Yum China Holdings, Inc. Q1 FY2026 earnings call

• Delivered solid results in a dynamic environment, with revenue growing 10% and operating profit increasing 12% in reporting currency in quarter one, supported by a positive foreign exchange impact. - Opened 636 net new stores, more than one-third of the full-year target. - Maintained dual focus on same-store sales growth and system sales growth, with same-store transactions growing for the 13th consecutive quarter. - For KFC, launched classic limited time offers, K-Coffee cafes in over 2,600 locations and K-Pro in more than 280 locations, and raised K-Pro target to 600 locations by year end. - For Pizza Hut, collaborated with popular IPs, accelerated expansion, optimized WOW model, and the all-you-can-eat campaign became a signature. - Accelerated store openings, with franchisees contributing to capturing opportunities in lower tier cities, and leveraging franchisees' resources for on-the-road demand and innovative solutions like car-side pickup.

In the first quarter, for KFC, system sales grew 5%, same-store sales grew 1%, marking the fourth consecutive quarter of growth, and restaurant margins were very healthy at 19.1%. For Pizza Hut, system sales grew 4% year-over-year, same-store sales were 99% of the prior year period's level, same-store transactions grew for the 13th consecutive quarter, and restaurant margins expanded 60 basis points year-over-year to 15%. We accelerated store openings in the quarter, with 636 net new stores, on track to open more than 1,900 net new stores for the full year and to surpass 20,000 total stores in 2026. Franchisees contributed 42% of KFC and Pizza Hut's net new stores in the quarter, and our franchise portfolio exceeded 2,500 stores at the end of the quarter.

• Second quarter expected to have sequential improvement in same-store sales growth for Yum China, KFC, and Pizza Hut. - Full-year targets 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, slight improvement in restaurant margin and OP margin. - On track to open more than 1,900 net new stores for the full year and surpass 20,000 total stores in 2026. - In 2026, plan to return $1.5 billion to shareholders, and from 2027, plan to return approximately 100% of annual free cash flow after subsidiary dividend payments to non-controllable interest.

• Q: Explore delivery business impact, margin, and trends.

A: Michelle Chang's question was answered with remarks on rational delivery platform competition, disciplined approach, sequential improvement in comp sales, delivery sales mix trends, and margin outlook. - Q: On OP margin guidance.

A: Chen Luo's question was addressed with discussion on margin guidance, COS, COL, and Pizza Hut's turnaround progress. - Q: On underlying demand trend and pricing momentum.

A: Lillian Lu's question was answered with comments on improving consumer sentiment, pricing stabilization, and mix impact on TA. - Q: On K-Pro.

A: C.G. Lin's question was answered with details on K-Pro's development, menu, performance, and expansion potential. - Q: On COL.

A: Ethan Wang's question was answered with discussion on COL pressure in quarter two, second half outlook, and long-term margin guidance.