Yum China Holdings, Inc. Q2 FY2025 earnings call

Key Points

• Dual Strategies: Focus on same-store sales and system sales growth, with same-store sales up 1% in Q2 and system sales up 4% year-over-year.
• Brand Initiatives: KFC launched Crazy Spicy Zinger, Pizza Hut introduced new thin crust pizza and All-You-Can-Eat campaign; collaborations like Hello Kitty and Pokémon boosted sales.
• Delivery: Delivery sales at ~45% of total sales mix, up from 38% year-over-year, leveraging third-party platforms and own channels.
• Margin and Costs: Restaurant margin improved 60 basis points, cost of sales 50 basis points lower, cost of labor up 90 basis points but offset by other cost savings.

KFC: System sales grew 5% year-over-year, same-store sales grew 1%, restaurant margin expanded by 70 basis points, operating profit grew 10% year-over-year to $292 million. Opened 295 net new stores, with 300 KCOFFEE Cafes added, totaling 1,300. Pizza Hut: System sales grew 3% year-over-year, same-store sales grew 2%, restaurant margin expanded slightly, operating profit grew 15% year-over-year. Reached 3,864 stores with 95 net new openings. WOW stores showed improved profitability and expanded into new cities. Overall: System sales grew 4% year-over-year, same-store sales grew 1%, restaurant margin was 16.1%, 60 basis points higher year-over-year. Operating profit was $304 million, growing 14% year-over-year.

Forward-Looking Statements

• Store Openings: Anticipate ramp-up in net new store openings in H2, targeting 1,600-1,800 net new stores in 2025.
• System Sales: Mid-single-digit growth target maintained for full year.
• Margins: Restaurant margin expected to slightly improve in H2, core OP margin also expected to improve.
• CapEx: Revised down from $700-800 million to $600-700 million due to lower CapEx per store.

Risks Identified

• Delivery Platform Competition: Impact on rider costs and margin, with higher delivery mix leading to increased rider costs.
• Macro Uncertainty: Potential impact on consumer spending and store performance.
• Franchise Mix: Profit contribution of franchise stores vs. company-owned stores and balancing optimal mix.

Q: About delivery impact on Q3 same-store sales and margin A: Joey and Adrian discussed delivery dynamics, SSG challenges, and margin impact considering rider costs and platform subsidies.

Q: Pizza Hut WOW store targets and profitability A: Joey and Adrian mentioned WOW stores are showing improved profitability, opened in new cities, with no specific net new open guidance yet.

Q: Pizza Hut margin improvement potential A: Adrian noted mid-to-long-term margin improvement opportunities in COS, COL, and O&O, with details to be shared at Investor Day.

Q: CapEx guidance and trends A: Adrian explained CapEx cut due to lower per store costs, with trends expected to continue similar to 2025.

Q: Franchise mix decision-making A: Joey explained franchise stores are in lower-tier cities and strategic channels, balancing profit contribution.

Q: Competition and delivery subsidies A: Joey and Adrian discussed learning from past experiences, maintaining balance between sales and margin, and favorable subsidy splits for larger brands.