Yum China (YUMC -6.11%), the company behind KFC, Pizza Hut, and other fast-food brands in China, reported its Q2 FY2025 earnings on August 5, 2025. The biggest news: GAAP earnings per share landed at $0.58, slightly higher than the $0.57 analysts had expected, while GAAP revenue came in at $2,787 million, just below consensus. Despite this modest revenue shortfall, the company posted a record operating profit margin of 10.9% (GAAP) and saw a return to positive same-store sales growth. The period showed strong operational execution and cost control, driving improved profitability even as top-line growth continues at a measured pace.
| Metric | Q2 2025 | Q2 2025 Estimate | Q2 2024 | Y/Y Change |
|---|---|---|---|---|
| EPS (Non-GAAP) | $0.58 | N/A | $0.55 | 5% |
| Revenue | $2.8 billion | $2.79 billion | N/A | N/A |
| Operating Profit | $304 million | $266 million | 14% | |
| Operating Margin | 10.9% | 9.9% | 1.0 pp | |
| Restaurant Margin | 16.1% | 15.5% | 0.6 pp |
Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.
Business Overview and Key Areas of Focus
Yum China operates well-known restaurant chains, primarily KFC (fried chicken, burgers, coffee, and beverages) and Pizza Hut (pizza, pasta, and Western-style dining), along with smaller brands. With nearly 17,000 restaurants as of June 30, 2025, Yum China is the largest restaurant operator in China by unit count. The company’s business depends on fast, broad service and appeals to a wide customer base in both urban and lower-tier cities.
Recent years have seen Yum China focus on four main areas: geographic expansion, digitalization, product innovation, and supply chain efficiency. Key to its success are rapid store growth, a robust digital ordering system (now accounting for over 94% of sales in Q2 2025), creative value-focused menus, and a lean, scalable cost structure. These strategies help respond to a highly competitive and evolving consumer environment in China.
Second Quarter Highlights: Growth, Margins, and Digital Milestones
In Q2 2025, Yum China’s same-store sales growth turned positive at 1% after several flat or negative quarters. This shift came as both KFC and Pizza Hut saw more customers through the door -- KFC notched 1% same-store sales growth, and Pizza Hut same-store sales growth was 2%. The same-store transaction count rose 2% in Q2 2025, marking a tenth straight period of growth. Pizza Hut in particular saw a 17% jump in transactions, although this was offset by a 13% decline in average ticket size in Q2 2025, showing consumer sensitivity to price and the impact of promotional menu bundles. Management attributes the transaction gains to an increase in bundled value offerings and menu upgrades, which have brought in more price-conscious diners.
System sales, which include all company and franchise stores, grew 4% year over year in Q2 2025. This result is within the company’s mid-single-digit growth target for FY2025 but at the low end, given the rapid pace of new store openings. During Q2 2025, Yum China opened 336 net new restaurants, most of which were KFC locations, bringing the total to 16,978 units as of Q2 2025. Of the new stores, 26% came from franchisees, supporting the company’s push toward a more asset-light model and extending reach into new cities and communities.
Operating profit (GAAP) jumped to $304 million in Q2 2025, up 14% from the prior-year period and outpacing revenue growth. Operating margin reached a new second-quarter record of 10.9%, lifting profitability through a mix of food and supply cost savings and more effective operational processes. Restaurant margin, which focuses on direct restaurant-level profit, also improved to 16.1%, helped by lower commodity costs and better occupancy expense management. KFC and Pizza Hut both registered restaurant margin gains, even with rising labor cost pressures, reflecting the impact of digital initiatives and streamlined operations.
A major shift continues in how customers interact with Yum China’s brands. Digital ordering accounted for approximately 94% of total company sales in Q2 2025, with $2.4 billion in digital revenue in Q2 2025 and roughly 560 million registered loyalty members across KFC and Pizza Hut, a 13% increase from the previous year as of Q2 2025. Delivery sales rose 22% year over year in Q2 2025, and now make up approximately 45% of company sales in Q2 2025, bringing both convenience and increased cost due to the need for more delivery staff and infrastructure. The company’s investments in technology, such as the Q-Smart store operations system and enhanced mobile apps, aim to boost efficiency, drive traffic, and grow digital engagement.
Menu Innovation, Supply Chain, and Competitive Landscape
New menu items and value-driven campaigns were central to business momentum. KFC launched the "Crazy Spicy Zinger" sandwich and expanded the KCOFFEE café concept, which now has over 1,300 locations as of Q2 2025. Pizza Hut pushed hand-crafted thin-crust pizzas and broadened its menu to draw in new customers, especially with affordable meal sets and themed toys linked to special events. These initiatives stem from management’s insight that Chinese consumers now look for strong value and emotional attachment in their dining choices.
Supply chain management supported the improvement in margins. Management credited lower food input prices and ongoing automation (such as projects named Fresh Eye and Red Eye) for keeping cost of goods down. Food and paper as a percent of sales fell to 31.0% in Q2 2025, a savings from last year, while Occupancy and other running costs also improved in Q1 2025. But not all costs moved favorably: labor expenses rose to 27.2% of sales in Q2 2025.
The competitive landscape remains intense. Chinese consumers are described as more “rational” in their spending, which means promotions and menu innovation are crucial to attract repeat visits. At the same time, Yum China emphasized its ability to keep growing transactions and membership.
The company again reminded investors of ongoing risks from China–US relations, such as currency fluctuations, tariff impacts, and possible changes in stock listing status. The company has focused on local sourcing to minimize cost risk and continues to diversify supply relationships to weather shifts in regulations.
Looking Ahead: Management Outlook and Investor Watchpoints
Yum China reaffirmed its target of 1,600 to 1,800 net new restaurants for FY2025. For capital expenditures (the money spent on buildings and equipment), the FY2025 target has been trimmed to $600 million to $700 million, reflecting adjustments in store formats and expansion strategy. The franchise mix of net new stores is targeted to reach 40–50% for KFC and 20–30% for Pizza Hut in 2025.
For investors, several trends bear watching in coming quarters. Sustaining positive same-store sales growth remains key, especially as lower ticket sizes at Pizza Hut show how competitive the value segment has become. Delivery sales now drive a significant portion of Yum China’s business, and while this expands reach, it also raises labor costs. The company returned $274 million to shareholders in Q2 2025—$184 million in share repurchases and $90 million in dividends. The quarterly dividend was unchanged.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
