Thank you, operator. Hello, everyone, and welcome to Yum China's First Quarter 2026 Earnings Conference Call.

With me on the call are our CEO, Ms. Joey Wat, and our CFO, Mr.

Adrian Ding. Before we begin, I will remind everyone that our remarks and investor materials contain forward-looking statements.

These are subject to future events and uncertainties, and actual results may differ materially. Please refer these forward-looking statements together with the cautionary statement in our earnings release and the risk factors included in our SEC filings.

We'll also be talking about non-GAAP financial measures. We encourage you to review the comparable GAAP measures along with the reconciliation of non-GAAP and GAAP measures provided in our earnings release, which is available on our Investor Relations website at ir.yumchina.com.

You can also find both the webcast replay and our PowerPoint presentation on our IR website. Please note that all year-over-year growth rates discussed today exclude the impact of foreign currency, unless we mention otherwise.

With that, I'll now turn the call over to Joey Wat, CEO of Yum China. Joey?

Hello, everyone, and thank you for joining us. Once again, we delivered solid results in a dynamic environment, reflecting the successful execution of our RGM 3.0 strategy, which balances resilience, growth, and moat.

In Quarter 1, revenue grew 10% and operating profit increased 12% in reporting currency, supported by a positive foreign exchange impact. We opened 636 net new stores, more than 1/3 of our full year target, and ahead of schedule.

Even as we accelerated store expansion to capture market opportunities, we maintained a dual focus on same-store sales growth and system sales growth. Same-store sales growth was slightly positive, though rounded to 0.

Same-store transaction grew for the 13 consecutive quarter. Excluding foreign exchange impact, system sales grew 4%, operating profit increased 6%, and operating profit margin expanded 20 basis points year-over-year.

This marks the eighth consecutive quarter in which we delivered growth across all three metrics at the same time. By brand, KFC remained resilient.

Same-store sales grew 1%, the fourth consecutive quarter of growth. System sales increased by 5% and restaurant margins remained very healthy at 19.1%.

Pizza Hut continued to grow in scale and profitability, delivering 18% operating profit growth on top of 27% growth in Quarter 1 last year, both in reporting currency. Same-store transactions grew for the 13 consecutive quarter, while restaurant margins improved 60 basis points year-over-year to 15%.

I would like to say a big thank you to our team for delivering solid results in this fast-changing environment. We maintain a strong dual focus on innovation and operational efficiency.

Let me share a few updates on our key initiatives, and then I will hand it over to Adrian to go through our results in more detail. It always begins with good food and great value.

During Chinese New Year, we offered a wide range of options to cater to both group gatherings and solo diners. At KFC, in addition to our signature golden buckets, we launched classic limited-time offers, LTOs, such as shrimp burger, beef wrap, and wing bucket to drive additional traffic.

Building on last year's hugely successful LTO campaign, crackling golden chicken wings, bo cui jin sha ji chi, became the first new permanent product we introduced during CNY to our menu. KFC's innovative side-by-side modules are scaling rapidly, delivering meaningful incremental sales and profit.

K-Coffee cafes are now in over 2,600 locations and K-Pro in more than 280 locations. K-Coffee cafe generated around mid-single-digit sales uplift and K-Pro around 20% to their parent KFC stores in Quarter 1.

Our consumer insights help us identify consumer needs, and our front-end segmentation and back-end consolidation approach help us meet these needs effectively. By sharing resources with the parent stores, these modules cross-sell existing members and require far lower investment and operating costs, making them attractive business models.

Adrian will provide more updates on these two modules later in the call. At Pizza Hut, alongside our classic super supreme campaign for Chinese New Year, we collaborated with popular IPs like Gander and Butterbear, and launched our signature all-you-can-eat campaign.

In Quarter 1, Pizza Hut accelerated expansion with 207 net new stores. That's nearly half of last year's full year net new openings.

Over 100 new stores used the WOW format, most of them in new cities. Its lower CapEx model and simpler operations, supported by franchisee model, open up opportunities in lower-tier cities.

We also continued to fine-tune the WOW model and enhance the menu, adding signature items from Pizza Hut's main menu while keeping its most popular value items to strengthen both relevance and appeal. Let me now turn the call over to Adrian.

Adrian?

Thank you, Joey. Let me update key highlights by brand.

Starting with KFC, in Quarter 1, KFC system sales grew 5%. Same-store sales increased 1%, marking its fourth consecutive quarter of growth.

Same-store transactions also grew 1%, while ticket average was down 1%. The rapid growth of smaller orders was largely offset by the increased delivery mix, which carries a relatively higher ticket average.

KFC's breakthrough side-by-side modules continue their strong momentum and drive incremental sales and profit to their parent stores. We added around 400 K-Coffee cafes in Quarter 1, bringing the total to over 2,600 locations across all city tiers.

With broader coverage and rising daily cups sold per store, K-Coffee cafe sales more than doubled year-over-year. We expect K-Coffee cafe to keep growing rapidly to unlock further potential, and reach 5,000 locations by year-end 2027, 2 years ahead of our original target shared at our last year's Investor Day.

K-Pro also gained momentum, reaching 280 locations, up from 200 at the end of 2025. While primarily focused on Tier 1 and Tier 2 cities, we're expanding into select Tier 3 cities as well, especially in Eastern and Southern China, where the demand for light meals is stronger.

K-Pro is performing well and showing margin improvement, driven by agile module iteration, including menu innovation and reduced investment requirements. With that, we're raising our K-Pro target to 600 locations by year-end, an increase of 200 compared to our plan shared earlier this year.

Now, moving on to Pizza Hut. In Quarter 1, system sales grew 4% year-over-year, and same-store sales were 99% of the prior year period's level.

This year, CNY took place considerably later than usual. Pizza Hut, as a casual dining concept, saw a modest impact as dining and gathering patterns shifted around the Chinese New Year holiday.

In March, we brought back our popular all-you-can-eat campaign for a limited time. Now, in its fifth year, this campaign has become a signature, attracting consumers to try new dishes, effectively driving traffic and broadening appeal.

Same-store transactions grew 5% in Quarter 1, marking its 13th consecutive quarter of growth. Ticket average was down 5% year-over-year, in line with our mass market strategy and driven mainly by better value-for-money offerings.

Pizza Hut's TA is moving closer to our long-term target range of 60 to 70 yuan, as shared at last year's Investor Day. Even with the lower TA, Pizza Hut restaurant margin expanded by 60 basis points year-over-year to 15.0%.

OP margin also increased by 100 basis points. Efficiency continued to improve at Pizza Hut, as we streamlined store operations, centralized processes, and advanced automation, supported by our strong food innovation, supply chain, and digital capabilities.

Now, moving on to store opening. We accelerated store openings in Quarter 1 to record levels for Yum China, KFC, and Pizza Hut.

With 636 net new stores in the quarter, we're on track to open more than 1,900 net new stores for the full year, and to surpass 20,000 total stores in 2026. Franchisees contributed 42% of KFC and Pizza Hut's net new stores in Quarter 1, helping us capture incremental opportunities in lower-tier cities, remote areas, and strategic locations.

Our franchise portfolio exceeded 2,500 stores at the end of the Quarter 1, up from around 1,800 a year ago. We expect to continue driving store network growth with capital efficiency, and improving our ROIC over time.

Our flexible store models continue to support franchise growth. Pizza Hut's WOW store model is making good progress.

Store counts doubled year-over-year to around 390. In Quarter 1, restaurant margins of new equity WOW stores were already in line with the Pizza Hut's main model.

In addition to standard WOW stores, we're also opening WOW stores side-by-side with KFC, which we refer to as the Gemini model. Nearly 80 WOW openings in Quarter 1 were Gemini stores, mostly in new lower-tier cities and operated by franchisees.

With rising car ownership and the expansion of highway network, we're leveraging franchisees' resources to tap into the growing on-the-road demand. We have already signed franchise agreements with more than a dozen provincial and municipal highway operators, sheng jiao tong, cheng jiao tong, to open stores at their highway service stations.

In just over a year, we added nearly 100 stores and are accelerating the pace this year, while also meeting new customer needs through innovative solutions. Traditionally, drive-thrus require dedicated car lanes.

We expand on this by offering curbside pickup at locations without such lanes, but with pull-over areas, where our crew brings orders straight to consumers' cars. This approach significantly reduces CapEx requirements and gives us the greater flexibility in driving takeaway sales.

Today, more than 7,000 KFC stores offer either the traditional drive-thru or curbside pickup services, up from around 2,000 a year ago. While still early in building awareness and habits, in Quarter 1, nearly 1/3 of drive-thru customers made repeat purchases, showing strong potential and stickiness.

We're partnering with multiple car companies, including BYD, to enable in-car ordering. Select stores will have fast charging stations installed nearby to offer even greater convenience.

Let me now go through our Q1 P&L. System sales grew 4% year-over-year.

Same-store sales grew slightly year-over-year, but rounded down to 100% of prior year levels. Our performance in January and February was broadly in line with our expectations.

March came in slightly softer than expected, as it fell between the Chinese New Year holidays and the additional spring break in several provinces, and compared against last year's strong IP campaigns. Our restaurant margin was 18.2%, 40 basis points lower year-over-year.

The decrease was primarily due to increased rider costs from higher delivery mix, partially offset by improved operational efficiency. Cost of sales was 31.6%, 40 basis points higher year-over-year, mainly due to strong value-for-money offerings.

The tailwind from favorable commodity prices is also less than before. Cost of labor was 26.7%, 100 basis points higher year-over-year.

Rider costs increased year-over-year, driven by the strong growth in delivery sales mix, which went up from 42% last year to 54% this year. Rider costs now accounts for close to 30% of our cost of labor.

The margin impact was 190 basis points, and we mitigate around half of that through in-store operations. Occupancy and other was 23.5%, 100 basis points lower year-over-year, mainly due to better rent and other initiatives to improve operational efficiency.

Our OP margin was 13.7%, 20 basis points higher year-over-year, achieving the eighth consecutive quarter of OP margin expansion. Savings in G&A expenses helped improve OP margins.

Operating profit was $447 million, a first quarter record, growing 6% year-over-year. Net income was $309 million, flat year-over-year.

Excluding our investment in Meituan, net income grew 4% year-over-year. Our investment in Meituan had a negative impact of $9 million in Quarter 1, compared to positive impact of $2 million in Quarter 1 last year.

As a reminder, we recognized $10 million less in interest income in Quarter 1 this year, due to a lower cash balance, resulting from the cash we returned to shareholders, and lower interest rates. Diluted EPS was 87 cents, 7% higher year-over-year, or up 11% year-over-year, excluding our investment in Meituan.

Now, moving on to our 2026 outlook, starting with the second quarter. On sales, we are working hard to deliver positive same-store sales growth, and the 14th consecutive quarter of positive same-store transaction growth.

March, sitting between Chinese New Year and the extra school spring break in April, was slightly softer. However, April benefited from the additional traffic.

Taken together, March and April were broadly in line with our expectations, giving us confidence that same-store sales growth will sequentially improve for Yum China, KFC, and Pizza Hut in Quarter 2. On margins, rider costs remain the biggest headwind.

Although delivery platform subsidies have moderated slightly, we expect delivery sales to continue growing, which means rider cost pressure will persist. That said, the tough year-over-year comparison we faced in Quarter 1 restaurant margin will ease slightly in Quarter 2.

At this point in time, we expect the situation in the Middle East to have limited impact on the cost of sales this year. We have already secured the majority of this year's procurement contracts.

We'll continue to monitor the situation closely and manage our procurement and logistics nimbly. We'll maintain our dual focus on driving same-store sales growth and system sales growth, while keeping our operations efficient.

All in all, we strive to maintain OP margin roughly in line with the prior year period in Quarter 2. As for second half, we expect sequential improvement in year-over-year margin comparisons versus the first half.

With higher delivery sales mix last year, the incremental rider cost pressure should moderate. Our initiatives to optimize operational efficiency and store costs, including rent, labor productivity, capital expenditure, are also expected to support margin expansion.

We're confident in meeting the full year targets for 2026, which are consistent with the ranges we shared at our Investor Day last year, and in February. These include: Same-store sales index of 100 to 102, mid-to-high single-digit system sales growth, high single-digit operating profit growth, double-digit EPS growth, a slight improvement in restaurant margin and OP margin for Yum China.

Additionally, we remain on track to reach 20,000 stores by year-end. In terms of capital returns to shareholders, in Quarter 1, we returned $316 million, with $214 million in share repurchases and $102 million in quarterly cash dividends.

We're on track to return $1.5 billion to shareholders for the full year 2026, around 9% of our current market cap. Of the $1.5 billion, we expect around $400 million to be distributed as dividends and $1.1 billion to be allocated to share repurchases through a mix of systematic and discretionary buybacks.

From 2027, we plan to return approximately 100% of our annual free cash flow after subsidiaries' dividend payments to non-controlling interest. This is expected to be an average of $900 million to $1 billion plus in 2027 and 2028, and exceed $1 billion in 2028 and onward.

With that, let me hand it back to Joey for her closing remarks.

Thanks, Adrian. Let's take a moment to highlight our key growth drivers in Quarter 2 and beyond.

At KFC, our six hero products provide a solid foundation, accounting for around 30% of sales, and are purchased by about 80% of our active members. We keep innovating to drive repeat purchases.

Whole chicken, introduced in 2021, is a great option for at-home consumption and has gained popularity quickly. Sales nearly tripled since 2022, surpassing 2 billion yuan in 2025.

In April, we added aromatic paper-wrapped roasted chicken, xiang zhi zhi bao ji, to the permanent menu after a successful LTO in Quarter 4 last year. This new offering is incredibly juicy, and its simple cooking process ensures the added variety does not increase kitchen complexity.

Pizza Hut also continued to innovate to meet evolving consumer needs. In our latest spring menu launched last week, we introduced over 30 new dishes, about 1/3 of our entire menu.

With this menu revamp, we added new platforms tailored for dine-in sharing and enriched our protein offerings. For example, beef and chicken fajita and shakshuka, a poached egg in spiced tomato sauce.

In May, we are excited to upgrade our hand-tossed pizza with multigrain crust and colorful protein and vegetable toppings, duo gu shou pai cai hong pizza. These innovations not only taste great, but are fun and highly Instagram-worthy, enhancing the casual dining experience.

Beyond serving our existing customers better, we are broadening our addressable market by identifying underserved customers. For example, we now have offerings for customers on tighter budgets.

Through highly selective delivery channels, we offer hearty meals at very affordable prices. KFC's Chinese bun stuffed with mala chicken, xiang la fen zheng ji rou bao.

This bun weighs more than half a pound, is inspired by a popular Sichuan dish, and is the winner of our internal nationwide food ideation competition. Pizza Hut offers Roman-style spicy pasta with sausage, luo ma fen nu la la yi mian.

Both food gains instant popularity. Since our Investor Day in November last year, we continue to be encouraged by the early signs of improving consumer sentiment and more rational competition among delivery platforms.

These are positive developments that we believe will benefit our industry over the mid- to long-term. We are well-positioned for this, supported by our strong brand equity, food that customers love, and a solid set of growth initiatives.

We are confident in achieving our 2026 full year targets and will continue to drive profitable growth and create sustainable value for our shareholders. Now, let me pass it back to Florence.

Thanks, Joey. Now we will open the call for questions.

In order to give more people the chance to ask questions, please limit your questions to one at a time. Operator, please start the Q&A.

Hi, Joey, Adrian, Florence. Thanks for taking my question.

I would like to explore the delivery business a little bit more. Joey, Adrian, you earlier mentioned a bit on this delivery impact.

Can you still elaborate a little bit more for the past few quarters, given still more promotional environment, the positive impact on same-store sales growth versus the negative impact from the competition and the margins? Do we see any changes in the trend in the past 1 to 2 months?

Looking ahead, if as what we expected, the subsidies will be more normalized, and how should we think about the financial impact and what will be our strategies, especially driving more takeaway and the in-store consumption? Thank you.

Thank you, Michelle. I would like to make few points about your question on the delivery topic.

We see early signs of more rational delivery platform competition recently for sure, and we welcome the development and believe that it will benefit our industry over time. Specifically, the reduction in subsidies right now is more pronounced for smaller orders, but only a slight decrease in QSR.

We see platforms increasingly focusing on higher TA orders, which is good for our business relative to the drink business, I suppose. We have been very consistent in the past, last year and now, that we always maintain a disciplined approach.

We balance sales growth, margin protection, and brand integrity. I believe that we are well-positioned for the rationalization of the delivery subsidies.

Going forward, in addition to the disciplined approach, we always look at our operational growth, supported by strong brand equity, food innovation, great value, and many other levers. In my prepared remarks, I talked about the Pizza Hut's new food like fajita, shakshuka, the K-Coffee, K-Pro growth mentioned by Adrian, and also the curbside pickup.

All these are our focus, and we continue to maintain a disciplined approach. Thank you, Michelle.

In addition to that, I guess as to the second part of the question regarding financial impact of the more rationalization of delivery subsidy, as Joey mentioned, we have been very disciplined in taking the delivery subsidy ever since a few quarters ago, and we believe we are among one of the better companies positioned in the industry to kind of enjoy the more rationalization of the delivery environment. I guess as a little conclusion, we reiterate our annual guidance on top line for 100 to 102 on comp sales, which is something we're pretty confident to achieve.

Specific to Quarter 2, as I mentioned in the prepared remarks, we do expect a sequential improvement in our comp sales in Yum China, KFC, and Pizza Hut. More specifically on top line, right, delivery sales growth, we still believe it's a long-term trend, although the subsidy is more rationalized, but still it is growing on delivery mix, we still face some rider cost pressure, and the delivery sales mix will increase, at least in the near future.

In terms of TA, KFC's delivery orders generally have a higher TA, a slower growth in delivery will translate into a slight decrease in TA from the growth in smaller orders. Looking forward, consistent to what we shared in February earnings, we expect KFC TA to either slightly decrease or stay generally stable for the full year.

For Pizza Hut, the delivery TA, which is a bit opposite to KFC, the delivery TA for Pizza Hut is lower than dine-in, a slowdown in delivery sales growth will translate to a more moderate decline in TA for Pizza Hut. Lastly, on the margin front, as we mentioned in the prepared remark, in the second half, given the delivery mix is already a bit higher in the base, the rider cost pressure will moderate.

Hopefully, together with our other efficiency initiatives, that will help better support our margin in the second half. In terms of the second quarter, the pressure is slightly less compared to Quarter 1.

As always, we use a balanced approach to drive sales at the same time to protect our margin and price integrity. Thank you, Michelle.

Thank you, Joey. Thank you, Adrian.

Very clear.

Hi, Joey and Adrian. Congrats on the results despite a very fluid environment.

In fact, the recent sell-off of share price has actually baked in very bearish expectations. After seeing the results, I feel really relieved.

My question is actually on our OP margin guidance. I remember previously we target a largely stable OP margin in Q1, but the actual results saw 30 bps OP margin expansion.

Just now we confirm that in second half we may see easing rider cost pressure given a more normalized base for the delivery sales mix. This, together with a lot of cost-saving initiatives, is it fair to say that compared with our previous guidance of flat to slightly upward trend of OP margins, there actually could be upside risks to our full year margin guidance?

That's my question. Thank you.

Haha.

Thank you, Luo Chen. Take the question on margin.

I think our margin guidance shared in early February was a slight increase in our operating profit margin for the group for the full year. I understand that in the market different people interpret slight increase a bit differently, right?

What is slight? Indeed, in our Quarter 1 earnings, sorry, in the Quarter 4 earnings in early February, we mentioned that OP margin for the group will be generally stable or broadly in line with the same period last year for Quarter 1.

It turned out to be a 20, 30 basis points expansion on OP. It's still, I guess, broadly in line.

As a matter of fact, second half indeed, the rider cost pressure will moderate, right, because the delivery mix is higher in the base. Specifically on the three key line items, I guess after I share some more color, it will be helpful for you guys and for other investors to help put together and refresh your model for the coming three quarters and the year.

For COS, we expect COS to be broadly stable for the group. As you notice that the KFC COS in Quarter 1 is generally stable, right, and Pizza Hut there is an increase in COS.

There are a few reasons. One is that all-you-can-eat campaign, which is definitely great value for money.

Second is, as we mentioned last quarter, we have lot of new menu items which we are still in the process of optimizing the cost. Thirdly, it's because of the higher delivery mix, which results in a higher package cost for Pizza, which is actually a bit more specific to Pizza because for KFC, the package cost is similar between dine-in and delivery.

With that, the COS for Pizza Hut will be between 33% and 34% for the full year, which is a bit higher than last year. However, we still guide a margin expansion for Pizza Hut on restaurant margin and OP margin front, given the tailwind on O&O.

That's on COS for the group, KFC and Pizza. For COL, I think we face consistent headwind on COL because of the delivery mix increase.

We give pretty specific figure on what is the COL pressure due to the increase in delivery mix for the quarter, and I'm sure you can have a reasonably good modeling on the COL for the remainder of the year depending on your specific assumption on the delivery mix. That's on COL, we face headwind.

That will be worse on COL. O&O, we do face tailwind on O&O due to our efficiency initiatives.

On one hand, we will have hopefully better rental, because currently we still, although there is a initial signs of a good turn of the property market or initial sign of stabilization in property market, but still on commercial real estate, it's quite favorable to the merchant as of right now, and we would like to leverage on the opportunity to further optimize our rental. You'll see a little bit of that benefit in Quarter 1.

Hopefully that will come in in the coming quarters as well. Our lower capital expenditure, which results in a better depreciation, that will benefit O&O as well, together with other initiatives, including A&P, etc.

Overall, the annual guidance on margin, which is a slight increase in OP margin for the group, is unchanged. Hopefully we are able and we are confident to be able to deliver that.

I just want to add one comment about Pizza Hut margin, which was very nice for the Quarter 1 this year. It's actually, I think, one of the highest since the turnaround initiatives in 2018.

We've been very consistent with our direction of Pizza Hut turnaround: sales first, profit later. Now it's later.

Later is now for Pizza Hut.

That remark is really impressive. Remember, during the Investor Day, we mentioned a three-year target of 14.5% restaurant margin for Pizza Hut.

Based on the current run rate, seems that we should actually achieve that target earlier than expected.

Slightly. Slightly.

The inflection point was 2024 indeed, because 2024 we feel like sales was in a good position, then we start to really press the accelerator on the margin side, and we're happy to see what we're seeing. Yep.

Thank you, Luo Chen.

Okay. Thank you.

Congrats.

Thank you.

Hello, Joey and Adrian. Thanks for taking my question.

My question is actually on the underlying demand trend, and related to that, the pricing momentum as well. Cuz I think in the release, one important statement was you are still very excited, encouraged by the underlying improvement of consumer sentiment.

With a more moderated subsidy, do we see within merchants, is the competition also getting mild or actually everybody trying to rush up the traffic without as much subsidy from platforms? What's the dynamic of the demand and also competition right now?

Also, on the like-for-like basis, are we seeing chance for some improvement on pricing in terms of the whole industry and also for ourselves? Thanks.

I'll make two quick comments on that, and then maybe Adrian has a bit more color to add. We have shared our view on the improving consumer sentiment since Investor Day last November, and we certainly have observed some stabilization of pricing trend.

Not only we took the pricing, but we also see more players taking pricing. That might be a sign that shows or reflects a more supportive consumer environment.

Right now, the more rational competition among delivery platform is happening, we believe that's constructive for the mid- and long-term as well. Other than pricing, what we still fundamentally believe is still great food and great value.

Without that, pricing is a bit sort of too lonely to be there. Come after the Chinese New Year, now we are seeing really good performance in breakfast.

Breakfast is extremely competitive in terms of pricing, but if you have not tried our Wuhan re gan mian, the hot dry noodles, that are selling really well right now, right now is time because it might go out of stock pretty soon. Then Pizza Hut, we launched the 30 new dishes, the new platform like fajita, which is fantastic value for money and really fun way to eat steak.

Think about Chinese, we sold almost 40 million steak last year in Pizza Hut, but it's more fun to eat the steak in fajita with the sauce and wrap. All these are happening at the same time together with pricing.

It cannot go alone.

I

guess just

one little note to add, which is, Joey mentioned, right, the pricing environment is becoming a bit more favorable, and continue to be encouraged by the improving consumer sentiment. When that translate to TA, obviously, our strategy is to decrease the TA to be even more mass market friendly.

For KFC, as we repeatedly mentioned in the recent earnings, that for this year, we still expect KFC TA to decrease, as actually, I think I mentioned in multiple of investors calls as well that even in a very inflationary environment, with the speed of our innovation right now, the TA may still decrease. That's because of the mix, the blend, not necessarily because of pricing or discounting.

That's just something that I would like to caution, right? The higher growth in breakfast, as Joey mentioned, the higher growth in K-Pro, higher growth in K-Coffee, those are all lower TA compared to the broader KFC business.

The higher growth itself or the mix itself will cause a slight decrease in TA. This is very different from the US market, where the TA represents roughly the inflationary index, but in China here, with innovation, it's a different story.

Yeah. Thank you.

Yeah. Thanks, Joey and Adrian.

That's very clear.

Okay. Thank you, Joey and Adrian.

I have a small question on K-Pro. We see that the K-Pro has performed very well and achieved initial success and raised the extension target.

Could you please elaborate more behind this? Also, is there an estimate of roughly how many KFCs are suitable or have potential for opening K-Pro next to them?

Thank you.

Thank you, Sijie. We are very excited about K-Pro as well, although the model, it actually took 7 years to come to fruition.

As we mentioned in the prepared remarks, we're accelerating the development of K-Pro to about 600 stores. The menu, if you have tried those before, completely different.

There's a very lovely sort of video on the social media. It's not from our company, but I thought that the guy did a good job to talk about the K-Pro story.

The food is a Chinese-style light meal. I like the quote there, it's zi lu, self-discipline, it's not zi nue, it's not self-torture.

The food is healthy, very reasonable calorie, but you're still full, you're not hungry. That's the important.

Then the drink mix is very encouraging as well. We are selling very well with the milkshake.

It's 15% of the business, and this is much higher than the KFC business. With that said, we think the drink business within KFC has a lot more potential.

Come back to K-Pro, the product-wise, very small menu, but, obviously, we are doing something right after learning for 7 years. Then Tier 1, Tier 2 city are doing well, and then we are also testing in Tier 3 cities, and we have some very exciting early results there, we'll continue that.

The result is encouraging. It's adding to about 20% of our sales uplift to the parent store, and the margin is good.

Many, many good things. The best thing among all, is it has incredibly good reputation on food safety.

Other than the food tastes really good, the customer really got it. Our food safety is very trustworthy.

They can feel comfortable about it. That really show our long-term strategic moat for Yum China, our credibility in food safety, and that's something money cannot buy.

It can only be done over 40 years' hard work. This year for 2026, what's the size of business with 600 K-Pro?

Roughly could be up to 1 billion RMB sales, which is nice. Even after the first quarter, we are adding two more stores to our original plan.

Will we accelerate the pace for the second half? We are open-minded about it.

It really depends on the testing of the Tier 3 cities. It's exciting.

We are very grateful that our operation team really live up to the challenge, but we're open-minded about the further growth pace. Thank you.

Thank you, Joey. That's very encouraging.

Thank you.

Good evening, Joey, Adrian. I have a follow-up question on the COL.

Adrian mentioned the pressure will be easing in the second half because of the base. I'm just wondering, is that the case for Quarter 2 as well?

If we just have a longer horizon, the next year or a year after, should we always expect this COL growth to be moderate, and which will be fully offset by the decrease in O&O? Is that what we are trying to achieve when we set the stable restaurant margin target, which means the overall trajectory doesn't really affect how this trend is going?

Thank you.

Thank you, Yushen. In Quarter 2, as we mentioned in the prepared remark, the pressure on COL will slightly ease, but, for Yum China, given there's only one month of delivery subsidy, taking the delivery subsidy in the base, which is the month of June last year.

For the second half, it's the full of the second half that the subsidy was in the base, and the delivery mix was in the base. That's why we say that the pressure was slightly eased.

Overall, I think our margin guidance in the prepared remark for Quarter 2 was we expect a broadly stable OP margin for the group year-over-year for Quarter 2. That's considering the different factors on COS, COL, and O&O.

That's on the short-term. On second half, I think one of the previous response to Luo Chen actually provide quite a bit of details on the line-by-line breakdown.

To your second part of question on long-term margin, at this point in time, we're still quite confident in our guidance shared in Investor Day in November last year, which is for KFC to have a relatively stable margin over the long run, and for Pizza Hut to have a margin expansion to exceeding 14.5% restaurant margin by 2028. I think one of the analysts was making the comment that we might be able to achieve that slightly earlier, which, at this point in time, we don't have a revision in our guidance.

Overall for COL, in general, given the increase in delivery, with or without delivery subsidy, the delivery mix will increase, and the growth will be solid. COL, we will face pressure on the rider front, although the per-ticket cost on rider may decrease.

We hopefully will be able to offset that pressure utilizing the O&O and a bit of COS as well over the mid- to long-run in the next couple of years. Yushen.

Thank you.

Got it. That's great.

Thank you, Adrian.

Thank you, Adrian. This concludes our Q&A session.

Thank you for joining the call today.