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Date

Feb. 4, 2026, 7 a.m. ET

Call participants

  • Chief Executive Officer — Joey Wat
  • Chief Financial Officer — Florence Lip
  • General Manager, Finance — Adrian Ding

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Takeaways

  • Net New Stores -- Over 1,700 net new stores opened in 2025, bringing the total to more than 18,000 in over 2,500 cities.
  • System Sales Growth -- System sales grew 7% sequentially in quarter four and 4% for the year.
  • Same-Store Sales Growth -- Same-store sales growth was positive for three consecutive quarters and up 3% in quarter four; up 1% for the full year.
  • Operating Profit -- Excluding special items, operating profit increased 11% to $1.3 billion for the year and rose 23% in quarter four year over year.
  • OP Margin -- Full-year operating margin was 10.9%, the highest since the company's U.S. listing, with a 6.6% margin in quarter four (up 80 basis points year over year).
  • KFC Segment -- KFC system sales rose 8% in quarter four and 5% for the year; added 1,349 new stores, nearly 13,000 locations total, with restaurant margin up 50 basis points to 17.4%.
  • Pizza Hut Segment -- Pizza Hut opened a record 444 net new stores, reaching 4,168; operating profit increased 20% for the year, restaurant margin expanded 80 basis points to 12.8%, and OP margin reached 7.9% (highest since 2016); same-store transactions rose 16% for the year.
  • Shareholder Returns -- $1.5 billion returned to shareholders in 2025 (approx. 8%-9% of market cap); $353 million in dividends and $1.14 billion in share repurchases.
  • Dividend Policy -- Quarterly dividend raised 21% from 24¢ to 29¢ per share; annual payout now exceeds 45% of 2025 EPS, totaling about $400 million.
  • Free Cash Flow -- Generated $840 million in free cash flow in 2025, up 18%; ending net cash position stands at $2 billion.
  • Capital Expenditures (CapEx) -- Total CapEx in 2025 was $626 million; guidance for 2026 is $600 million to $700 million.
  • Franchise Mix -- Franchise share of net new KFC and Pizza Hut openings rose from 25% in 2024 to 36% in 2025; target is 40%-50% franchise openings in 2026.
  • 2026 Store Expansion Guidance -- Over 1,900 net new stores planned in 2026, aiming for more than 20,000 total stores with an increased franchise mix.
  • Module Development -- K Coffee Cafe units tripled from 700 to 2,200 and increased daily sales volume per store by 25% year over year; K Pro format surpassed 200 locations.
  • Menu and Product Innovation -- Around 600 new or upgraded menu items were launched annually; at KFC, hero products contributed one-third of sales with high single-digit growth.
  • AI Initiatives -- Q Smart AI operations tool piloted in stores; SmartK AI ordering assistant launched to all KFC super app users, used by 2 million members since rollout.
  • Guidance for 2026 -- Management projects mid-to-high single-digit system sales growth, high single-digit operating profit growth, double-digit EPS growth, and slight improvement in restaurant and OP margins.
  • Dividend and Share Repurchases Outlook -- Commitment to $1.5 billion in shareholder returns in 2026, including a new $460 million share repurchase plan.
  • Emerging Brands -- Lavazza opened 34 net stores (total: 146), achieved over 40% sales growth in packaged coffee products and doubled operating profit; a new "light model" store format was introduced with half prior CapEx per store.
  • ROIC -- Return on invested capital improved to 17.3% from 16.9% in 2024.

Summary

Yum China (YUMC +2.54%) reported expanding system sales, margin improvement, and accelerated shareholder returns for the reported period, with management reaffirming above-trend store growth and robust innovation plans. The company's guidance anticipates a significant rise in franchise-led expansion and projectable profit improvements, even with higher delivery mix and cost pressures. Management highlighted successful product launches, digital innovations, and new store modules as key contributors to both sales and operational efficiencies. Guidance incorporates multiple delivery sector scenarios, but management remains confident in sustaining profitability and capital returns. Fundamentals supporting dividend growth and buybacks rely on stable cash generation and a healthy net cash position.

  • Management said, "Our dual focus on innovation and operational efficiency also boosts our healthy margins," indicating strategic investment across both cost and product initiatives.
  • The Gemini store model, which co-locates KFC and Pizza Hut to optimize resources and reduce CapEx, was flagged as a future margin driver in lower-tier city expansion.
  • Ticket average for Pizza Hut was 69 yuan, down 11% due to the mass market focus, while same-store transactions grew double digits, showing the impact of value pricing on traffic.
  • Joey Wat stated that Q Smart and SmartK AI tools assist with both staff efficiency and personalized customer ordering, underlining digital transformation priorities.
  • Adrian Ding commented, "For the full year 2026, we do believe regardless of the delivery aggregator subsidy dynamics, we do expect that the delivery mix will surge further."
  • New product launches and increased store openings were especially highlighted as drivers of system sales improvement, with year-to-date trading in line with company expectations.

Industry glossary

  • System Sales: Total sales from company-operated and franchised stores, providing a measure of overall brand reach, not just company revenue.
  • OP Margin: Operating profit expressed as a percentage of total revenue, used to assess core profitability.
  • SSG (Same-Store Sales Growth): Growth of sales at stores open more than one year, measuring organic performance excluding network expansion.
  • Payback Period: Time required to recover initial investment in new stores, an efficiency metric for expansion initiatives.
  • Gemini Model: Store model placing KFC and Pizza Hut adjacent, sharing back-end resources to lower cost and facilitate entry into new markets.
  • CapEx (Capital Expenditure): Expenditure to acquire or upgrade physical assets such as new locations, equipment, or technology.
  • K Pro: A healthy, quick-service module within KFC, featuring grain and pasta bowls, smoothies, and a light-meal menu.
  • Wow Format: A streamlined Pizza Hut store model with lower CapEx and a simplified menu, designed for city penetration in previously underserved locations.
  • ROIC (Return on Invested Capital): A measure of the company's profitability relative to total capital invested, reflecting capital efficiency.

Full Conference Call Transcript

Joey Wat: Thank you. Hello, everyone, and thank you for joining us. I would like to start by saying thank you to our team for delivering strong results this year, especially in such a dynamic market. In 2025, we opened more than 1,700 net new stores, taking our total to over 18,000 stores across more than 2,500 cities. Our focus on both system sales growth and same-store sales growth is paying off. Same-store sales growth has been positive for three consecutive quarters. System sales growth improved sequentially in quarter four, reaching 7%. Our dual focus on innovation and operational efficiency also boosts our healthy margins. OP margin expanded year over year in every quarter of 2025, reaching 10.9% for the full year.

It is the highest level since our US listing. Excluding special items, operating profit grew 11% to $1.3 billion for the full year and was up 23% year over year in quarter four. By brand, both KFC and Pizza Hut exceeded our expectations in 2025. KFC's solid momentum continued with system sales growth reaching 8% in quarter four and 5% for the full year. Pizza Hut transformed its menu and operations resulting in 16% same-store transaction growth and 20% operating profit growth in 2025. While we accelerated growth, we also returned $1.5 billion to shareholders in 2025 through dividends and share repurchases, which is around 8% to 9% of our current market cap.

Let me share a few key highlights from our core initiatives, and then I'll hand it over to Adrian to go through our results in more detail.

First, we continue to delight our customers with year-round innovation, launching about 600 new or upgraded items annually. At the same time, we stay laser-focused on our hero products, which are significant drivers of sales and repeat purchases. These items have a loyal fan base that is also highly receptive to the new innovations they inspire. At KFC, our hero innovations include spicy original recipe chicken and crackling golden chicken wings. In 2025, hero products accounted for one-third of KFC sales, and together with their inspired innovations, they delivered high single-digit sales growth. At Pizza Hut, we sold over 200 million pizzas in 2025. The pizza category continued to grow strongly.

Our newest thin crust pizza, Sohu Bao Di, perfectly crispy with plenty of toppings, has earned top reviews and become our best-selling crust. It now accounts for one out of every three pizzas sold and is bringing more customers, especially younger ones, into our stores.

Second, we focus on delivering great value for money and emotional value on top of serving good food. As we shared at our Investor Day, our pricing strategy has been crucial to our success and has helped us deliver 12 consecutive quarters of same-store transaction growth. Total transactions grew 8%, exceeding 2 billion transactions in 2025. Emotional value matters too. Last year, we partnered with 70 leading IPs in gaming, animation, and sports. Whether tied to the latest hits or tapping into childhood memories, these collaborations help us engage customers and capture additional traffic. Beyond themed toys and special packaging, we decorated select stores and pop-up stores to make the experience more fun for our customers.

Third, we capture new opportunities through front-end segmentation and back-end consolidation. Our multi-brand portfolio, diverse modules, and food offerings help us reach more customer segments and serve a wide range of occasions. On the back end, we force the synergies by sharing and centralizing resources in and across stores, regions, and even brands. Side-by-side modules K Coffee Cafe and K Pro are scaling quickly, reaching 2,200 and 200 KFC locations, respectively. They drive incremental sales and profit with light investment. Last year, we also piloted the Gemini model, which places KFC and Pizza Hut stores side by side to support entry into lower-tier cities.

With a CapEx of 0.7 to 0.8 million for a pair of stores, it's a very attractive model for franchisees. We opened around 40 pairs of Gemini stores last year and expect to ramp up openings in 2026.

Fourth, we are adopting an equity and franchise hybrid model to drive faster and more efficient store openings. We see great potential for growth in China. Recently, I visited Chongqing, China's largest city by population, with over 30 million people. In this wide-brand market, I saw a strong appetite for affordable good food. KFC's density there is only four stores per million people, well below the average of 17 in tier one and two cities, or Shanghai's 28. With menu innovation and multiple store formats, we are confident we can continue to expand our market share in China. To capture incremental opportunities in lower-tier cities, remote areas, and strategic locations, we began accelerating franchise expansion in 2024.

The franchise mix of net new openings for KFC and Pizza Hut increased from 25% in 2024 to 36% in 2025. Equity stores remain the core of our business, representing over 80% of our store portfolio. The payback period of our new stores remains healthy at around two years for KFC and two to three years for Pizza Hut.

Last but not least, we are embracing GenAI across our business to drive growth and efficiency. In our restaurants, we are piloting Q Smart, a giant AI assistant that integrates operation data such as labor and inventory. It identifies potential issues, recommends actions, and implements them. For example, Q Smart can detect staffing shortages, propose replacement staff, and initiate calls to them. This helps our RGM save time, make informed decisions, and run restaurants more smoothly. And in January, we rolled out SmartK, our AI ordering agent, to all KFC super app users. SmartK helps customers place orders. This feature has already been used by 2 million members, especially those who order breakfast and coffee.

Customers respond positively to the added convenience and customized suggestions. At our Investor Day in November, we introduced our RGM 3.0 strategy, which takes a balanced approach across all three aspects of resilience, growth, and moats. We also outlined our plans for our next phase of growth, including expanding to over 30,000 stores by 2030. We are confident that we can continue our rapid growth while improving profitability and returning capital to shareholders. Let me now turn the call over to Adrian.

Adrian Ding: Thank you, Joey. Let me now update key highlights by brand. Starting with KFC, in 2025, KFC opened 1,349 new stores, bringing its total to nearly 13,000 locations. System sales grew 5%, and restaurant margins expanded 50 basis points to 17.4%. Same-store sales growth turned positive for three consecutive quarters. In quarter four, system sales growth sequentially improved to 8% year over year. Same-store sales grew 3%, and same-store transactions increased by 3% year over year. Ticket average was flat, as growth in smaller orders was offset by the increase in delivery source mix, which carries a relatively higher ticket average. KFC side-by-side modules are rolling out rapidly.

K Coffee Cafe tripled its footprint from 700 locations in 2024 to 2,200 locations in 2025. While expanding to more locations, we'll also increase per store daily cup sold by 25% year over year. Menu innovation has been key in driving repeat purchases. Last year, we launched a new product every week on average. K Coffee Cafes generated a mid-single-digit sales uplift for their parent KFC stores, and we're confident in this future expansion. K Pro added more than 200 locations in just one year. The slide view concept offers grain and pasta bowls and superfood smoothies.

Backed by KFC's trusted quality and strong value for money, K Pro has resonated well with consumers and generated a double-digit sales uplift for its parent KFC stores. We aim to double K Pro's footprint to more than 400 locations in 2026, focusing on higher-tier cities.

Now moving on to Pizza Hut. In 2025, Pizza Hut opened a record 444 net new stores, raising its total to 4,168 stores. Restaurant margins improved by 80 basis points to 12.8%, bringing its OP margin to 7.9%, the highest level since our 2016 listing. In quarter four, system sales grew 6% year over year, up from 4% in quarter three. Same-store sales grew 1%, positive for the third consecutive quarter. Same-store transactions increased 13%, growing double-digit for the fourth consecutive quarter. Ticket average was 69 yuan, down 11% year over year, reflecting our mass market strategy. Last year, Pizza Hut entered more than 200 new cities. About half of these, around 100 new cities, adopted the Wow format.

We continue to refine the SOAR format and test different service models. The CapEx for a standalone new Wow store is around 0.65 to 0.85 million yuan. With lower CapEx, streamlined operations, and a simplified menu, Wow enables us to penetrate previously untapped locations, especially in lower-tier cities. We saw improving restaurant margins and a solid estimated payback period of two to three years for the new Wow stores, in line with the average new stores for Pizza Hut.

Our emerging brands are also making steady progress. Lavazza opened 34 net new stores, including its first store in Hong Kong, taking its total store count to 146. Same-store sales growth turned positive in 2025, and overall store economics improved meaningfully. Its latest light model only requires 500,000 yuan in CapEx, roughly half the cost of the previous formats. Its retail business of packaged coffee products, the other growth engine, delivered over 40% sales growth and more than doubled operating profit year over year in 2025.

Let me now go through our quarter four P&L. System sales grew 7% year over year, and same-store sales grew 3%. Our restaurant margin was 13.0%, 70 basis points higher year over year, mainly due to improvements in cost of sales and occupancy and other cost ratios. Cost of sales was 31.6%, 30 basis points lower year over year, mainly due to favorable commodity prices and supply chain efficiency gains. We share some of these savings with our consumers in the form of great value for money.

Florence Lip: Cost of labor was 29.4%.

Adrian Ding: 120 basis points higher year over year. While overall rider costs were higher due to a higher delivery mix, we maintained non-rider costs as a percent of sales at relatively stable levels through operational efficiency gains despite wage inflation. Occupancy and other was 26%, 160 basis points lower year over year, mainly due to sales leverage, store CapEx optimizations, and better rent. Our OP margin was 6.6%, 80 basis points higher year over year. Operating profit was $187 million, growing 23% year over year. Net income was $140 million, 22% higher year over year. Excluding our investment in Meituan, net income grew 14% year over year.

Our investment in Meituan had a negative impact of $500,000 in quarter four, compared to a negative impact of $9 million in quarter four last year. As a reminder, we recognized $11 million less in interest income in quarter four this year due to a lower cash balance, resulting from the cash we returned to shareholders and lower interest rates. Diluted EPS was 40¢, 29% higher year over year, or up 21% year over year excluding our investment in Meituan.

For the full year, system sales grew 4% and same-store sales grew 1%. Restaurant margin was 16.3%, 60 basis points higher year over year. Both KFC and Pizza Hut's restaurant margins improved year over year. G&A expenses were 4.9% of revenue, 10 basis points lower year over year. Operational efficiency gains more than offset higher performance-based compensation in the year. Operating profit grew 11% to $1.3 billion. Diluted EPS was $2.51, growing 8% year over year, or 14% excluding our investment in Meituan. Total CapEx was $626 million. Capital efficiency improved, ROIC reached 17.3%, up from 16.9% in 2024.

Let's now turn to capital returns to shareholders. We're on track to return a total of $4.5 billion to shareholders from 2024 to 2026. That is $1.5 billion each year. In 2025, we returned $353 million in cash dividends and $1.14 billion in share repurchases. In 2026, we remain committed to returning $1.5 billion to shareholders. We're raising our quarterly dividend by 21% from 24¢ to 29¢. At 29¢ per quarter, the payout ratio will exceed 45% of our 2025 diluted EPS, with an annual dividend totaling around $400 million. We have also initiated a $460 million share repurchase plan for 2026. With these arrangements, we're well positioned to deliver on our commitment for the year.

Starting in 2027, as outlined at our 2025 Investor Day, we plan to return approximately 100% of annual free cash flow after subsidiaries' dividend payments to noncontrolling interests. And this is expected to translate into an average annual return of $900 million to $1 billion plus in 2027 and 2028, and exceed $1 billion in 2028 and onward. These commitments are supported by our healthy cash position and robust cash generation. In 2025, we generated $840 million in free cash flow, an increase of 18% year over year. I ended the year with $2 billion in net cash.

Now moving on to our 2026 outlook. We're confident we would reach more than 20,000 stores in 2026. This means opening over 1,900 net new stores, with 40% to 50% coming from franchisees for both KFC and Pizza Hut. We will continue to deepen our presence across China, especially in lower-tier cities and strategic locations, using a variety of store formats. With lower CapEx per store and a higher franchise mix, we expect the total CapEx to stay in the range of $600 million to $700 million this year. As for other financial metrics, we expect our growth in 2026 to be consistent with our three-year guidance shared at our Investor Day.

That is thanks to our sales index of 100 to 102, mid to high single-digit system sales growth, high single-digit operating profit growth, double-digit EPS growth, and a slight improvement in restaurant margin and OP margin for Yum China. As activity on delivery platforms remains dynamic, we have factored in different scenarios and are confident that the impact on our businesses will be limited due to our balanced and disciplined approach. Our full-year projections are based on our current plans and have not assumed any changes in macro. Any improvement would represent potential upside. We will continue to track the progress of our new store openings, module development and rollouts, and other core initiatives and provide updates as we go.

For quarter one, we're working hard to deliver our fourth consecutive quarter of positive same-store sales growth and thirteenth consecutive quarter of positive same-store transaction growth. Our margins face a tough year-over-year comparison. First, rider costs are the biggest headwind, driven by a higher delivery sales mix. Delivery mix increased from 42% in quarter one to 53% in quarter four last year and is expected to grow further. Second, the benefit from lower commodity prices will be smaller than before. Additionally, last year's base already reflected significant benefits from Project Freshii and Redeye.

KFC's restaurant margin was already 19.8%, and Pizza Hut's restaurant margin improved 190 basis points year over year in quarter one last year, setting a high base for quarter one this year. We'll focus on efficiency and sales leverage and strive to maintain Yum China's restaurant margin and OP margin roughly in line with the prior year period in quarter one. With that, let me pass it back to Joey for her remarks on the Chinese New Year.

Joey Wat: Thank you, Adrian. Let me share a few thoughts on the Chinese New Year, our key trading window of the year. Chinese New Year falls on February 17, considerably later than in most years. Our teams have prepared comprehensive scenario plans by the week and even daily. People will soon be traveling and gathering for the holiday season. Our brands are focusing on their signature products to capture the heavy traffic during Chinese New Year while maintaining strong operational efficiency. At KFC, buckets have long been our Chinese New Year signature, offering exciting food and abundant value.

This year, in addition to our classic golden bucket and wing bucket, we are introducing for the first time peanuts and sunflower seed mini buckets. These packaged snacks honor Chinese tradition and help create a festive Chinese New Year atmosphere. At Pizza Hut, we are focusing on one of our hero products, the super supreme pizza. This time, we are adding new choices by pairing it with our classic Bolognese and trendy salted egg yolk toppings. Customers can also top up the pizza with a mountain of crunchy potato chips and rich sauce. These offerings are available in combos designed for family and friend gatherings and to drive ticket average.

Overall, for this Chinese New Year, we are executing according to our plans. Trading year to date has been in line with our expectations. With that, I would like to wish everyone a happy and prosperous year of the horse. Now let me pass it back to Florence.

Florence Lip: Thanks, Joey. Now we will open the call for questions. In order to give more people the chance to ask questions, limit your questions to one at a time. Thank you. We will now begin the question and answer session. On your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from the line of Michelle Cheng from Goldman Sachs. Please go ahead, Michelle.

Michelle Cheng: Hi, Joey, Adrian, Florence. Congrats for the very strong results and ending 2025 with these impressive numbers. My question is about pricing. We noticed that you raised the delivery price recently, and earlier, we also hear some other brands are raising the price. So can you comment on your expectation on the pricing trend, including any changes in your end market promotion activities? And how this will be reflected in the same-store sales growth, especially since we should have a pretty easy base for the first quarter on both same-store sales growth and overall sales last year first quarter.

And separately, if I may, regarding delivery mix, we noticed that delivery mix increased quite a lot, but the margin is still pretty good. So unlike other kinds of catering businesses, which have been suffering from higher delivery mix and lower margin, and for Pizza Hut, we even see payroll cost is down in the fourth quarter. So can you still elaborate a little bit more on how we should think about 2026 delivery mix and impact on the margin? Thank you very much.

Joey Wat: Thank you, Michelle. Let me take the pricing part, and Adrian can answer the second one. The price increase for KFC was a mild adjustment. It only affects the delivery menu, and it has no change to dine-in and takeaway. And we also did not make any change to the signature campaign, such as the Crazy Thursday or the Weekend Buy More, Save More. And the price increase helped absorb some rider cost increase because of the higher delivery mix. With that said, we remain committed to offering great value for money, something we have done for a long time. And therefore, we are very committed to it. And that was thoroughly discussed in our Investor Day.

Together, with our good food and emotional value, the primary goal of our business, of our commitment, is still to drive traffic. So we are still targeting the thirteenth consecutive quarter of same-store transaction growth and fourth quarter of same-store sales growth in quarter one. And so far, the trading has been in line with our expectation. So overall, in the short term and long term, I hope this demonstrates our confidence in our business model. Adrian?

Adrian Ding: Yeah. Sure. Michelle, on your second question regarding margin outlook and also the delivery mix, I guess very briefly on delivery mix outlook for 2026. We do expect further increase in mix for delivery. For full year 2026. I mean, our delivery growth has been pretty solid for the past more than ten years. And for the past one year, given the dynamics in delivery aggregators, our growth has been particularly high, which has proven a pretty big surge in the delivery mix. I think from 42% last year to around 48% for the full year 2025. So it's a pretty significant increase.

For the full year 2026, we do believe regardless of the delivery aggregator subsidy dynamics, we do expect that the delivery mix will surge further. And in terms of the margin impact on Yum China and the two brands, as we mentioned in the prepared remarks, we expect the full-year restaurant margin and OP margin to slightly improve year on year, and we are confident to achieve and deliver that. Specifically on two brands. For KFC, we expect the full-year restaurant margin to remain relatively stable year over year. It's already a very healthy level.

And as you may recall, during our Investor Day three months ago, we actually gave a long-term guidance for KFC's restaurant margin, which is to be relatively stable over the long term as well at a healthy level. For Pizza Hut, we expect the full-year restaurant margin to slightly improve from 2025's level, with streamlined operations offsetting higher delivery costs and a higher base year over year. I would like to reiterate that for quarter one specifically, we face a tougher year-on-year comparison. As we mentioned in the prepared remarks, there are different factors that we mentioned in terms of meaningful delivery mix increase, and thereby the rider cost increase correspondingly.

And also, the tailwind from favorable commodity prices gradually reduces. And also, the quarter one last year is a really high base, KFC's restaurant margin being as high as 19.8% and Pizza Hut's restaurant margin improved by 190 basis points year over year in quarter one last year. So both brands have a really high base. And, obviously, our guidance for the quarter one margin being kind of stable has accounted for the price increase on delivery platforms for KFC. And lastly, I think you asked about how do we understand each line of the key cost line items for full year 2026. For COS, cost of sales, we expect it to remain relatively stable.

There will be a tailwind from commodity prices, but the tailwind will be smaller, and we will pass good value for money to our consumers. For COL, cost of labor, obviously, we face continued headwind from the higher rider cost as a result of the higher delivery mix expected for this year as well. And we aim to maintain the non-rider cost stable, offsetting the low single-digit wage inflation with more streamlined operations. And lastly, on O&O, occupancy and other costs, we continue to explore optimization opportunities and expect O&O as a percent of sales to keep improving year over year for the full year 2026. This is supported by store CapEx optimization and better rent.

So, hopefully, that addresses your question. Thank you, Michelle.

Michelle Cheng: Thank you so much, Joey and Adrian, and we wish you a great Chinese New Year.

Joey Wat: Thank you. Thank you.

Florence Lip: Thank you. We will now take our next question from Chen Luo from Bank of America. Please go ahead, Chen.

Chen Luo: Hi, Joey, Adrian, Florence. Congrats again on the strong result. In fact, today is in China, and for those foreign investors, it actually stands for the first day of spring. So China consumption has been in winter for too many years. And our strong result has, fortunately, brought us a touch of warmth. And my question is more on the sales side. I noticed that our SSG has actually edged up higher in Q4 versus Q3. Despite the fact that the online delivery subsidy intensity has eased a little bit quarter on quarter. What have we done differently to boost SSG in Q4?

And, also, as we are already into the on the constant currency basis, pre-COVID season, can you actually share with us some color on the year-to-date trading environment? I understand that we have the calendar distortion. So any comparison based on the calendar will be helpful. And lastly, I noticed that for SSG, for the system sales and revenue growth, usually, in previous quarters, revenue growth would be slower than the system sales growth. But in Q4, both numbers came in around 7%. How to reconcile the Q4 pattern versus the previous few quarters? That's all my questions. Thank you.

Joey Wat: Thank you. Let me make a comment on the trading in Chinese New Year, and Adrian can tackle the numbers. So overall, the customer sentiment, as we mentioned at our Investor Day, we are seeing or we continue to see early signs of improving consumer sentiment, which is good news. With that said, Chinese New Year is a very key trading window. Heavy traffic concentrates into several days, and it creates a very significant challenge to operation. So we need to balance sales initiatives with operational efficiency as wages are higher, much higher during the public holidays. Point two is the Chinese New Year this year, as you mentioned, is considerably later than most years.

And we actually have yet to reach the peak trading. We call it in Chinese. So we are climbing up the mountain, but we have not reached the peak yet. So it's slightly a bit early to make any big comment. So all we can see right now while sales are ramping up, year to date, trading has been in line with our expectation. And last but not least, we will continue our strategy to drive traffic, sales, and profit growth for the quarter, all three at the same time. We target to deliver our fourth consecutive quarter of positive SSG and thirteenth consecutive quarter of positive transaction growth, as I mentioned earlier. Adrian?

Adrian Ding: Sure. The second question regarding the comparison between revenue growth and system sales growth, yes, normally, system sales growth should be slightly higher than revenue growth. And that's mainly caused by the higher growth of the franchise business contributing fully to the system sales but only roughly half to the revenue. And sometimes you do see similar figures or even the same figure for the growth of the two metrics. That's partially also due to rounding as well. But going forward, I think, generally speaking, we do expect a slightly higher system sales growth than revenue growth if we kind of disregard the rounding factor in it. So, hopefully, that addresses your question, Chen.

Joey Wat: And also, the system sales growth, when we open a lot of stores during the last quarter, it helps the number, particularly the quarter four is slightly smaller one.

Chen Luo: Got it. Thanks again. And congrats.

Joey Wat: Thank you. We will now take our next question from Lillian Liu from Morgan Stanley. Please ask your question.

Lillian Liu: Hello. Can you hear me?

Joey Wat: Yes, we can.

Lillian Liu: Okay. Hey, Joey, Adrian, and Florence. Congrats again. I have one question on Pizza Hut sales momentum. Because obviously, KFC still delivers very strong momentum in the fourth quarter, higher than Pizza Hut's trend. And I recall on the Investor Day, 2026 onwards, major sales growth will be mainly driven by actual growth, actually, will be mainly driven by Pizza Hut, which should be growing at a faster rate than KFC. So would like to understand, in particular, for 2026, what kind of incremental measures management plan to implement to drive up the Pizza Hut revenue or system sales momentum? Which could be higher than KFC. Thank you.

Joey Wat: For Pizza Hut, first of all, our core business continues to drive very nice growth, and in 2025, you will see we actually entered more than 200 cities. And this is a very big number for Pizza Hut. And that was helped by the Pizza Hut model, which alone entered into more than 100 cities. Because for a long time, Pizza Hut city penetration was stuck at 900 cities. But now we are in over a thousand cities. And 2024 was the year we shared that we feel that Pizza Hut has reached the inflection point. So 2024 was nice growth, 2025 with the help of a Pizza Wow store, also grew very nicely. So that's one way.

And the other one I would like to mention is some additional color on the product. So it's worth trying. If you have not tried yet, it's a handcrafted thin crust pizza. Sohu Bao Di pizza. The new crust was really amazing. And within a very short time, it accounts for one out of three pizzas sold. And this is a very big number. So now we have a good variety of pizza crust choices, the thin crust, the pan, the hand-tossed, and stuffed crust. And for those who spend a lot of time at Pizza Hut, you will know that doing pizza crust is the real deal. It's much harder than doing the topping.

And the other product I would highlight is the burger. We have been selling burgers for more than a year now, and it's a mid-single-digit of our sales mix. So from the module to the key products, these are very exciting growth drivers for 2025, and it will continue into 2026. And I think I'll pause here. Thank you, Lillian.

Lillian Liu: Okay. Thank you.

Joey Wat: Thank you. We will now take our next question from Anne Ling from Jefferies.

Anne Ling: Hi. Thank you, management team. A couple of questions here. So I would like to check first regarding the company mentioned about the like, you know, expanding or ramping up in year 2026. The Gemini stores. So just wanna check whether we will have to figure, like, you know, how much more Gemini store do we plan to open. And you mentioned that, you know, that is a new format, you know, on the franchising, which is called equity franchise model. I'm just wondering whether it means that Pizza Hut will sorry. I mean, Yum China will be investing in the franchise model. And if you can elaborate on that.

And the second question is on the new coffee format as well as the K Pro. What is our plan for year 2026? And whether, like, you know, this attribute to, like, you know, same-store sales growth, you know, how much is attributable to same-store sales growth in year 2025? Thank you.

Joey Wat: Again, I'll take the first question. Adrian, you can pick the second one. Thank you, Anne. So GEMINI, so the side-by-side, KFC small town, and Pizza Hut Wow Store is a pair with their own separate entrance and counter. However, on the back, we share the in-store resources, the staff, equipment, rent. It's particularly effective to enter lower-tier cities. And the CapEx is good. It's only 0.7, 0.8 million yuan for a pair. So very attractive for franchisees. And the sales are sort of the lighter version of the chassis small town and the lighter version of Pizza Hut Wow. So we would like to control the average payback estimate at about two years.

The menu will continue to be even simpler. So KFC menu will be similar to the small town, and Pizza Hut's menu is probably only about 20% to 25% of the regular menu. And we expect the margin contribution will be incremental. And it's still early stage. We only have 42 pairs right now. Very small number, and we're testing it. But we do expect the Gemini model to improve its OP margin of our franchise business in the long term. And that's sort of the most updated progress of the Gemini store. Adrian?

Adrian Ding: Yeah. Sure. Anne, I think you have a small question between the first one and the second one, which is what is the equity franchise hybrid model? Just to clarify, that is not a particular store model. It's like, basically means the acceleration of franchising initiative for Yum China. So, you know, in the future, we'll become a business, shifting from an equity-focused business only to a hybrid of equity franchise business. So that's not a store model. Just to clarify on that one. And then your second question is basically regarding K Coffee Cafe and K Pro.

You know, as we mentioned, K Coffee Cafe contributes mid-single-digit incremental sales to the parent KFC store, and K Pro, which is a reasonably new initiative, I mean, the K Pro model now is quite different from the older K Pro two years ago. Right? So, you know, this new version of K Pro, we opened more than 200 new locations in the year 2025. And it's contributing double-digit incremental sales for the parent store with incremental profits. But given it's only 200 locations or slightly more than 200 locations out of 13,000 for the store count for KFC, you could imagine the K Pro contribution to the same-store sales growth for KFC is rather limited.

Similar for K Coffee Cafe, actually, because if you think about K Coffee as a whole, the menu mix for K Coffee and K Coffee Cafe altogether is roughly, you know, we mentioned previously, roughly 4% of KFC's menu mix. So, you know, the K Coffee Cafe alone is even smaller. But we do have high hopes for both these two modules, you know, when they grow bigger and bigger, when they have more locations, they will represent higher contributions to the same-store sales growth of KFC. Thank you.

Joey Wat: Thank you.

Florence Lip: Thank you. We will now take our next question from the line of Christine Peng from UBS. Please ask your question.

Christine Peng: Thank you, management, for the opportunity to raise questions. So I have two questions. So firstly is about K Pro. So, Adrian, can you provide us more details in terms of the economics of the K Pro model such as ticket value, the margin profile? And most importantly, if you can provide some details in terms of the customer profile, you know, the kind of differentiation from the major format of KFC. I think that'll be very helpful to understand the module in the longer term. I think the second question is about the Pizza Hut launching burger. You know, the question for Joey is that what's the management rationale behind this?

Because, obviously, this is mostly targeted maybe, like, a single person menu. And in terms of the product differentiation, pricing strategies, what are the differentiations from the KFC burger offering, and what's gonna be, you know, the longer-term development strategy for this category going forward. Thank you.

Joey Wat: Christine, for the K Pro, we plan to double the number of stores in 2026. So from 200 plus to at least 400. And it offers a very good value for money for the light meal with very strong food safety as a brand. And the menu is very distinct. It just needs to cross the border and try in Shenzhen. We have quite a few of those in Shenzhen. It offers energy bowls and smoothies. Smoothies are doing incredibly well there. In terms of the format, whatever I can say is, again, it's consistent with our corporate strategy of front-end segmentation and back-end consolidation.

So it has its own counter and space for seating space for customers, but we share the KFC store space. Membership, equipment, resources, you name it. And here's some interesting sort of context for the customer. A significant portion of customers, namely could be as high as 80% or 90% of our sales, are from KFC members. This is a great example of how our membership program is really helping our long-term and short-term business. So it's an alternative for KFC members and that's right frequency. The frequency so far is very pleasing to us because it gives very little psychological burden to people for the light meal option, I guess.

And, also, you can imagine the office location works really well for the K Pro. So we are hopeful for that.

And then let me move on to Pizza Burger. We offer that for over a year now. And it's different from KFC burger. It's different in both ways. The pizza burger, the bun, is freshly made in the store with the same pizza crust dough, if that makes sense. So you can probably understand why we are doing burgers because we have this lovely dough. We can make pizza dough, we can also make burgers. But why not? It tastes really good. And then with very high-quality meat, and there are two flavors, which are fantastic. It's the burger with pineapple, fresh pineapple, and also Bolognese sauce. Which is quite creative. Why Bolognese sauce? It's pizza sauce.

It's a sauce that customers really love. It's classic. So we have this category, this new product called burger. And you are absolutely right. It works very well for the single person's offering. And we can see the single person meal is an opportunity for Pizza Hut. Right now, the base is low, but for 2025, that one-person meal is growing at 50%, five zero. For Pizza Hut? It's lovely. So we continue to do a bit more of that. And let's see what 2026 will bring us. But, again, it's still early days. It's only one year. We'll continue to learn and do better for our customers. Thank you, Christine.

Christine Peng: Thank you, Joey.

Florence Lip: I'll take our next question from Ethan Wong from CLSA. Please go ahead, Ethan.

Ethan Wong: Good evening.

Joey Wat: So my question is on the delivery Sorry. Ethan, you might want to speak louder. We have a hard time hearing you.

Ethan Wong: Sorry about that. Good evening. Yes. It's Joey. And yeah. Hi. So the question is on the delivery strategy.

Joey Wat: Thank you, Ethan. That's a good question as well. So as we have observed over the last ten years trend, as Adrian mentioned earlier, the delivery continues to grow. So we continue to expect it to grow in 2026 too. But at the same time, I'm with you too. Dine-in and takeaway will still continue too. If I look at Pizza Hut, the takeaway, for example, 2025 takeaway percentage compared to 2019, it almost doubled. And I want to go more for takeaway. Takeaway is a good business. But at the same time, dine-in is still an important part of our business. For KFC, dine-in is still about 30%, and Pizza Hut is over 40%, about 45%.

So it's still a very important part. And we still believe that the business will still be there in the long term. But at the same time, we are not judgmental. We basically embrace whatever the customer preference in terms of delivery, takeaway, and dine-in. And we strive to serve them well in all three channels. And then we'll balance the cost structure to do the best we could. So, yeah, we are really open-minded, and we'll do our best. But dine-in will continue. And in the lower-tier city, would dine-in be slightly higher to a certain extent in a sense that the ticket average, the big family consumption still is a Gansu.

But one last thing is, you know, how do we balance the growth of delivery while the growth of delivery continues, we protect the margin. As you can see, we have done it. But at the same time, we have new growth drivers such as or means, like, customers right now, we see growing in terms of car ownership. Right? The car ownership is growing. And then the business related to that is growing too, and then we will deliver the food closest to the customer's car. And that is growing nicely. Now we have over 4,000 plus KFC stores that have what we call car-side pickup.

So we are doing a variety of the business to balance the sales growth. Thank you, Ethan.

Ethan Wong: Thank you, Joey.

Florence Lip: Thank you. Our final question for today comes from Sijie Lin from CICC. CICC.

Sijie Lin: Thank you for the last question. Thank you, Joey and Adrian. So my question is on the delivery platform subsidy. We know it's very dynamic, but could you provide a sense on how should we evaluate the trend and impact in 2026? And will the platform competition mitigate? What measures will we take to attract customers back to our own channel? Thank you.

Adrian Ding: Thank you, Sijie. So on delivery subsidy dynamics, as we mentioned in the prepared remarks, we have different scenario planning for the subsidy, how that evolves. And regardless of the scenario would be, we believe and we're confident that the impact on our business will be limited. Because of our disciplined approach to drive sales, at the same time to protect margin and price integrity. And at the same time, and that's kind of the short-term horizon. The long-term horizon is we do believe this whole delivery aggregator subsidy, as we previously mentioned, it's good for the merchants, especially the larger merchants in the long run. Because the merchants have the choice of working with multiple parties.

And, also, you know, we can obviously take the opportunity to secure some long-term benefits, you know, during the subsidy war. So, that's a response on both the short term and long term. And, you know, I think the natural question has always been on margin. And as we demonstrated in the previous quarters, we were able to protect our margins, actually, even slightly increase our margin. And that's why we're confident to give the guidance for the full year 2026. We have an improvement in restaurant margin and OP margin for Yum China slightly. But, you know, I would like to caution again. Sorry to repeat myself.

For quarter one, we faced a tough comparison, and our guidance for quarter one is to stay roughly in line for restaurant margin, operating margin year over year for quarter one. Thank you, Sijie.

Florence Lip: Thank you, Adrian. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.