2022-05-04 05:54Financial Data and Key Metrics Changes - Total revenue for Q1 2022 grew 4% to $2.7 billion, driven by new store openings and consolidation of Hangzhou KFC, despite same-store sales decline and temporary closures [27][28] - Same-store sales were 92% of the prior year's level, with KFC at 91% and Pizza Hut at 95% [28] - Restaurant margin decreased to 13.8%, down 490 basis points year-over-year, primarily due to higher commodity prices and wage inflation [29] - Net income was $100 million, with diluted EPS of $0.23, impacted by a $30 million mark-to-market loss on equity investments [33] Business Line Data and Key Metrics Changes - KFC same-store traffic was at 86%, while average ticket grew by 6% due to increased delivery mix [28] - Pizza Hut's same-store traffic was at 97%, but average ticket decreased by 2% due to a higher mix of delivery [28] - New retail sales more than doubled compared to the prior year period, indicating strong demand for packaged products [12] Market Data and Key Metrics Changes - Eastern China, accounting for 30% to 40% of store and sales mix, was severely impacted by COVID, with many cities under lockdown [34][35] - Non-manufacturing PMI dropped from 48 in March to 42 in April, indicating weak consumer spending [36] Company Strategy and Development Direction - The company remains focused on its RGM strategy to fortify market leadership and capture growth opportunities across brands [23] - Plans to expand Taco Bell's store network to at least 100 stores by the end of the year and 225 by 2025, indicating confidence in long-term potential [43] - The company is adjusting marketing strategies and optimizing costs to navigate the challenging environment [40] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in long-term prospects in China despite current challenges, emphasizing the importance of agility and cost control [23][39] - The company expects to operate at a loss in Q2 2022 unless external conditions improve significantly [39] - Management highlighted the importance of community purchasing and digital capabilities in adapting to the current environment [64] Other Important Information - The company opened 329 net new stores, ending the quarter with over 12,000 units [27] - The Board of Directors expanded the share repurchase authorization by $1 billion, totaling $2.4 billion [44] Q&A Session Summary Question: Impact of COVID on industry supply and small chains - Management noted that the resilient business model of Yum China has allowed it to capture significant sales even during lockdowns, differentiating it from competitors [47][48] Question: Trends in Eastern and Southern China - Management indicated that Eastern China is performing better in terms of same-store growth despite the COVID situation, with lower-tier cities showing resilience [58][70] Question: Membership sales trends - Management clarified that a healthy mix of new customers and membership sales is essential, and a slight decline in membership sales percentage is not a concern [76] Question: Store expansion strategy - Management confirmed that the disciplined approach to store expansion remains unchanged, with a focus on maintaining strong economics and payback periods [80][81] Question: Community purchasing model - Management expressed that community purchasing has proven effective during lockdowns and will be considered for future operations, showcasing the company's agility [105]