Yum China Holdings (YUMC) Q2 2017

Micky Pant – CEO

Growing delivery sales

“On previous calls we have highlighted our growing strength in digital and delivery and we have continued to make progress in this vital strategic frontier. With over 4900 restaurants offering delivery service total delivery sales in the quarter reached $200 million which is about 13% of our total company sales.”

Towards cashless payments in china

“Mobile payment represented about 40% of our total company sales and cashless payment reached a record of $900 million in Q2 alone…If you now come to China and visit a KFC you will be surprised of the number of people not standing in line but actually ordering on their phone just like you would at an airport where you check in at a machine.”

Jacky Lo – Interim CFO, VP, Controller and Principal Accounting Officer

Looking for solid same-stores growth

“we expect our labor inflation to continue in the high single digit range and commodity inflation to be in the low single digit….in order to cover our inflation and maintain our margin, we need solid same-store sales growth….on the commodity price or specifically chicken price, commodity inflation was 4% during the second quarter and the rate peaked at 4.5% in the first quarter, this came out to 4% in the second quarter and we expect it to continue to moderate throughout the rest of the year.”

Yum China 2Q17 Earnings Call Notes

Micky Pant

Same store sales +3%

“Our second quarter results continue to illustrate strong performance of Yum China with overall same-store sales growth up plus 3% and systems sales up plus 7% before foreign exchange translation. KFC delivered strong performance with same-store sales up plus 4% and Pizza Hut same-store sales were flat with a year ago. Operating profit increased sharply plus 64% to $143 million primarily aided by the benefit of retail tax reform and same-store sales leverage. On a fully diluted basis our EPS was $0.27 up 29% year-on-year.”

Dining experience changing very rapidly

“in-store is also mobile and that the actual the experience is changing very rapidly at mobile. If you now come to China and visit a KFC you will be surprised of the number of people not standing in line but actually ordering on their phone just like you would at an airport where you check in at a machine. And also Alipay, WeChat have been very good at expanding their networks and promoting it well. As a result of that we believe China is far ahead of anybody else in terms of mobile payment. Obviously, when you pay through mobile you capture data, there is all that convenience. So the delivery has always been significantly mobile led but now large part of their retail dining experience is also going through mobile so exactly on the margin.”

Jacky Lo

7% wage inflation

“There were several factors that impact our second quarter financial results that will probably continue through the rest of the year. First, is restaurant labor inflation. Our wage inflation was 7% and commodity inflation was 4% during the second quarter. While wage inflation is an inevitable challenge in the restaurant business, we will continue to find better ways to schedule our crew and streamline operating efficiencies and processes. As for commodity inflation, we expect the rate to moderate through the balance of the year and we are maintaining our guidance of low single digit inflation for the full year.”

Yum China 4Q16 Earnings Call Notes

Micky Pant

7500 restaurants in China

“Over the past three decades and you can see on slide seven, we have built an unrivaled national presence and today we have over 7,500 restaurants across 1,100 cities in China. There are more KFCs in China than in any country in the world, including the United States.”

Rapid adoption of digital impacting dining experience

“In China today, the rapid adoption of digital technology by consumers is impacting many aspects of the dining experience, from store and menu selection, to payment and feedback. Digital technology is transforming every step of the customer journey and we’re taking steps to make this a competitive advantage to drive sales.”

Not a single country where digital adoption higher than China

“I have not, from the experience around the world, seen a single country where the adoption of digital technology is at a higher level than China. It’s extraordinary how people’s lives revolve around digital technology. And particularly impressive is the transition of almost over two years from zero credit card or anything other than cash to suddenly, in some stores, cashless payment being a majority of our sales. So I think that this rapid increase has been two factors, one is the adoption by technology by customers in general, outstanding technology partnerships like WeChat Pay or AliPay and we have been their lead partners in expanding it. I’m very optimistic that that number will continue to grow. And then of course, it’s being driven on the back of all the great work that Joey and the team have done on digital marketing in general which links the customer experience with the ability to pay. But you go to stores in China now and regularly, you will see people paying with their cell phones in a variety of retail formats. So we expect that to continue to grow and we’re encouraged by it.”