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.”