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Yum China Holdings, Inc. (YUMC)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered record profitability: operating profit rose 14% YoY to $304M and OP margin expanded 100 bps to 10.9%, with restaurant margin up 60 bps to 16.1% .
  • Revenue grew 4% YoY to $2.787B, while diluted EPS increased 5% YoY to $0.58; EPS was roughly in line with consensus and EBITDA modestly beat, but revenue was slightly below Street .
  • Guidance: net new stores maintained at 1,600–1,800 for 2025 and CapEx revised down to $600–$700M (from $700–$800M), reflecting lower CapEx per store; management reiterated mid-single-digit system sales growth and expects company restaurant and core OP margins to moderately improve for FY 2025 .
  • Strategic and demand drivers: delivery sales grew 22% YoY to ~45% of total sales, digital sales reached $2.4B with 94% digital ordering, and membership expanded to ~560M; management emphasized balanced use of delivery platforms to drive top-line while protecting margin integrity .

What Went Well and What Went Wrong

What Went Well

  • Record margins and profits: “We delivered double-digit growth in operating profit and substantially expanded our margins… OP margin… record high for the second quarter” .
  • Same‑store sales and transactions: SSS turned positive at +1% with 10th consecutive quarter of same‑store transaction growth; system sales growth improved sequentially to +4% .
  • Brand execution: KFC resilient (system sales +5%, OP +11% to $292M, OP margin 14.0%) and Pizza Hut sustained momentum (SSS +2%, OP +16% to $46M) with successful product innovations (Crazy Spicy Zinger; upgraded thin‑crust pizza) .

What Went Wrong

  • Delivery mix cost headwind: rider costs as a % of sales increased due to higher delivery mix; cost of labor rose 90 bps YoY to 27.2% despite operational efficiencies .
  • Ticket average pressure: strong growth in small orders lowered average check; KFC ticket average is expected to decline slightly YoY in 2H despite mix effects .
  • Interest/investment impacts: net income growth was muted (+1% YoY to $215M) due to lower interest income and negative mark‑to‑market equity investment impact (~$14M vs +$6M last year) .

Financial Results

Company P&L – Sequential and YoY

MetricQ4 2024Q1 2025Q2 2025
Total Revenues ($USD Billions)$2.595 $2.981 $2.787
Operating Profit ($USD Millions)$151 $399 $304
OP Margin (%)5.8% 13.4% 10.9%
Restaurant Margin (%)12.3% 18.6% 16.1%
Net Income ($USD Millions)$115 $292 $215
Diluted EPS ($USD)$0.30 $0.77 $0.58

Q2 2025 Actuals vs Street (S&P Global)

MetricConsensusActual
Revenue ($USD Millions)2,796.4*2,787
EPS ($USD)0.5829*0.58
EBITDA ($USD Millions)421.0*427

Values retrieved from S&P Global.*

Segment Performance

Segment MetricQ1 2025Q2 2025
KFC Revenues ($USD Millions)2,246 2,096
KFC Operating Profit ($USD Millions)386 292
KFC OP Margin (%)17.2% 14.0%
KFC Restaurant Margin (%)19.8% 16.9%
Pizza Hut Revenues ($USD Millions)595 554
Pizza Hut Operating Profit ($USD Millions)60 46
Pizza Hut OP Margin (%)10.1% 8.3%
Pizza Hut Restaurant Margin (%)14.4% 13.3%

KPIs

KPIQ4 2024Q1 2025Q2 2025
Delivery Mix (% of Company Sales)39% FY; KFC/Pizza Hut ~42% in Q4 ~42% (KFC & Pizza Hut company sales) ~45% (Company sales)
Digital Sales ($USD Billions)$9.6 FY $2.6 $2.4
Digital Ordering (% of Sales)90% FY ~93% ~94%
Membership (Millions)~525 >540 ~560
Net New Stores (Units)534 247 336
Store Count (Units)16,395 16,642 16,978

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net New StoresFY 20251,600–1,800 1,600–1,800 Maintained
Franchise Mix of Net New StoresFY 2025KFC 40–50%, PH 20–30% (multi‑year trajectory) Same; meeting ahead of schedule in 2025 and to moderately increase within ranges over next few years Maintained/Accelerating execution
Capital ExpendituresFY 2025~$700–$800M ~$600–$700M (lower CapEx/store) Lowered
System Sales GrowthFY 2025Mid‑single digit (implied) Mid‑single digit reiterated Maintained
Restaurant Margin & Core OP MarginFY 2025N/A“Moderately improve” FY; 2H stable to slightly up YoY (company), KFC stable, PH slight improvement Raised qualitative outlook
Capital Returns2025–2026$3B plan maintained $3B plan reiterated; at least $1.2B in 2025 (including $510M 2H repurchases) Maintained
DividendQ3 2025Possible quarterly dividend notice Declared $0.24/share payable Sep 23, 2025 Confirmed

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024)Previous Mentions (Q1 2025)Current Period (Q2 2025)Trend
AI/digitalizationProject FreshEye/RedEye elevated efficiencies; digital ordering 90% FY KCOFFEE Cafe at 1,000; continued AI and robotics mentions AI Day; 100M RMB Frontline Innovation Fund; “Q‑Smart” AI assistant pilot at KFC Scaling AI initiatives across ops
Delivery platforms & rider costDelivery contribution rising; margins improving despite value-for-money Delivery ~42% (KFC/PH); balanced approach Delivery ~45% (Company); platform subsidy war; rider cost as % sales higher; margin protection emphasized More platform activity; disciplined participation
Ticket average & mixSequential SSS index improvement KFC ticket average down 4% YoY; mass market strategy TA under pressure from small orders; KFC TA expected slightly down YoY in 2H Mix shifts lower TA; focus on transactions
CapEx per storeN/ACapEx/store: KFC ~1.5M RMB; PH ~1.2M RMB CapEx/store reduced (KFC ~1.4M RMB; PH ~1.1M RMB); FY CapEx lowered Efficiency gains reduce CapEx
Pizza Hut WOW modelEarly transformation progress New WOW stores in lower‑tier cities; healthy margin expansion ~20+ WOW stores; converted store profitability improving; new store CapEx 650–850k RMB; margins “satisfactory” initially Expanding footprint; margin trajectory improving
Franchising strategyFY plan to increase mix Franchising to gradually reach KFC 40–50%, PH 20–30% Mix ahead of schedule; rationale: lower‑tier cities and strategic high‑traffic channels Acceleration in targeted formats

Management Commentary

  • CEO: “We turned same‑store sales growth positive while expanding our store portfolio to nearly 17,000 locations. We delivered double‑digit growth in operating profit and substantially expanded our margins. KFC stayed resilient and Pizza Hut sustained its momentum” .
  • CFO: “OP margin was 10.9%, 100 bps higher YoY, driven by improved restaurant margin and G&A… Effective tax rate was 25.8%, primarily due to increased cash repatriation… We expect to return at least $1.2B in 2025” .
  • CEO on delivery platforms: “We have adopted a balanced approach… drive the top line, protect the margin and preserve the price integrity of our brands” .

Q&A Highlights

  • Delivery platform subsidy war: Management participates selectively; larger brands receive favorable splits, but emphasis remains on not “buying sales” and maintaining price integrity; 2H margin guidance incorporates delivery dynamics .
  • Pizza Hut WOW model: Converted stores’ profitability improving across COS/COL/O&O; new stores opened in cities with no presence; CapEx 650–850k RMB with satisfactory early margins; longer‑term quantitative guidance expected at Investor Day .
  • Ticket average trajectory: KFC TA supported by delivery mix in Q2 (+1%), but expected to decline slightly YoY in 2H as small orders grow (e.g., beverages, breakfast) while preserving margins .
  • CapEx guidance change: Lower CapEx per store (KFC ~1.4M RMB; PH ~1.1M RMB) drove FY CapEx down to $600–$700M without altering net new store targets .
  • Franchising focus: Incremental stores in lower‑tier cities and strategic channels (e.g., high‑speed rail, tourist sites) where franchisees have site access advantages .

Estimates Context

  • Q2 results vs consensus: EPS $0.58 was effectively in line with $0.5829*, EBITDA beat ($427M vs $421M*), revenue slightly missed ($2,787M vs $2,796M*), suggesting stronger margin execution offset modest top‑line underperformance .
  • Forward read: Management reiterated mid‑single‑digit system sales growth and expects FY 2025 restaurant and core OP margins to moderately improve, which may bias Street margin/EPS assumptions upward even if average ticket trends soften due to small‑order mix .

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Margin quality is the quarter’s standout: record OP margin (10.9%) and double‑digit OP growth driven by food/occupancy savings and G&A discipline, despite higher rider costs .
  • Top‑line was steady but below Street by a narrow margin; mix shifts to small orders are pressuring average ticket, necessitating continued focus on transaction growth and delivery economics .
  • FY 2025 guide de‑risked on CapEx (cut to $600–$700M) with unchanged store expansion, supporting higher free cash flow trajectory and robust capital returns (≥$1.2B in 2025; $3B over 2025–2026) .
  • KFC resilience and Pizza Hut transformation continue: K Coffee expansion (1,300 locations) and WOW model rollouts broaden addressable markets and lower entry CapEx, underpinning medium‑term margin and growth optionality .
  • Delivery platform intensity is a watch‑item; management’s balanced strategy and platform negotiations mitigate margin risks, but rider costs will remain a headwind as delivery mix stays high .
  • Near‑term: Expect steady SSS levels and stable-to-slightly improving margins in 2H, with seasonal volatility in Q4; focus trading on updates to margin trajectory and any signs of small‑order mix normalization .
  • Medium‑term: Investor Day (Nov) is a catalyst for longer‑term margin targets (especially Pizza Hut) and AI/digital roadmap; execution on franchising in lower‑tier cities and strategic channels can accelerate unit growth with lower capital intensity .