Yum China Holdings, Inc. Q3 FY2025 earnings call

• Growth and Resilience: Achieved solid quarter with system sales up 4% Y/Y, same-store sales growth for 2nd consecutive quarter, restaurant margin at 17.3%, and operating profit up 8% to $400M. - Store Expansion: Accelerated store openings with 536 net new stores in Q3, total stores over 17,500, on track to reach 20,000 by end 2026. - Menu Innovation: Hero products like KFC's Crackling Golden Chicken Wings and Pizza Hut's new hand-crafted thin-crust pizza drove sales. LTOs and new growth drivers also contributed. - Delivery and Other Initiatives: Delivery sales accounted for 51% of total sales, up from 40% Y/Y. KCOFFEE and KPRO showed synergy with KFC, with KCOFFEE Cafes at 1,800 locations and KPRO at 100 locations.

KFC: Opened 402 net new stores in Q3, with total stores reaching 12,640. System sales grew 5%, same-store sales grew 2% led by 3% same-store transaction growth. KCOFFEE Cafes expanded to 1,800 locations, daily cups sold per store up 30% Y/Y. KPRO expanded to 100 locations. Pizza Hut: Surpassed 4,000 store milestone in Q3, opened 298 net new stores YTD. System sales growth sequentially improved from 2% in Q1 to 4% in Q3. Same-store sales rose 1% with 17% same-store transaction growth for three consecutive quarters. Restaurant margin improved by 60 basis points.

• System sales growth for Q4 is expected to be mid-single-digit. - Aim for same-store sales growth in Q4 similar to Q3. - Target 12th consecutive quarter of positive same-store transaction growth. - Core OP margin for the 2nd half is expected to be slightly higher Y/Y, but quarter 4 is broadly in line with last year due to tougher year-over-year comparisons. - 2025 CapEx target remains unchanged, with per store CapEx decreasing for both KFC and Pizza Hut.

• Delivery subsidies and the resulting increase in delivery mix have impacted margins. - Higher rider costs from a larger delivery mix pose a headwind. - Tougher year-over-year comparisons in Q4 due to prior year's base benefits.

Q: About delivery subsidies and Pizza Hut strategic review.

A: Joey mentioned observed subsidy changes, maintained balanced approach, and long-term normalization of subsidies. Adrian stated Yum China is independent, confident in Pizza Hut's strength in China.

Q: Macro perspective and same-store sales guidance.

A: Joey noted macro performance in line with expectations, consumers value cautious, and aimed for same-store sales growth in Q4 similar to Q3.

Q: Franchise economics and new formats.

A: Adrian discussed franchise margin progress, slight revision in pricing mechanism, and new formats like KPRO showing incremental sales and profit.

Q: Delivery order mix and rider costs.

A: Adrian explained membership sales contribution mechanics, delivery mix impact on rider costs, and efforts to optimize efficiency.

Q: KFC same-store sales sustainability.

A: Adrian said predicting same-store sales growth is difficult, but working to maintain growth, and KPRO showing incremental benefits.