Michelle Cheng • China Renaissance

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CEO Joey Wat explained that Yum China has learned from past experiences in 2017 and focuses on core competencies rather than 'buying sales,' maintaining a balanced approach to protect brand price integrity. CFO Adrian Ding added that for the second half, the company aims for steady same-store sales levels year-over-year and expects higher rider costs due to an increased delivery mix, but plans to maintain stable restaurant margins for KFC and achieve slight improvement for Pizza Hut.

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CEO Joey Wat explained that Yum China is focused on core competencies rather than 'buying sales,' noting 70% of sales are outside third-party aggregators. CFO Adrian Ding added that while predicting same-store sales is difficult, they aim for steady levels in H2 2025. He acknowledged higher rider costs as a headwind from the increased delivery mix but stated the company's margin guidance already incorporates these dynamics.

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CFO Adrian Ding addressed the outlook for the group, reaffirming the full-year guidance for mid-single-digit system sales growth and a steady to slightly improved core OP margin. He noted tougher margin comparisons are expected later in the year. For Pizza Hut specifically, he anticipates margins will slightly improve for the full year 2025, with more significant improvement expected in the mid-to-long run, supported by efficiency gains despite the quarterly shift of the WOW campaign.

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CEO Joey Wat acknowledged some rationalization in industry promotions and pricing, which she views as healthy. She emphasized Yum China's own focus, highlighting that Pizza Hut has reached an "inflection point" with transformed business aspects, strong same-store sales growth, and record new store openings. For KFC, she pointed to continued momentum from wider price offerings, 30% growth in KCOFFEE, and a decade of double-digit delivery growth. Wat concluded that despite being the largest player, Yum China's market share is still relatively small, with significant runway for expansion, particularly in lower-tier cities.

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CFO Adrian Ding noted that consumer sentiment remained cautious post-Golden Week and expects continued top-line pressure, but he is confident in achieving positive same-store transaction growth in Q4. He reiterated that KFC's pricing is expected to be steady, while Pizza Hut will continue its strategy of lowering ticket averages to drive traffic. CEO Joey Wat added that the Pizza Hut WOW model is showing encouraging dine-in sales growth.

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Eason Zhang, an executive, detailed that the same-store sales improvement in China was significant, narrowing from a mid-single-digit decline in Q1 to a low-single-digit decline by the call date, with strength in Tier 1/2 cities. He confirmed franchisee ROI is improving with new store formats. For the U.S., Zhang outlined a strategy of pre-building inventory, diversifying the supply chain away from China, and increasing local sourcing. Regarding YH, he stated it will be consolidated from Q2, with a focus on loss reduction, and noted that the performance of already retrofitted stores is meeting expectations.

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Executive Eason Zhang, translating for Guofu Ye, stated that U.S. growth is driven by network expansion, with H1 same-store sales up 14%. Future U.S. plans involve product localization and operational upgrades. For Europe, Zhang highlighted a strategy focused on upgrading store formats, as seen in the U.K.'s 50% same-store sales growth, and leveraging a strong IP product mix, which now constitutes 49% of European sales.

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Executive Eason Zhang explained that Tier 1 and Tier 2 cities are outperforming lower-tier cities in same-store sales recovery. For the U.S., he highlighted a 30-40% same-store sales growth in the quarter and an annual target of 80-100 net new stores. Regarding the gross margin, Zhang clarified that the chart's negative contribution for China was a weighted-average effect and that the actual gross margin for the region had improved year-over-year. Executive Guofu Ye also commented on flagship store strategy, noting it is still in an early optimization phase.

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