holiday.

Speaker #2: In March, we brought back our popular all-you-can-eat campaign for a limited time. Now, in its fifth year, this campaign has become a signature, attracting consumers to try new dishes, effectively driving traffic and broadening appeal.

Speaker #2: Same-store transactions grew 5% in quarter one. Marking its 13th consecutive quarter of growth. Ticket average was down 5% year over year. In line with our mass market strategy, and driven mainly by better value for money offerings.

Speaker #2: Pizza Hut's TA is moving closer to our long-term target range of 60 to 70 yuan, as shared at our last year's investor day. Even with the lower TA, Pizza Hut restaurant margin expanded by 60 basis points year over year to 15.0%.

Adrian Ding: Pizza Hut's TA is moving closer to our long-term target range of CNY 60 to 70, as shared at last year's Investor Day. Even with the lower TA, Pizza Hut restaurant margin expanded by 60 basis points year-over-year to 15.0%. OCI margin also increased by 100 basis points. Efficiency continued to improve at Pizza Hut as we streamlined store operations, centralized processes, and advanced automation, supported by our strong food innovation, supply chain, and digital capabilities. Moving on to store opening. We accelerated store openings in Q1 to record levels for Yum China, KFC, and Pizza Hut. With 636 net new stores in the quarter, we're on track to open more than 1,900 net new stores for the full year and to surpass 20,000 total stores in 2026.

Speaker #2: OP margin also increased by 100 basis points. Efficiency continued to improve at Pizza Hut. As we streamlined store operations, centralized processes, and advanced automation—supported by our strong food innovation, supply chain, and digital capabilities.

Speaker #2: Now, moving on to store opening. We accelerated store openings in quarter one to record levels for Yum China KFC and Pizza Hut. With 636 net new stores in the quarter, we're on track to open more than 1,900 net new stores for the full year and to surpass 20,000 total stores in 2026.

Speaker #2: Franchisees contributed 42% of KFC and Pizza Hut's net new stores in quarter one, helping us capture incremental opportunities in lower-tier cities, remote areas, and strategic locations.

Adrian Ding: Franchisees contributed 42% of KFC and Pizza Hut's net new stores in Q1, helping us capture incremental opportunities in lower-tier cities, remote areas, and strategic locations. Our franchise portfolio exceeded 2,500 stores at the end of Q1, up from around 1,800 a year ago. We expect to continue driving store network growth with capital efficiency and improving our ROIC over time. Our flexible store models continue to support franchise growth. Pizza Hut's WOW store model is making good progress. Store count doubled year-over-year to around 390. In Q1, restaurant margins of new equity WOW stores were already in line with the Pizza Hut's main model. In addition to standard WOW stores, we're also opening WOW stores side by side with KFC, which we refer to as the Gemini model.

Speaker #2: Our franchise portfolio exceeded 2,500 stores at the end of the quarter one, up from around 1,800 a year ago. We expect to continue driving store network growth with capital efficiency.

Speaker #2: And improving our ROIC over time. Our flexible store models continue to support franchise growth. Pizza Hut's Wild store model is making good progress. Store count doubled year over year to around 390.

Speaker #2: In quarter one, restaurant margins of new equity wild stores were already in line with the Pizza Hut's main model. In addition to standard wild stores, we're also opening wild stores side by side with KFC, which we refer to as the Gemini model.

Speaker #2: Nearly 80 wild openings in quarter one were Gemini stores. Mostly in new lower-tier cities and operated by franchisees. With rising car ownership and the expansion of highway network, we're leveraging franchisees' resources to tap into the growing under-road demand.

Adrian Ding: Nearly 80 WOW openings in Q1 were Gemini stores, mostly in new lower-tier cities and operated by franchisees. With rising car ownership and the expansion of highway networks, we are leveraging franchisees' resources to tap into the growing on-the-road demand. We have already signed franchise agreements with more than 12 provincial and municipal highway operators, Sheng Jiaotong, Cheng Jiaotong, to open stores at their highway service stations. In just over a year, we added nearly 100 stores and are accelerating the pace this year. We are also meeting new customer needs through innovative solutions. Traditionally, drive-throughs require dedicated car lanes. We expand on this by offering car-side pickup at locations without such lanes but with pull-over areas, where our crew brings orders straight to consumers' cars. This approach significantly reduces capital expenditure requirements and gives us the greater flexibility in driving takeaway sales.

Speaker #2: We have already signed franchise agreements with more than a dozen provincial and municipal highway operators. Sheng Jiaotou, Cheng Jiaotou, to open stores at their highway service stations.

Speaker #2: In just over a year, we added nearly 100 stores and are accelerating the pace this year. We're also meeting new customer needs through innovative solutions.

Speaker #2: Traditionally, drive-throughs require dedicated car lanes we expand on this by offering car side pickup at locations without such lanes but with pull-over areas. Where our crew brings orders straight to consumers' cars.

Speaker #2: This approach significantly reduces capital expenditure requirements and gives us the greater flexibility in driving takeaway sales. Today, more than 7,000 KFC stores offer either the traditional drive-through or car side pickup services.

Adrian Ding: Today, more than 7,000 KFC stores offer either the traditional drive-through or car-side pickup services, up from around 2,000 a year ago. While it's still early in building awareness and habits, in Q1, nearly one-third of drive-through customers made repeat purchases, showing strong potential and stickiness. We're partnering with multiple car companies, including BYD, to enable in-car ordering, and select stores will have fast-charging stations in store nearby to offer even greater convenience. Let me now go through our Q1 P&L. System sales grew 4% year over year. Same-store sales grew slightly year over year, but rounded down to 100% of prior year levels. Our performance in January and February was broadly in line with our expectations.

Speaker #2: Up from around 2,000 a year ago. While still early in building awareness and habits, in Q1, nearly one-third of drive-through customers made repeat purchases.

Speaker #2: Showing strong potential and stickiness. We're partnering with multiple car companies, including BYD, to enable in-car ordering. And select stores will have fast charging stations in-store or nearby to offer even greater convenience.

Speaker #2: Let me now go through our Q1 P&L. System sales grew 4% year over year. Same-store sales grew slightly year over year, but rounded down to 100% of prior year levels.

Speaker #2: Our performance in January and February was broadly in line with our expectations. March came in slightly softer than expected, as it fell between the Chinese New Year holidays and the additional spring break in several provinces, and also compared against last year's strong IP campaigns.

Adrian Ding: March came in slightly softer than expected as it fell between the Chinese New Year holidays and the additional spring break in several provinces and compared against last year's strong IP campaigns. Our restaurant margin was 18.2%, 40 basis points lower year over year. The decrease was primarily due to increased rider costs from higher delivery mix, partially offset by improved operational efficiency. Cost of sales was 31.6%, 40 basis points higher year over year, mainly due to strong value for money offerings. The tailwind from favorable commodity prices is also less than before. Cost of labor was 26.7%, 100 basis points higher year over year. Rider costs increased year over year, driven by the strong growth in delivery sales mix, which went up from 42% last year to 54% this year.

Speaker #2: Our restaurant margin was 18.2%, 40 basis points lower year over year. The decrease was primarily due to increased rider costs from higher delivery mix, partially offset by improved operational efficiency.

Speaker #2: Cost of sales was 31.6%. 40 basis points higher year over year. Mainly due to strong value for money offerings. The tailwind from favorable commodity prices is also less than before.

Speaker #2: Cost of labor was 26.7%, 100 basis points higher year over year. Rider costs increased year over year, driven by the strong growth in delivery sales mix.

Speaker #2: Which went up from 42% last year to 54% this year. Rider costs now account for close to 30% of our cost of labor. The margin impact was 190 basis points.

Adrian Ding: Rider costs now account for close to 30% of our cost of labor. The margin impact was 190 basis points. We mitigate around half of that through enhanced store operations. Occupancy and other was 23.5%, 100 basis points lower year over year, mainly due to better rent and other initiatives to improve operational efficiency. Our OP margin was 13.7%, 20 basis points higher year over year, achieving the 8th consecutive quarter of OP margin expansion. Savings in G&A expenses helped improve OP margins. Operating profit was $447 million, a Q1 record, growing 6% year over year. Net income was $309 million, flat year over year. Excluding our investment in Meituan, net income grew 4% year over year.

Speaker #2: And we mitigate around half of that through enhanced store operations. Occupancy and other was 23.5%, 100 basis points lower year over year, mainly due to better rent and other initiatives to improve operational efficiency.

Speaker #2: Our OP margin was 13.7%, 20 basis points higher year over year, achieving the eighth consecutive quarter of OP margin expansion. Savings in G&A expenses helped improve OP margins.

Speaker #2: Operating profit was $447 million, a first-quarter record, growing 6% year over year. Net income was $309 million, flat year over year.

Speaker #2: Excluding our investment in Meituan, net income grew 4% year over year. Our investment in Meituan had a negative impact of $9 million in quarter one.

Adrian Ding: Our investment in Meituan had a negative impact of $9 million in Q1 compared to positive impact of $2 million in Q1 last year. As a reminder, we recognized $10 million less in interest income in Q1 this year due to a lower cash balance resulting from the cash we returned to shareholders and lower interest rates. Diluted EPS was $0.87, 7% higher year over year, or up 11% year over year, excluding our investment in Meituan. Now, moving on to our 2026 outlook, starting with the Q2. On sales, we are working hard to deliver positive same-store sales growth and the 14th consecutive quarter of positive same-store transaction growth. March, sitting between Chinese New Year and the extra school spring break in April, was slightly softer. However, April benefited from the additional traffic.

Speaker #2: Compared to a positive impact of $2 million in quarter one last year. As a reminder, we recognize $10 million less in interest income in quarter one this year.

Speaker #2: Due to a lower cash balance. Resulting from the cash we returned to shareholders. And lower interest rates. Diluted EPS was 87 cents. 7% higher year over year.

Speaker #2: Or up 11% year over year, excluding our investment in Meituan. Now, moving on to our 2026 outlook. Starting with the second quarter. On sales, we're working hard to deliver positive same-store sales growth.

Speaker #2: And the 14th consecutive quarter of positive same-store transaction growth. March, sitting between Chinese New Year and the extra school spring break in April. Was slightly softer.

Speaker #2: However, April benefited from the additional traffic. Taken together, March and April were broadly in line with our expectations. Giving us confidence that same-store sales growth will sequentially improved for Yum China KFC and Pizza Hut in quarter two.

Adrian Ding: Taken together, March and April were broadly in line with our expectations, giving us confidence that same-store sales growth will sequentially improve for Yum China, KFC, and Pizza Hut in Q2. On margins, rider costs remain the biggest headwind. Although delivery platform subsidies have moderated slightly, we expect delivery sales to continue growing, which means rider cost pressure will persist. That said, the tough year-over-year comparison we face in Q1 restaurant margin will ease slightly in Q2. At this point in time, we expect the situation in the Middle East to have limited impact on the cost of sales this year. We have already secured the majority of this year's procurement contracts. We'll continue to monitor the situation closely and manage our procurement and logistics nimbly. We'll maintain our dual focus on driving same-store sales growth and system sales growth while keeping our operations efficient.

Speaker #2: On margins, rider costs remained the biggest headwind. Although delivery platform subsidies have moderated slightly, we expect delivery sales to continue growing. Which means rider cost pressure will persist.

Speaker #2: That said, the tough year-over-year comparison we face in quarter one restaurant margin will ease slightly in quarter two. At this point in time, we expect the situation in the Middle East to have limited impact on the cost of sales this year.

Speaker #2: We have already secured the majority of this year's procurement contracts. We'll continue to monitor the situation closely and manage our procurement and logistics nimbly.

Speaker #2: We'll maintain our dual focus on driving same-store sales growth and system sales growth, while keeping our operations efficient. All in all, we strive to maintain OP margin roughly in line with the prior year period in Q2.

Adrian Ding: All in all, we strive to maintain OP margin roughly in line with the prior year period in Q2. As for H2, we expect sequential improvement in year-over-year margin comparisons versus H1. With higher delivery sales mix last year, the incremental rider cost pressure should moderate. Our initiatives to optimize operational efficiency and store costs, including rent, labor productivity, capital expenditure, are also expected to support margin expansion. We are confident in meeting the full year targets for 2026, which are consistent with the ranges we shared at our Investor Day last year and in February. These include same-store sales index of 100 to 102, mid to high single digit system sales growth, high single digit operating profit growth, double digit EPS growth, a slight improvement in restaurant margin and OP margin for Yum China.

Speaker #2: As for the second half, we expect sequential improvement in year-over-year margin comparisons versus the first half. With a higher delivery sales mix last year, the incremental rider cost pressure should moderate.

Speaker #2: Our initiative to optimize operational efficiency and store costs, including rent, labor productivity, and capital expenditure, are also expected to support margin expansion. We're confident in meeting the full-year targets for 2026.

Speaker #2: Which are consistent with the ranges we shared at our investor day last year and in February. These include same-store sales index of 100 to 102.

Speaker #2: Mid- to high-single-digit system sales growth. High-single-digit operating profit growth. Double-digit EPS growth. A slight improvement in restaurant margin and operating profit margin for Yum China.

Speaker #2: Additionally, we remain on track to reach 20,000 stores by year-end. In terms of capital returns to shareholders, in quarter one, we returned 316 million dollars.

Adrian Ding: Additionally, we remain on track to reach 20,000 stores by year-end. In terms of capital returns to shareholders, in Q1, we returned $316 million, with $214 million in share repurchases and $102 million in quarterly cash dividends. We're on track to return $1.5 billion to shareholders for the full year 2026, around 9% of our current market cap. Of the $1.5 billion, we expect around $400 million to be distributed as dividends and $1.1 billion to be allocated to share repurchases through a mix of systematic and discretionary buybacks.

Speaker #2: With 214 million dollars in share repurchases and 102 million dollars in quarterly cash dividends. We're on track to return 1.5 billion dollars to shareholders for the full year 2026.

Speaker #2: Around 9% of our current market cap. Of the $1.5 billion, we expect around $400 million to be distributed as dividends, and $1.1 billion to be allocated to share repurchases.

Speaker #2: Through a mix of systematic and discretionary buybacks. From 2027, we plan to return approximately 100% of our annual free cash flow after subsidiary dividend payments to non-controlling interests.

Adrian Ding: From 2027, we plan to return approximately 100% of our annual free cash flow after subsidiary dividend payments to non-controlled interest. This is expected to be an average of $900 million to 1 billion-plus dollars in 2027 and 2028. Exceed $1 billion in 2028 and onward. With that, let me hand it back to Joey for her closing remarks.

Speaker #2: This is expected to be an average of $900 million to over $1 billion in 2027 and 2028, and to exceed $1 billion in 2028 and onward.

Speaker #2: With that, let me hand it back to Joey for her closing remarks. Thanks, Adrian. Let's take a moment to highlight our key growth drivers in Q2 and beyond.

Joey Wat: Thanks, Adrian. Let's take a moment to highlight our key growth drivers in Q2 and beyond. At KFC, our 6 hero products provide a solid foundation, accounting for around 30% of sales and are purchased by about 80% of our active members. We keep innovating to drive repeat purchases. Whole Chicken, introduced in 2021, is a great option for at-home consumption and has gained popularity quickly. Sales nearly tripled since 2022, surpassing CNY 2 billion in 2025. In April, we add aromatic paper-wrapped roasted chicken to the permanent menu after a successful LTO in Q4 last year. This new offering is incredibly juicy, and its simple cooking process ensures that add variety does not increase kitchen complexity. Pizza Hut also continued to innovate to meet evolving consumer needs.

Speaker #2: At KFC, our six hero products provide a solid foundation accounting for around 30% of sales. And a purchased by about 80% of our ethic members.

Speaker #2: We keep innovating to drive repeat purchases. Whole chicken, introduced in 2021, is a great option for at-home consumption and has gained popularity quickly. Sales nearly tripled since 2022.

Speaker #2: Surpassing 2 billion yuan in 2025. In April, we added aromatic paper-wrapped roasted chicken to the permanent menu after a successful LTO in Q4 last year.

Speaker #2: This new offering is incredibly juicy, and its simple cooking process ensures the added variety does not increase kitchen complexity. Pizza Hut also continued to innovate to meet evolving consumer needs.

Speaker #2: In our latest spring menu launched last week, we introduced over 30 new dishes. About one-third of our entire menu—with this menu revamp, we added new platforms tailored for dine-in sharing and enriched our protein offerings.

Joey Wat: In our latest spring menu launched last week, we introduced over 30 new dishes, about one-third of our entire menu. With this menu revamp, we add new platforms tailored for dine-in sharing and enriched our protein offerings. For example, beef and chicken fajita and shakshuka, a poached egg in spiced tomato sauce. In May, we are excited to upgrade our hand-tossed pizza with multi-grain crust and colorful protein and vegetable toppings. These innovations not only taste great but are fun and highly Instagram worthy, enhancing the casual dining experience. Beyond serving our existing customers better, we are broadening our addressable market by identifying underserved customers. For example, we now have offerings for customers on tighter budgets. Through highly selective delivery channels, we offer hearty meals at very affordable prices. KFC's Chinese buns stuffed with mala chicken. This bun weighs more than half a pound.

Speaker #2: For example, beef and chicken fuhita. And shashuka. Approached egg and spiced tomato sauce. In May, we are excited to upgrade our hand-tossed pizza with multi-grain crust and colorful protein and vegetable toppings.

Speaker #2: Pizza. These innovations not only taste great, but are fun and highly Instagram-worthy, enhancing the casual dining experience. Beyond serving our existing customers better, we have broadened our addressable market by identifying underserved customers.

Speaker #2: For example, we now have offerings for customers on tighter budgets. Through highly selective delivery channels, we offer hearty meals at very affordable prices. KFC's Chinese bun stuffed with mala chicken.

Speaker #2: This bun weighs more than half a pound. It's inspired by a popular Sichuan dish and is the winner of our internal nationwide food ideation competition.

Joey Wat: It's inspired by a popular Sichuan dish and is the winner of our internal nationwide food ideation competition. Pizza Hut offers Roman-style spicy pasta with sausage. Both food gains instant popularity. Since our Investor Day in November last year, we continue to be encouraged by the early signs of improving consumer sentiment and more rational competition among delivery platforms. These are positive developments that we believe will benefit our industry over the mid to long term. We are well-positioned for this, supported by our strong brand equity, food that customers love, and a solid set of growth initiatives. We are confident in achieving our 2026 full-year targets and will continue to drive profitable growth and create sustainable value for our shareholders. Now let me pass it back to Florence. Thanks, Joey. Now we will open the call for questions.

Speaker #2: And Pizza Hut offers Roman style spicy pasta with sausage. Both food gains instant popularity. Since our investor day in November last year, we continue to be encouraged by the early signs of improving consumer sentiment.

Speaker #2: And more rational competition among delivery platforms. These are positive developments that we believe will benefit our industry over the mid to long term. We are well positioned for this, supported by our strong brand equity and food that customers love.

Speaker #2: And a solid set of growth initiatives. We are confident in achieving our 2026 full-year targets and will continue to drive profitable growth and create sustainable value for our shareholders.

Speaker #2: Now, let me pass it back to Florence.

Speaker #3: Thanks, Joey. 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.

Florence Lip: Thanks, Joey. 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.

Florence Lip: 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 #3: Operator, please start the Q&A.

Speaker #4: Thank you. If you would like to ask a question, please press *1 and 1 on your telephone and wait for your name to be announced.

Operator: Thank you. If you would like to ask a question, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Please stand by while we compile the Q&A roster. Thank you. We will take our first question. This is from Michelle Cheng from Goldman Sachs. Please go ahead.

Speaker #4: And to withdraw your question, please press star, one, and one again. Please stand by while we compile the Q&A roster. Thank you. We will take our first question.

Speaker #4: This is from Michelle Cheng from Goldman Sachs. Please go ahead.

Michelle Cheng: Hi, Joey, Adrian, Florence. Thanks for taking my question. I would like to explore the delivery business a little bit more. Joey and Adrian, you earlier mentioned a bit on this delivery impact. Can you still elaborate a little bit more for the past few quarters, given still more promotional environment, the positive impact on same-store sales growth versus the negative impact on the competition and the margins? Do we see any, like, changes in the trend the past 1 to 2 months?

Speaker #2: Hi, Joey, Adrian, Florence. Thanks for taking my question. I would like to explore the delivery business a little bit more. Joey and Adrian, you earlier mentioned a bit on this delivery impact.

Speaker #2: But, can you still elaborate a little bit more for the past few quarters? Given the still more promotional environment, the positive impact on Sam's Door sales growth versus the negative impact from the competition and the margins.

Speaker #2: And do we see any, like, changes in the trend in the past one to two months? And looking ahead, if, as what we expected, the subsidies will be more normalized, how should we think about the financial impact, and what will be our strategies, especially in driving more takeaway and in-store consumption?

Michelle Cheng: Looking ahead, if, as what we expected, the subsidies will be more normalized, and how should we think about the financial impact, and what will be our strategies, in the, especially driving more takeaway and the in-store, consumption? Thank you.

Speaker #2: Thank you.

Speaker #3: Thank you, Michelle. I would like to make a few points about your question on the delivery topic. We, we see early signs of more rational delivery platform competition recently, for sure.

Joey Wat: Thank you, Michelle. I would like to make few points about your question on the delivery topic. We see early sign of more rational delivery platform competition recently, for sure. We welcome the development and believe that it will benefit our industry over time. Specifically, the reduction in subsidies right now is more pronounced for smaller orders, but only a slight decrease in QSR. We see platforms increasingly focusing on higher TA orders, which is good for our business, relative to the drink business, I suppose. We have been very consistent in the past, last year and now, that we always maintain a disciplined approach. We balance sales growth, margin protection, and brand integrity. I believe that we are well-positioned for the rationalization of the delivery subsidies.

Speaker #3: And we welcome the development, and believe that it will benefit our industry over time. And, specifically, the reduction in subsidies right now is more pronounced for smaller orders.

Speaker #3: But only a slight decrease in QSL. So we see platforms increasingly focusing on higher TA orders, which is good for our business relative to the drink business, as opposed.

Speaker #3: We have been very consistent in the past, last year, and now, that we always maintain a disciplined approach. We balance sales growth, margin protection, and brand integrity.

Speaker #3: So, I believe that we are well positioned for the rationalization of the delivery subsidies. And, you know, going forward, in addition to the disciplined approach, we always look at our operational growth.

Joey Wat: You know, going forward, in addition to the disciplined approach, we always look at our operational growth, supported by strong brand equity, food innovation, great value, and many other levers. In my, you know, prepared remarks, I talk about the Pizza Hut's new food, like fajita, shakshuka, the KFC, the KCOFFEE, KPRO growth mentioned by Adrian, and also the car side pickup. All these are our focus and we continue to maintain a disciplined approach. Thank you, Michelle.

Speaker #3: supported by strong brand equity, food innovation, great value, and many other levers. and in my you know, prepared remarks, I talk about the, Pizza Hut's new, new food, like fuhita, shashuka.

Speaker #3: The KFC, the K Coffee, and K Pro growth mentioned by Adrian, and also the Kaiser picked up—so all these are our focus. And we continue to maintain a disciplined approach.

Speaker #3: Thank you, Michelle.

Speaker #5: Yeah. And, in addition to that, I guess, as to a second part of the question regarding financial impact of the more rationalization of delivery subsidy, as Joey mentioned, you know, we have been very disciplined in taking the delivery subsidy, you know, ever since a few quarters ago.

Adrian Ding: Yeah. In addition to that, I guess, as to a second part of the question regarding financial impact of the more rationalization of delivery subsidy. As Joey mentioned, you know, we have been very disciplined in taking the delivery subsidy ever since a few quarters ago. We believe we are among one of the better companies positioned in the industry to, you know, kinda enjoy the more rationalization of the delivery environment. I guess, as a little conclusion, we reiterate our annual guidance on top line for 100 and 102. 100 to 102 on comp sales, which is something that we're pretty confident to achieve.

Speaker #5: And we believe we are among one of the better companies positioned in the industry to, you know, to kind of enjoy the more rationalization of the delivery environment.

Speaker #5: So, I guess as a little conclusion, we reiterate our annual guidance on top line for 100 and 102, 100 to 102 on comp sales.

Speaker #5: which is something we're pretty confident to achieve. And specific to quarter two, as I mentioned in the prepared remark, we do expect a sequential improvement in our comp sales in Yum China, KFC, and Pizza Hut.

Adrian Ding: Specific to Q2, as I mentioned in the prepared remark, we do expect a sequential improvement in our comp sales in Yum China, KFC, and Pizza Hut. More specifically on top line, right, delivery sales growth, we still believe it's a long-term trend, although the subsidy is more rationalized, but still, it is growing on delivery mix. We still face some rider cost pressure, and the delivery sales mix will increase at least in the near future. In terms of TA, KFC's delivery orders generally have a higher TA, so a slower growth in delivery will translate into a slight decrease in TA from the growth in smaller orders.

Speaker #5: and more specifically on top line, right, delivery sales growth, we still believe it's a long-term trend. Although, the subsidy is more rationalized, but still, it, it is growing on delivery mix.

Speaker #5: So, we still face some wider cost pressure, and the delivery sales mix will increase, at least in the near future. In terms of TA, KFC's delivery orders generally have a higher TA.

Speaker #5: So, slower growth in delivery will translate into a slight decrease in TA from the growth in smaller orders. And looking forward, consistent with what we shared in the February earnings, we expect KFC TA to either slightly decrease or stay generally stable for the full year.

Adrian Ding: Looking forward, consistent to what we shared in February earnings, we expect KFC TA to either slightly decrease or stay generally stable for the full year. For Pizza Hut, the delivery TA, which is a bit opposite to KFC, the delivery TA for Pizza Hut is lower than dine-in. A slowed down delivery sales growth will translate to a more moderate decline TA for Pizza Hut. Lastly, on the margin front, as we mentioned in the prepared remark, in the H2, given the delivery mix is already a bit higher in the base, the rider cost pressure will moderate. Hopefully, together with our other efficiency initiatives, that will help better support our margin in the H2.

Speaker #5: And for Pizza Hut, the delivery TA, which is a bit opposite to KFC, the delivery TA for Pizza Hut is lower than dine-in. So, slowed down delivery sales growth will translate to a more moderate decline in TA for Pizza Hut.

Speaker #5: And lastly, on the margin front, as we mentioned in the prepared remark, in the second half, given the delivery mix is already a bit higher in the base.

Speaker #5: So the wider cost pressure will moderate, so hopefully, together with our other efficiency initiatives, that will help better support our margin in the second half.

Speaker #5: And, in terms of the second quarter, the pressure is slightly less compared to quarter one. and, as always, we use a balanced approach to drive sales at the same time as protect our margin and price integrity.

Adrian Ding: In terms of Q2, the pressure is slightly less compared to Q1. As always, we use a balanced approach to drive sales at the same time as protect our margin and price integrity. Thank you, Michelle.

Speaker #5: Thank you, Michelle.

Speaker #2: Thank you, Joey. Thank you, Adrian. Very clear.

Joey Wat: Thank you, Joey. Thank you, Adrian. Very clear.

Michelle Cheng: Thank you, Joey. Thank you, Adrian. Very clear.

Speaker #6: Thank you. And the next question comes from Chen Luo from Bank of America. Please go ahead.

Operator: Thank you. The next question comes from Chen Luo from Bank of America. Please go ahead.

Chen Luo: Hi, Joey and Adrian. Congrats on the results despite a very fluid environment. In fact, the recent sale off of share price has actually baked in very bare expectation, but after seeing the result, I feel really relieved. My question is actually on our OP margin guidance. I remember previously we target a largely stable OP margin in Q1, but the actual result saw, like, 30 BP OP margin expansion. Just now we confirmed that in H2 we may see easing rider cost pressure, given a more normalized base for the delivery sales mix. This, together with a lot of cost-saving initiatives, is it fair to say that, compared with our previous guidance of flat to slightly upward trend of OP margins, there actually could be upside risks to our full-year margin guidance? That's my question. Thank you.

Speaker #7: Hi, Joey and Adrian. Congrats on the results. Despite a very fluid environment—in fact, the recent sell-off of share price has actually begged in very, very expectation—but having seen the results, I feel really relieved.

Speaker #7: so my question is actually on our OP margin guidance. I remember previously, we target a largely stable OP margin in Q1. But the actual result saw, like, 30 bips OP margin expansion.

Speaker #7: And just now, we confirmed that in the second half, we may see easing, wider cost pressure given a more normalized base for the delivery sales mix.

Speaker #7: And this, together with a lot of cost-saving initiatives, is it fair to say that compared with our previous guidance of a flat to slightly upward trend of margin OP margins, there actually could be upside risks to our full-year margin guidance?

Speaker #7: That's my question. Thank you.

Speaker #5: Thank you, Luo Chen. Take the question on margin. I think our margin guidance shared in early February was a slight increase in our operating profit margin for the group for the full year.

Adrian Ding: Thank you, Chen Luo. Take the question on margin. I think our margin guidance share in early February was a slight increase in our operating profit margin for the group for the full year. I understand that in the market, different people interpret slight increase a bit differently, right? What is slight? Indeed, in our Q4 earnings in early February, we mentioned that OP margin for the group will be generally stable or broadly in line with the same period last year for Q1. It turned out to be a 20-30 basis points expansion on OP. It's still, I guess, broadly in line and, you know, as a matter of fact, H2, indeed, the rider costs pressure will moderate, right?

Speaker #5: And I understand that in the market, different people interpret 'slight increase' a bit differently, right? What is slight? And indeed, you know, you know, quarter one earnings—sorry, in the quarter four earnings in early February, we mentioned that OP margin for the group will be generally stable, or broadly in line with the same period last year for quarter one.

Speaker #5: It turned out to be a 20, 30 basis points expansion on OP. So it's still, I guess, broadly in line. And, you know, as a matter of fact, second half, indeed, the wider cost pressure will moderate, right?

Speaker #5: Because the delivery mix is higher in the base. And, but specifically on the three key line items, I guess after I share some more color, it will be helpful for you guys and for the other investors to help, you know, put together and refresh your model for the coming three quarters and the year.

Adrian Ding: Because the delivery mix is higher in the base. But specifically on the three key line items, I guess, after I share some more color, it will be helpful for you guys and for the other investors to help, you know, put together and refresh your model for the coming three quarters in the year. For COS, we expect the COS to be broadly stable for the group. As you noticed that the KFC COS in Q1 is generally stable, right? The Pizza Hut, there is increase in COS. There are a few reasons. One is the All You Can Eat campaign, which is definitely great value for money. Second is, as we mentioned last quarter, we have the new...

Speaker #5: for COS, we expect the COS to be, broadly stable for the group. And, as you noticed that, the KFC COS in quarter one is generally stable, right?

Speaker #5: And at Pizza Hut, there is an increase in COS. There are a few reasons. One is the all-you-can-eat campaign, which is definitely great value for money.

Speaker #5: Second is, as we mentioned last quarter, we have lots of new menu items, which we're still in the process of optimizing the cost.

Adrian Ding: lots of new menu items which we are still in the process of optimizing the cost. Thirdly, it is because of the higher delivery mix, which results in a higher package cost for Pizza Hut, which is actually a bit more specific to Pizza Hut because for KFC, the package cost similar before, between dine-in and delivery. With that, the COS for Pizza Hut will be between 33% and 34% for the full year, which is a bit higher than last year. However, we still guide a margin expansion for Pizza Hut on restaurant margin, OP margin front, given the tailwind on O&O. That is on COS for the group, KFC and Pizza Hut. For COL, I think it is, we face consistent headwinds on COL because of the delivery mix increase.

Speaker #5: And thirdly, it's because of the higher delivery mix, which results in a higher package cost for Pizza, which is actually a bit more specific to Pizza because, for KFC, the package cost is similar before between dine-in and delivery.

Speaker #5: So with that, the COS for Pizza Hut will be between 33% and 34% for the full year, which is a bit higher than last year.

Speaker #5: However, we still guide our margin expansion for Pizza Hut and restaurant margin, OP margin front, given the tailwind on ONO. So that's on COS for the group, KFC, and Pizza.

Speaker #5: For COL, I think it's—we face consistent headwind on COL because of the delivery mix increase. And we give a pretty specific figure on what is the COL pressure due to the increase in delivery mix for the quarter.

Adrian Ding: We give pretty specific figure on what is the COL pressure due to the increase in delivery mix for the quarter. I'm sure you can have a reasonably good modeling on the COL for the remainder of the year, depending on your specific assumption on the delivery mix. That's on COL. We face headwind that will be worse on COL. O&O, we do face tailwind on O&O due to our efficiency initiatives. On one hand, we will have hopefully better rental because currently we do, although there's a, you know, initial signs of a good turn of the property market or, you know, initial sign of stabilization in property market. Still on commercial real estate, it's quite favorable to the merchant as of right now.

Speaker #5: And I'm sure you can have, reasonably, a good modeling on the COL for the remainder—ma, remainder—of the year, depending on your specific assumption on the delivery mix.

Speaker #5: So that's on COL. We face headwind. That will be worse. On COL. ONO, we do face tailwind on ONO due to our efficiency initiatives.

Speaker #5: on one hand, we will have, hopefully better rental because, currently we still although there's a, a, a, you know, initial signs of a good turn of the property market or, you know, initial sign of stabilization in property market.

Speaker #5: But still, on commercial real estate, it's quite favorable to the merchant as of right now. And we would like to leverage the opportunity to further optimize our rental.

Adrian Ding: We would like to leverage up the opportunity to further optimize our rental. You see a little bit of that benefit in Q1. Hopefully, that will come in the coming quarters as well. Our lower capital expenditure, which results in a better depreciation, that will benefit O&O as well, together with other initiatives, including A&P, et cetera. Overall, the annual guidance on margin, which is a slight increase in OP margin for the group, is unchanged. Hopefully, we are able and we are competent to be able to deliver that.

Speaker #5: So, you see a little bit of that benefit in quarter one. Hopefully, that will come in, in the coming quarters as well. And our lower capital expenditure, which results in a, a better depreciation, that will benefit ONO, as well.

Speaker #5: Together with other initiatives, including ANP, etc. So overall, the annual guidance on margin—which is a slight increase in open market operating profit margin for the group—is unchanged.

Speaker #5: And hopefully, we are able and we are competent to be able to deliver that.

Speaker #1: I just want to add one comment about Pizza Hut margin, which was very nice for the first quarter this year. It's actually, I think, one of the highest since the turnaround initiative in 2020.

Joey Wat: I just want to add one comment about Pizza Hut margin, which was very nice for Q1 this year. It's actually, I think one of the highest since the turnaround initiatives in 2018. We've been very consistent with our direction of Pizza Hut turnaround. Sales first, profit later. Now is later. Later is now for Pizza Hut.

Speaker #1: We'd been very consistent with our direction of Pizza Hut's turnaround: sales first, profit later. Now is later. Later is now for Pizza Hut.

Speaker #5: Yeah. so that, that remark is really impressive. I think remember during the investor day, we mentioned a three-year target of 14.5 percent OP margin, restaurant margin for Pizza Hut.

Adrian Ding: Yeah. That, that remark is really impressive. You remember, during the Investor Day, we mentioned a 3-year target of 14.5% OP margin, restaurant margin for Pizza Hut. Based on the current run rate, thinks that we should actually achieve that target earlier than expected.

Speaker #5: Based on the current run rate, it seems that we should actually achieve that target earlier than expected.

Joey Wat: Slightly. The first inflection point was 2024 indeed, because the 2024 we feel like sales was in good position, then we start to really press the accelerator on the margin side, and we are happy to see what we are seeing. Thank you, Wilson.

Speaker #1: Slightly, slightly. The, the ques—the inflection point was 2024 indeed, because 2024, we feel like sales was in good position. Then we start to really press the accelerator on the margin side.

Speaker #1: And we are happy to see what we are seeing. Yeah. Thank you, Luo Chen.

Speaker #4: Okay. Thank you. Congrats.

Chen Luo: Okay. Thank you. Congrats.

Speaker #3: Thank you.

Florence Lip: Thank you.

Adrian Ding: Thank you.

Speaker #6: Thank you. Next question is from Lillian Liu, Morgan Stanley. Please go ahead.

Operator: Thank you. Our next question is from Lillian Lou, Morgan Stanley. Please go ahead.

Speaker #7: Hello, Joey and Adrian. Thanks for taking my question. My question is actually the underlying demand trend, and related to that, the pricing momentum as well.

Lillian Lou: Hello, Joey and Adrian. Thanks for taking my question. My question is actually on the underlying demand trend and, related to that, the pricing momentum as well. I think in the release, one important statement was, you are still very excited, encouraged by the underlying improvement of consumer sentiment. With a more than moderated subsidy, do we see the within merchants, is the competition also getting mild or actually everybody trying to rush up the traffic without as much subsidy from platforms? What's the dynamic of the demand and also competition right now?

Speaker #7: Because I think in the release, one important statement was you are still very excited, encouraged by the underlying improvement of consumer sentiment. With more modern, moderated subsidy, do we see, within merchants, is the competition also getting mild, or actually, is everybody trying to rush up the traffic without as much subsidy from platforms?

Speaker #7: So what's the dynamic of the demand and also competition right now? And also, on the like-for-like basis, are we seeing a chance for some improvement on pricing?

Lillian Lou: Also on the like-on-like basis, are we seeing chance for some improvement on pricing in terms of the whole industry and also for ourselves? Thanks.

Speaker #7: in terms of the whole industry, and also for ourselves? Thanks.

Joey Wat: I'll make two quick comment on that, and then maybe Adrian has a bit more color to add. We have shared our view on the improving consumer sentiment since Investor Day last November, and we certainly have observed some stabilization of pricing trend. Not only we took the pricing, but we also see more players taking pricing. That might be a sign that shows or reflects a more supportive consumer environment. Right now, the more rational competition among delivery platform is happening, so we believe that's constructive for the mid and long term as well. Other than pricing, what we still fundamentally believe is still great food and great value.

Speaker #1: I'm, I'm with two quick comments on that. And maybe Adrian has a bit more color to add. We have shared our view on the improving consumer sentiment since Investor Day last November.

Speaker #1: And we certainly have observed some stabilization of pricing trend. not only we took the pricing, but we also see, more players taking pricing. so, that might be a sign that shows, or reflects a more supportive consumer environment.

Speaker #1: And right now, the more rational competition among delivery platform, is happening. So we believe that's constructive, for the mid and long term as well.

Speaker #1: But, but other than pricing, what we still fundamentally believe is still great food and great value. So, without that, pricing is a bit too, sort of, too lonely to be there.

Joey Wat: Without that, pricing is a bit too sort of too lonely to be there. You know, come during the After the Chinese New Year now, we are seeing really good performance in breakfast. Breakfast is extremely competitive in terms of pricing. If you have not tried our Wuhan Reganmian, the hot dry noodles, they are selling really well right now. Right now is time because it might go out of stock pretty soon. Pizza Hut, we launched the 30 new dishes, the new platform like fajita, which is a fantastic value for money and really fun way to eat a steak. Think about Chinese. We sold almost 40 million steak last year in Pizza Hut.

Speaker #1: So, so, you know, come, come during the, the, the, the—after the Chinese New Year, now we, we are seeing really good performance in breakfast.

Speaker #1: Breakfast is extremely competitive in terms of pricing. But if you have not tried our Wuhan Le Gan Mian, the hot dry noodle, they are selling really well right now.

Speaker #1: Right now is, is time because it might go out of stock pretty soon. and then, and then, Pizza Hut, we, we launched the, the 30 new dishes.

Speaker #1: The new platform, like for heater, which is fantastic value for money. And it's a really fun way to eat steak. Think about Chinese—we sold almost 40 million steaks last year in Pizza Hut.

Speaker #1: But it's more fun to eat the steak in a fajita, with the sauce and wrap. So, all these are happening at the same time.

Joey Wat: It's more fun to eat a steak in fajita with the sauce and wrap. All these are happening at the same time together with pricing. It cannot go alone.

Speaker #1: Together with pricing, it cannot go alone.

Speaker #5: Yeah. I guess just, one little note to add, which is, one as Joey mentioned, right, the, the, the, the pricing environment is, becoming a bit more favorable.

Adrian Ding: Yeah.

Joey Wat: Yeah.

Adrian Ding: Well, one little note to add, which is, well, as Joey mentioned, right, the pricing environment is becoming a bit more favorable, and we're encouraged, continue to be encouraged by the improving consumer sentiment. When that translate to TA, obviously, you know, Pizza Hut here, you know, our strategy is to decrease the TA to be even more mass-friendly. For KFC, as we repeatedly mentioned in the recent earnings that, for this year, we do expect KFC TA to decrease. You know, as actually, I think I mentioned in multiple of the investors calls as well that even in the inflation, in a very inflationary environment, with the speed of our innovation right now, the TA may still decrease.

Speaker #5: And we encourage and continue to encourage by the improving consumer sentiment. But when that translates to TA, obviously, you know, Pizza Hut here is con—you know, our strategy is to decrease the TA to be even more mass market friendly.

Speaker #5: for KFC, as we repeatedly mentioned in the recent earnings that, for this year, we still expect KFC TA to decrease. you know, as, actually, I think I mentioned in multiple of the investors' calls as well that, even in the inflation in the very inflationary environment with the speed of our innovation right now, the TA may still decrease.

Adrian Ding: That's because of the mix, the blend, not necessarily because of pricing or discounting. That's just something that I would like to caution, right? The higher growth in breakfast, as Joey mentioned, the higher growth in KPRO, higher growth in KCOFFEE, those are all lower TA compared to the broader KFC business. The higher growth itself or the mix itself will cause the slow, a slight decrease in TA. This is very different from the US market where, you know, the TA represents roughly the inflationary index. In China here, with the innovation, it's a different story. Yeah. Thank you.

Speaker #5: That's because of the mix, the blend—not necessarily because of pricing or discounting. So that's something that I would like to caution, right? The higher growth in breakfast, as Joey mentioned, the higher growth in K-Pro, higher growth in K-Coffee—those are all lower TA compared to the broader KFC business.

Speaker #5: So the higher growth itself, the mix itself, of course, the slow a slight decrease in TA. So this is very different from the US market where, you know, the TA represents roughly the inflationary index but in China, here with the innovation, it's a different story.

Speaker #5: So yeah. Thank you.

Speaker #6: Yeah, thanks, Joey and Adrian. That's very clear, thank you. Next question is from C.G. Lin from CICC. Please go ahead.

Lillian Lou: Yeah. Thanks, Joey and Adrian. That's very clear.

Operator: Thank you. Next question is from Sijie Lin from CICC. Please go ahead.

Speaker #7: Okay. Thank you, Joey and Adrian. So I have a small question on K-Pro. We see that the K-Pro has performed very well, and achieved initial success and raised the extension target.

Sijie Lin: Okay. Thank you, Joey and Adrian. I have a small question on KPRO. We see that the KPRO has performed very well and achieved initial success and raised the expansion target. Could you please elaborate more behind this? Also, is there an estimate of roughly how many KFCs are suitable or have potential for opening KPRO next to them? Thank you.

Speaker #7: so could you please elaborate more behind this, and also, experience estimate of roughly how many KFCs are suitable or have potential for opening K-Pro next to them?

Speaker #7: Thank you.

Speaker #1: Thank you, Sujie. we are very excited about K-Pro as well. Although the, the, the model, it actually took seven years to, to come to fruition.

Joey Wat: Thank you, Sijie. We are very excited about K Pro as well, although the model, it actually took 7 years to come to fruition. We, as we mentioned in the prepared remarks, we are accelerating the development of K Pro to about 600 stores. The menu, if you have tried those before, are completely different. There's a very lovely sort of video on the social media. It's not from our company, I thought that the guy did a good job to talk about the K Pro story. The food is a Chinese style light meal. I like the quote there. It's Self-discipline. It's not self-torture.

Speaker #1: and we, as, as, as we, mentioned in the preparing mod, we, w-we are accelerating the development of K-Pro ro to, to about 600 stores.

Speaker #1: The menu, if you have tried those before, are completely different. They, they—there's a very lovely, sort of, video on social media. It's not from our company, but I thought that the guy did a good, good job to talk about the K-Pro story.

Speaker #1: The food is Chinese-style light meal. I like the quote there. It's Zi Lu, self-discipline. It's not Zi Nu. It's not self-torture. So the food is healthy.

Joey Wat: The food is healthy, very reasonable calorie, but you're still full. You're not hungry. That's important. The drink mix is very encouraging as well. We are selling very well with the milkshake. You know, it is 50% of the business, and this is much higher than the KFC business. With that said, we think the drink business within KFC has a lot more potential. Compared to KPRO, the product-wise, very small menu, but, you know, obviously we are doing something right after learning for seven years. Tier one, tier two city are doing well, and we are also testing in tier three cities, and we have some very exciting early result there, so we will continue that. The result is encouraging.

Speaker #1: Very reasonable calorie, but you still feel full. You're not hungry, that's the important thing. And then the drink mix is very encouraging as well. We are selling very well with the milkshake.

Speaker #1: you know, it's not the same of the of the business. And this is, much higher than the, the, the KFC business. With that said, we think the drink business, we think KFC has a lot more potential.

Speaker #1: But compared to K-Pro, product-wise, it's a very small menu. But, you know, obviously, we are doing something right after learning for seven years. And then Tier 1, Tier 2 cities are doing well.

Speaker #1: And then we are also testing in Tier 3 cities, and we have some very exciting early results there. So we'll continue that, and the results are encouraging.

Speaker #1: It's adding to about 20% of our sales uplift to the parent store, and the margin is good—so many, many good things. But the best thing, the best thing among all, is it has an incredibly good reputation on food safety.

Joey Wat: It's adding to about 20% of our sales uplift to the parent store, and the margin is good. Many good things. The best thing among all is it has incredibly good reputation on food safety. Other than the food tastes really good, the customer really got it. Our food safety is very trustworthy. They feel, they can feel comfortable about it. That really show our long-term strategic mode for Yum China, our credibility in food safety, and that's something money cannot buy. It can only be done over 40 years hard work. This year, for 2026, what's the size of business with 600 KPRO? Roughly could be up to RMB 1 billion sales, which is nice.

Speaker #1: Other than the... the food tastes really good, the customer really got it. Our food safety is, is, is very trustworthy. They feel they can feel comfortable about it.

Speaker #1: And that really shows our long-term strategic move for Yum China. Our credibility in food safety—and that's something money cannot buy. It can only be done over 40 years, however.

Speaker #1: So this year, for 2026, the size of the business with 600 K-Pro could be up to a billion RMB in sales.

Speaker #1: Which is nice. So even after the first quarter, we are adding two more stores to our original plan. We accelerate the pace for the second half.

Joey Wat: Even after Q1, we are adding, you know, 2 more store to our original plan. We accelerate the pace for H2. We are open mind about it. It really depends on the testing of the tier three cities. It's exciting, and we are very grateful that our operation team really lived up to the challenge. We're open mind about the further growth pace. Thank you.

Speaker #1: We are open-minded about it. It really depends on the testing of the Tier 3 cities, so it's exciting. We are very grateful that our operations team really lived up to the challenge.

Speaker #1: But we're open-minded about the, the, the further growth pace. Thank you.

Speaker #7: Thank you, Joey. That's very encouraging. Thank you.

Sijie Lin: Thank you, Joey. That's very encouraging. Thank you.

Speaker #6: Thank you. And the last question today comes from Ethan Wang from CLSA. Please go ahead.

Operator: Thank you. The last question today comes from Ethan Wang from CLSA. Please go ahead.

Ethan Wang: Good evening, Joey, Adrian. I have a follow-up question on the COL. Adrian mentioned the pressure will be easing the H2 because of the base. I'm just wondering, is that the case for Q2 as well? If we just have a longer, like horizon, the next year, or 3 year after, should we always expect this COL growth to be moderate, and which will be fully offset by the decrease in O&O? Is that what we are trying to achieve, when we set the stable restaurant margin, target? Which means the raw material price doesn't really affect how this plan is going. Thank you.

Speaker #8: Good evening, Joey, Adrian. I have a follow-up question on the COL. So Adrian mentioned the pressure will be easing in the second half, because of the base.

Speaker #8: I'm just wondering, is that the case for Q2 as well? And if we just have a longer, like, horizon—the next year, or three years after—should we always expect this COL growth to be moderate, and which will be fully offset by the decrease in ONO?

Speaker #8: Is that what we are trying to achieve when we set the stable restaurant margin and target? Which means it doesn't really— the raw material price doesn't really affect how this trend is going?

Speaker #8: Thank you.

Speaker #9: Thank you, Ethan. So, in quarter two, as we mentioned in the prepared remark, the pressure on COL was slightly eased. But, you know, given there is only for Yum China—given there is only one month of delivery subsidy taking the delivery subsidy in the base, which is the month of June last year.

Adrian Ding: Thank you, Ethan. In Q2, as we mentioned in the prepared remark, the pressure on COL was slightly ease. you know, For Yum China, given there is only one month of delivery subsidy, taking the delivery subsidy in the base, which is the month of June 2023. for the H2, it's the full H2 that the subsidy was in the base and the delivery mix was in the base. that's why we say the pressure was slightly eased. Overall, I think our margin guidance in the prepared remark for Q2 was, we expect a broadly stable OP margin for the group year over year for Q2.

Speaker #9: And but for, for the second half, it's the full of the second half that the subsidy was in the base and the delivery mix was in the base.

Speaker #9: So, so that's why we say the pressure was slightly eased. Overall, I think our margin guidance, in the prepared remark, for Q2 was: we expect a broadly stable OP margin for the group year over year for Q2.

Adrian Ding: That's considering the different factors on COS, COL, and O&O, so that's on the short term. On H2, I think the one of the previous response to Chen Luo actually provide quite a bit of details on the line-by-line breakdown. Your second part of the question on long-term margin. For long-term margin, at this point in time, we're still quite confident in our guidance shared in the Investor Day in November last year, which is for KFC to have a relatively stable margin over the long run, and for Pizza Hut to have a margin expansion to exceeding 14.5% restaurant margin by 2028.

Speaker #9: That's considering the different factors on COS, COL, and ONO. So that's on the short term. On the second half, I think one of the previous responses to Luocheng actually provided quite a bit of detail on the line-by-line breakdown.

Speaker #9: Your second part of the question on long-term margin—for long-term margin, at this point in time, we are still quite confident in our guidance shared at the Investor Day in November last year.

Speaker #9: which is for KFC to have a relatively stable margin over the long run, and for Pizza Hut to have a margin expansion to exceeding 14.5% restaurant margin by 2028.

Speaker #9: I think one of the analysts, May, was making the comment that we might be able to achieve that slightly earlier, which, at this point in time, we don't have a revision in our guidance.

Adrian Ding: I think one of the analysts was making the comment that we might be able to achieve that slightly earlier, which at this point in time, we don't have a revision in our guidance. Overall, for COL, in general, given the increase in delivery, with or without a delivery subsidy, what, you know, delivery mix will increase and the growth will be solid. COL, we will face pressure on the rider front, although the per ticket cost on rider may decrease. We hopefully will be able to offset that pressure, utilizing the O&O and a bit of COS as well over the mid to long run in the next couple years. Yeah, Ethan, thank you.

Speaker #9: But overall, for COL, in general, given the increase in delivery, with or without a delivery, delivery subsidy award, the, you know, the delivery mix will increase and the growth will be solid.

Speaker #9: So COL, we will face pressure on the rider front, although the per-ticket cost on rider may decrease. So we hopefully will be able to offset that pressure, utilizing the ONO and a bit of COS as well over the mid to long run in the next couple of years.

Speaker #9: Yeah, Ethan, thank you.

Speaker #8: Got it. That's good. Thank you, Adrian.

Ethan Wang: Got it. That's clear. Thank you, Adrian.

Speaker #10: Thank you, Adrian. This concludes our Q&A session. Thank you for joining the call today.

Florence Lip: Thank you, Adrian. This concludes our Q&A session. Thank you for joining the call today.

Operator: Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect.

Q1 2026 Yum China Holdings Inc Earnings Call

Request DemoDemo

Yum China

Earnings