Thank you, operator. Hello, everyone, and welcome to Yum China's Third Quarter 26 Earnings Conference Call.

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

Adrian Ding. Before we begin, please note 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 to the cautionary statement in our earnings release and the risk factors in our SEC filings.

We will also discuss non GAAP measures. The comparable GAAP measures and reconciliations are in our earnings release on ir.yumchina.com.

You can also find the webcast replay and the presentation there. Please note that all year over year growth rates exclude the impact of foreign currency, unless otherwise mentioned.

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

Hello, everyone, and thank you for joining us. In quarter 3, we continued to grow sales and profit year over year.

In reporting currency, revenue grew 8%, operating profit grew 13%, and diluted EPS grew 20%. Partially supported by favorable foreign exchange impact.

Excluding foreign exchange impact, system sales grew 3%, year over year in quarter 3, and continued to outperform the catering industry. Core operating profit grew 6%, year over year.

We also achieved our 10th consecutive quarter of system sales, operating profit and OP margin growth. Importantly, we have delivered double digit diluted EPS growth year to date and in each of the past 3 years.

Excluding the Meituan investment. In quarter 3, same store sales reached 97% of the prior year's level.

Primarily reflecting tough lapping from last year's delivery platform subsidies. And the impact of extreme weather this August.

With our due focus on innovation and operational efficiency, restaurant and OP margin improved 50 and 40 basis points year over year. Respectively.

This margin expansion demonstrates the resilience of our business. And the disciplined execution of our teams in mitigating the self deleverage impact.

It was also partially supported by license fee savings following the Pizza Hut brand acquisition in Mainland China. We delivered our 15th consecutive quarter of positive same store transaction growth.

A key element of our growth strategy. Our breakthrough side by side modules are helping us capture new occasions and drive incremental sales.

We also continue to build our brand and attract more customers to our stores through compelling in store offers and experience. As well as greater takeaway convenience.

Dine in and takeaway performance improved sequentially bucking the previous trend. Active members grew 6%, year over year to 278 million.

And our goal is to engage them across even more occasions. We also continue to accelerate new store openings.

Adding close to 700 net new stores in quarter 3. A new quarterly record.

Total store count was 20 thousand keeping us on track to surpass 20 thousand stores this year. Thanks to our team's strong execution and innovation.

We delivered solid operational efficiency. Which was particularly important this quarter.

We proactively review our store portfolio to reduce rent, and lowered delivery rider cost on a per order basis. We also improved supply chain efficiency through menu innovation together with dynamic promotions.

This allows us to offer great value for money to consumers. To ease the burden of our frontline team, we have been automating and digitizing certain tasks.

And shifting some to our operation support center. By combining frontline operational experience with AI enabled intelligence, The center supports inventory replenishment.

Staff scheduling, as well as recruiting training, and online customer service for our restaurant team. All of these efforts have contributed to our margin expansion and will continue to support our growth going forward.

Our innovative side by side modules have become meaningful contributors to incremental sales and profit. Their store economics have also improved.

KCOFFEE Cafe exceeded 4 thousand locations. The Apple Sparkling Americano sold more than 1 million cups per week during the peak summer season.

Non coffee drinks more than tripled year over year in quarter 3 with the addition of the popular Mango Pomelo Sago and sparkling tea. KPRO surpassed 700 locations.

We expanded the menu to broaden its appeal. Developing sandwiches, as another sales growth pillar alongside energy boost.

We also introduced high protein smoothies, which have been particularly popular with certain consumer segments. And have generated strong repeat purchases.

KPRO is now in around 250 cities, demonstrating solid potential for further growth. Pizza Hut burger bar reached more than 300 locations in 50 cities.

Contributing double digit incremental sales and meaningful profit to parent stores. Overall, Pizza Hut burger category captured new customers especially young people and solo diners.

With sales growing in the high double digit percentage year over year in quarter 3. As side by side modules help us capture new occasions, our hero products anchor our strong fundamentals.

Inspiring innovations to drive sales and social buzz. In August, KFC launched the intriguing Oreo original recipe chicken burger.

A new twist on last year's original recipe chicken burger. With cocoa bun, and creamy Oreo blended sauce.

Trust me, it does taste pretty good. On its first day, we sold more than 1.5 million burgers, roughly 3x the launch day sales of the original recipe chicken burger last year.

At Pizza Hut, pizza is our hero category. Accounting for over 40% of sales.

We sold 17% more pizza year over year in the first 9 months. In August, we launched the exciting handheld pizza, SOLO Pizza, targeting solo diners and on the go occasions.

Made with our latest low sugar multigrain cut and available with a variety of toppings. It offers a high protein option under 500 calories.

The handheld pizza drove strong repeat purchases and attracted younger customers helping us tap into the emerging light meal market. Let me now turn the call over to Adrian.

Adrian?

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

Starting with KFC. In quarter 3, KFC opened over 500 net new stores.

And exceeded 14 thousand total stores. System sales grew 3%, year over year, and operating profit grew 4%, year over year.

Same store sales index was 97% of the prior year's level, Same store transactions grew 3%, year over year. Ticket average was down 5% to 36 yuan.

The rapid growth of incremental smaller orders from new customer segments and locations such as KCOFFEE and KPRO, was partially offset by the increased delivery mix which carries a relatively higher ticket average This offset was less than in the first half. Due to slower year over year delivery mix growth KFC's restaurant margin improved by 10 basis points year over year.

As efficiency gains more than offset sales deleveraging. This once again demonstrates our resilience and strong execution.

Moving on to Pizza Hut. In quarter 3, Pizza Hut added nearly 209 new stores.

With total stores surpassing 4.7 thousand across 1.3 thousand cities. System sales grew 1%, year over year.

Operating profit grew 21%, year over year. Partially supported by Pizza Hut license fee savings previously payable to Yum brands.

Same store sales index was 97% of the prior year's level. With transactions up 5%, year over year.

The 15th consecutive quarter of growth. Ticket average was down 8% year over year to 65 yuan, in line with our mass market strategy.

Primarily driven by value for money offerings and incremental smaller orders such as those from solo diners. Pizza Hut's restaurant margin improved by 190 basis points, or up 30 basis points year over year excluding the license fee savings.

Streamlined operations and automation more than offset higher cost of sales. Let me now go through our quarter 3 P&L.

System sales grew 3%, year over year. Mainly driven by store growth.

Same store sales index was 97% of the prior year's level, against a tough comparison from last year's delivery platform subsidies. Having accounted for the later start of the summer holiday, July was broadly in line with our expectations.

August was more challenging than expected. More frequent adverse weather impacted consumption, particularly in East China.

1 of our strongest markets. Delivery subsidies also scale back faster than expected.

We step up our efforts and the sales index sequentially improved in September Our restaurant margin was 17.8%, up 50 basis points year over year. Occupancy and other improvements more than offset higher cost of sales and labor.

Cost of sales was 31.5%, up 20 basis points year over year. Mainly from better value for money offerings and investment in our new modules.

Including KCOFFEE Cafe, K Pro, and Burger Bar. Cost of labor was 26.5%, up 30 basis points year over year.

Rider costs remained a headwind. Although the impact moderated from the first half to 30 basis points this quarter We kept non rider costs relatively stable, with efficiency gains offsetting wage inflation and sales de leveraging.

Occupancy and other was 24.2%, down 100 basis points year over year Helped by these renegotiations, more favorable rent in lower tier cities, and other efficiency initiatives. Pizza Hut license fee savings also contributed 30 basis points of year over year improvement.

OP margin was 13.0%, up 40 basis points year over year. Operating profit was $451 million, growing 6% year over year.

Net income was $311 million, up 3% year over year or flat excluding the Meituan investment. Our Meituan investment had a positive impact of $1 million in Q3 compared to a negative impact of $8 million in Q3 last year.

As a reminder, we recognized $16 million less in interest income in quarter 3 this year due to a lower cash balance resulting from the cash we returned to shareholders. Lower interest rates, and more interest expense to fund the Pizza Hut deal.

Diluted EPS was $0.91. up 12% year over year.

or 8% excluding the Meituan investment. Following the completion of the Pizza Hut brand acquisition, Pizza Hut was no longer subject to license fees resulting in around 30 basis points benefit to both restaurant and OPM in quarter 3 Net of interest and financing expenses and taxes the acquisition was accretive to diluted EPS.

by around $0.02 in quarter 3. Let's turn to store openings.

In the first 9 months, we opened a record 1.89 thousand net new stores. We are entering new cities and adding store density in existing cities to better serve the customers.

With our dual focus on system sales growth and same store sales growth. Over half of our new stores were opened in new cities, strategic locations, or trade zones with no dine in or delivery coverage.

With nearly 20 thousand stores, spanning Tier 1 to Tier 7 cities, a tiered market playbook is essential. We develop store formats for lower tier cities.

Including KFC Small Town, Pizza Hut WOW, and the KFC and Pizza Hut Gemini formats. These formats accounted for more than half of the new stores opened in lower tier cities this year.

We also introduced a tailored menu at KFC for select low tier cities to better match consumer needs in these markets. It is a simplified menu featuring our signature products alongside specially designed items, deliver excellent value for money.

Food is mostly made to order, to fit that lifestyle in smaller cities. Our new stores remain healthy a payback period of around 2 to 3 years.

With a lower store opening hurdle and more flexible store formats with better suited menus. We see significant opportunities across city tier, Accordingly, we are raising this year's net new store target from 1.9 thousand to over 2.4 thousand.

With more than 20.5 thousand stores expected by year end, we are moving closer to our goal of 30 thousand stores by 2030. Now moving on to our 2026 outlook.

Let me start with sales. We are working hard to deliver an improvement in same store sales index in quarter 4, despite its higher base.

While we continue to face tough comparisons from last year's delivery subsidies, we exited quarter 3 with better momentum in September. And October was broadly in line with our expectations.

In November, the autumn school break is slightly more broad based than last year. Which will provide some tailwind.

Overall, we are confident in delivering our 16th consecutive quarter of positive same store transaction growth. Moving on to margins.

Before considering the impact of the Pizza Hut deal, we expect OP margin to be relatively stable year over year for Yum China in quarter 4. We expect rider cost pressure to moderate and our efficiency and cost initiatives to support margins, including rent, labor productivity, and CapEx.

As a reminder, quarter 4 is seasonally lower in sales and profit. So sales volatility could have a more potent profitability impact.

The Pizza Hut deal will have a full quarter benefit in quarter 4. It is expected to contribute around 50 to 60 basis points of incremental restaurant OP margin to Yum China.

The Pizza Hut deal is expected to be accretive to quarter 4 diluted EPS. Looking ahead to 2027,, we are confident in delivering both sales and profit in line with the 3 year growth algorithm outlined at our Investor Day last year.

As we continue to accelerate store openings, we are targeting 0% to 2% same store sales growth on a full year basis in line with our Investor Day target. We will provide more details on our 2027 plan when we report our quarter 4 earnings in February.

In terms of capital return to shareholders, we plan to return $1.5 billion to shareholders in 2026, around 10% of our market cap. In the first 9 months, we returned $1.018 billion, including $778 million of buybacks and $302 million of dividends.

In quarter 4, share repurchases will be around $315 million. or about 20% above the average quarterly run rate in the first 9 months.

From 2027,, we remain committed to returning around 100% of our annual free cash flow after subsidiaries' dividend payment to noncontrolling interest. This is expected to be about $900 million to $1 billion-plus on average in 2027 and 2028.

And exceed $1 billion from 2028 onwards. Our capital return program reflects the confidence in the long-term earnings power of our business.

With that, let me hand it back to Joey for future growth drivers and closing remarks.

Thank you, Adrian. As we expect sales growth to pick up over time, let me walk you through our key growth drivers.

In quarter 4, we will continue our side by side module rollout and hero product innovation which have proven effectively. We are also focusing on bringing customers back into stores First, our side by side modules tap into large fast growing categories, such as light meals and burgers.

where our trusted brand, national store network and supply chain give us a natural advantage. KCOFFEE Cafe is well on track to exceed 5 thousand locations by the end of 27.

KPRO is set to surpass 850 locations by year end with plans to reach 1.5 thousand locations by 2027. We aspire to be a market leader in China, promising and underserved light meal market.

Burger Bar is set to exceed 500 locations by year end, doubling to 1 thousand by 2027. This helps us build awareness of Pizza Hut's burger category while driving incremental traffic and sales targeting over RMB 1 billion in total burger sales at all Pizza Hut stores and the burger bar this year.

This is around 5% to 6% of Pizza Hut sales. Second, our hero product platforms Chicken Wings, Zinger, original recipe chicken, whole chicken, egg tots, and their extensions represent close to 30 billion RMB or 40% of KFC's, annual sales.

They provide a strong foundation for efficient product innovation. Every quarter, we launch something new and exciting.

Driving repeat purchases and attracting new customers. Third is to drive dine-in and takeaway.

Our nearly 20 thousand stores across China give us a strong platform We are enhancing in store offers the dining experience, and convenience to attract customers to our stores Building on our strong brand equity, we are also strengthening brand loyalty. Here are some examples.

At KFC, car-side pickup has expanded to over 9 thousand stores, targeting over 10 thousand stores by year end. In addition to drive thru, options like door side pickup, and curbside pickup significantly improved customer convenience and investment efficiency.

So far, over 12 million members have used these services in 2026,, with strong repeat purchases. We target this business to reach RMB 1 billion in sales this year.

At Pizza Hut, the late September autumn menu upgraded over 20 items. In addition to beef and chicken fajita, we add pork, shrimp, and dual protein options.

The new menu also includes global flavors such as tteokbokki, a Korean style rice cake dish, with melted cheese and grilled pork. These items suit dine in and bring new customers into stores.

Taken together we are building brands designed to deliver sustainable growth not just for quarter 4. Now a few words about the strategic benefits of owning the Pizza Hut brand in Mainland China.

In addition to increasing net new openings to 800 stores annually in 2027 and 2028. Brand ownership also allows us to move more quickly on growth opportunities such as Burger Bar.

Additionally, we are tapping into incremental opportunities such as the retail business with greater flexibility. We see potential to broaden both categories and distribution channels.

Beyond our existing pasta and steak offerings, we are also exploring new product categories Distribution will extend beyond e commerce and our own restaurants to offline channels. Including modern trade.

Overall, owning the brand give us greater flexibility and agility in unlocking Pizza Hut's long term growth potential in Mainland China. To wrap up, while the market remains dynamic in the near term, our fundamentals are strong, and we are confident in our long term growth.

We estimate return on equity of around 19% this year. This is clear evidence that our growth is capital efficient.

On a 3 year basis, we remain committed to the growth algorithm aligned at our Investor Day. We are laser focused on execution Put simply, execution is growth.

Now let me pass it back to Florence.

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

To give more people a chance to ask questions, please limit it to 1 question at a time. Operator, please start the Q and A.

Please Hi, Joey, Adrian. Congrats again for the consistent growth, the market expansion, and market share again.

As we know, the environment is very challenged. And also, you, Adrian, talk about the same store sales, you know, thoughts.

But still want to explore the exact. The relationship, but the but among the same store sales, store expansion, and margin a bit more.

So given the. These volatile consumption sentiment and also the very fluid weather condition, so how do we see or how confident do we see the same store sales growth?

And especially, we see. We continue to accelerate the store expansion.

So do we really see some dilution on the same store sales? But on the flip side, we actually continue to see the margin expansion.

So at the end, should we shall we just not look at same store sales volatility in the near term, but still have decent room for these cost optimizations to drive profit growth. So as a result of the priorities, actually, growth, and we.

No matter same store sales is up low in the short term, we are still confident to see the profit growth. So just want to understand the relationship between these 3 factor.

Thank you.

Thank you, Michelle. I think there are 3 points here.

The same store sales growth, store expansion, and then the consumer sentiment. And I will leave the profit question to Adrian.

Same store sales growth. As we mentioned in the prepared remarks, Michelle, we face tough lapping from delivery platform subsidies.

Last year and more frequent adverse weather in 10 consecutive quarter. And of course, for our shareholder our year to date diluted EPS growth is double digit.

Following double digit EPS growth each year in the past 3 years. So it has been a long term commitment.

And on top of that, the same store transaction growth, which is the absolute key in our business, grew for the 15th consecutive quarter it is a very, very important element, if not the most important element of our growth strategy. We continue to build our brand and attract more customers back to our store through compelling in-store only offers and experience.

Of course, the bigger takeaway convenience So therefore, dine in and takeaway performance improve sequentially. Bucking the previous trend We will continue to drive that change over time.

1 last bit about the SSSG is as someone clever say, sales is a vanity. Profit is sanity.

And we, of course, want a bit of both. But if we must, do the trade off, we tend to focus on the profit.

Slightly more. With that said, we are still working very hard to deliver a sequential improvement in the same store sales index in quarter 4 despite its high base and we remain confident in delivering the 3 year growth algorithm in 2027 as mentioned by Adrian in the prepared remark.

Now come to the store opening. We are both entering new cities and adding store density in existing cities.

To better serve customers. We have due focus on system sales, and same store sales growth.

Over half of our new store openings will open in new cities new strategic locations, or trade zones with no dining or delivery coverage. To mitigate the cannibalization.

However, naturally, there is some sales transfer that may impact the same store sales growth, but it is in important to recognize that we are driving incremental sales and profitable growth while protecting the margin. Point 3 about the consumer sentiment.

We continue to see improvement improving trends and believe that some volatility along the way is normal. The sequential improvement is September retail sales, compared with August is encouraging.

As I mentioned in my prepared remarks, the certain consumer occasions have been growing very nicely. And rapidly, like meals and burgers.

Consumers are willing to spend when offer innovative product experience with strong value for money. We also continue to see significant opportunities from the ongoing chainification.

The chain restaurant penetration in China is still relatively low, but has grown from 20% to 30%. But it is still low compared to 60% in other mature market.

Last but not the least, we continue to see some stabilization in pricing trend with more players becoming more rational on discounts and even taking price. Reflecting a more supportive consumer environment.

Adrian?

Thank you, Joey. Michelle, I guess to the part of the question on margin, you are kind of right that our margin performance has been very resilient.

Despite there were some challenges on comm sales. And, indeed, you know, a lot of credit to the team.

On, you know, the strong execution. As Joey mentioned in the prepared remark, execution is growth.

Specifically on margin, I will briefly comment on quarter 3 and then addressing your question regarding know, the near term outlook. On quarter 3, obviously, as you noted, from our earning release, O&O's improvement more than offset some slight increase in COS and COL.

And among the online items, obviously, thanks to project Sacral that we mentioned previously in our earnings. Rental has a good improvement.

And this quarter, our rental get to approximately 8%. You know, we do not normally externally disclose our exact rental for store, but, you know, this is a key milestone you know, that reaches slightly below 8%—approximately 8%— for the first time.

You know, ever since our listing back in 2016. AMP, there is slight improvement as well as president of sales.

Given our efficiency improvement there. And, also, there is some contribution by the Pizza Hut transaction.

And as I mentioned in the prepared remarks, that contribution is roughly 30 basis points of sales. So that is on quarter 3.

If you look at near term or speaking of 2027, as Joey pointed out, we are still quite confident to achieve 0% to 2% of comp sales in 2027. In line with our Investor Day guidance.

And specific on margin. Right?

If you think about c o. COS, COL, and O&O, for all the 3 lines, I will provide a bit more color in February or any, but I will just give their high level, preview.

Kind of preview on these line items. For COS in 2027, we think it will be broadly stable for the group.

Obviously, for Pizza Hut, it may slightly improve over the broad roughly 34% level for this year as we previously guided. And for COL, you know, if you think about the delivery sales mix, it will be broadly stable as of you know, similar to this quarter of 54% or only slightly up.

So the overall pressure on rider will be moderate next year, right, compared to this year when we are not in last year. And lastly, when you think about O and O, the Project SACCO impact on rental will be a structural impact that will still benefit next year as well.

And we will still enjoy some benefits on depreciation. And probably a little bit on AMP.

So overall, let me get back to our Investor Day guidance. You know, we think our restaurant margin for KFC will be broadly stable.

That was similar. That was consistent to what we guided back last year in our Investor Day.

And for Pizza Hut, before considering the Pizza Hut transaction, restaurant margin will slightly improve, hopefully, next year. And then we are quite committed to deliver a double digit EPS growth.

That was actually achieved in each of the previous 3 years as well as year to date. So we continue to commit to that next year as well.

Michelle, thank you.

Thank you, Joey, Adrian, very, very clear. Thank you.

Hi, Joey, Adrian. Congrats again.

On the stellar earnings of course. I hate to ask this question because we always regard YAMC as a steady compounder.

Driven by a very good expansion as well as margin management. But it seems that the market currently care all about just SSG.

So as Q3 is already behind us, so now all the eyes are on Q4. So just now, in the opening remark, Adrian mentioned that October SSSG was broadly in line with management expectation.

I also highlight that in q. In October.

November this year, we are going to see more regions adopting the autumn school breaks So can we share a bit more color on the Q4 SSG trend as well as our outlook. For example, October was pretty much in line with expectations.

So with regard to expectation, directly refer to the zero to 2% SSSG that we guided historically. And, also, we all know that based on channel checks, November comps were very difficult.

But that was partly due to the first time introduction of autumn school break last year. Whereas this year, there were more reasons there was more reason adopting that.

This break. So I am very confused.

Of. If November really having a tough comps or because of more holidays, this.

More into this year after November should be okay. Any color will be helpful.

Thank you.

Thank you, Chen Luo. Well, indeed, I understand that the market actually care a lot about the comp sales.

And, again, before I answer the questions specifically on color on comp sales, I would like to reiterate that for us, as Joey mentioned in the previous, q and a, sales is vanity, profit sanity. Right?

And so, obviously, in normal times, we will get both and, but, you know, in special situations, for instance, quarter 3, when we faced the extreme weather in August, in those kinds of situations, we will have to choose 1. We kind of choose profit.

And, hopefully, that is also what our shareholders want. And, and the fact that we deliver a double digit EPS growth in each of previous 3 years as well as year to date also demonstrate the track record there.

And to answer your question on comm sales for quarter 4, In October, yeah, you know, as I mentioned in the prepared remarks, it is broadly in line with our internal expectations. If, you know, we will have to provide some.

A little bit more color, I would say the Golden Week, had a little sequential improvement over the mid autumn festival, which is a few days before the Golden Week people still remember. Right?

So there is a sequential improvement there. And October as a whole is in mind.

So there is no, you know, no surprises No negative surprise. No positive surprise is broadly in line.

November, we are only on the second day of November. And, I guess the good thing is, you know, the store.

Autumn school break is a bit more broad based this year in November compared to last year which could. Which may provide some tailwind But the headwind is obviously a quarter 4 of last year has a index of 103.

Which is meaningfully higher than rest of the 3 quarters in the base last year. So it is a tough lapping, but we are working hard to try to achieve a sequential improvement in our comp sales in quarter 4 over quarter 3.

But I think if you if you were to look at you know, further down the road in 2027, I think we are quite confident to achieve zero to 2% comp sales for full year 2027. Which is actually only 2 months from now.

Yeah. I know I did not give overly concrete information on quarter 4 comp sales, because it is still 2 full months ago.

Hopefully, that color may be potentially helpful. Thank you, Chen Luo.

that is already very helpful indeed. I know how difficult or fluid the situation is.

I know really appreciate the efforts to share as much information as possible and also hope that our operation can go from strength to strength. Thank you.

Thanks a lot, Joey and Adrian. I have a question on Pizza Hut because on the Investor Day for the next 3 years or longer term, there should be better growth coming from Pizza Hut.

I know there should be some short term volatilities, but based on this year so far, in particular, the quarter, think had a system sales have been slower than KFC. And would like to understand whether it is just a 1 off in particular because of weather because of some short term volatilities.

Or how do we see Pizza Hut again as a driver for the whole group? that is my main question.

And just to double check, given the comment on fourth quarter, same store sales, we do not have so called guidance for 2026 same store rate. Just a small follow-up check.

Thank you.

Yeah. Lillian, let me address your question here.

Your final part of the question on guidance for comp sales for full year. Yes.

You know, given the fluid situation, particularly, around the lapping of delivery subsidy as I mentioned in prepared remarks, the subsidy did scale back faster than expected. In quarter 3.

And, obviously, the August extreme weather did not help. it is a it is a peak month of the year as well.

You know, it is. We did not explicitly guide in this earnings on a full year comp sales.

2026, but we did guide on 2027, outlook And, also, we reiterated our guidance for the 3 year growth algo know, on a 3 year basis, we are still, quite confident to achieve our guidance, that we shared in Investor Day. On Pizza Hut growth, I mean, as you correctly pointed out, in near term, there are some, dynamic situation, you know, also, you know, we are indeed working on the various, strategic levers on improving the Pizza Hut's growth.

But if you were to look at a bit more further down the road, we are confident that Pizza Hut will deliver very solid growth. I think we give some figures back on our Investor Day.

Specifically, we guided the restaurant margin of 14.5% before the Pizza Hut transaction. By 2028.

And if you were to include the impact of Pizza Hut transaction, hopefully, the margin will exceed 17% by 2028. Obviously, we will invest a bit of the margin saving from the 2.8% into new stores because new store in the first year, their.

The margin is lower than the than the normal stores because it takes 3. Around 3 years for the stores to mature.

And we will invest a bit of the margin on new modules such as although it is profit accretive, but it is slightly margin dilutive. as we pointed out previously.

But overall, we are still confident to achieve That will actually imply Pizza Hut will get to KFC's restaurant margin level. In, you know, in a bit more than a year's time.

And, also, in terms of the new store growth, we dialed up the manual open guidance from 600 to 800 stores, in 2027 and 2028. Hopefully, if you have a own assumption on comp sales for each of the next 2 years, that will give you a high level.

High, top line growth figure. And then with the margin expansion, you can get to a high level bottom line growth figure.

So, yeah, despite the short term dynamic situation, we are confident about the mid to long term growth potential of Pizza Hut.

Lillian, just a few more comments on the Pizza Hut growth. First of all, we are truly excited to buy back the brand because it does give us both short term and long term strategic implication in a very positive way.

And I would just like to highlight a few growth driver. First of all, pizza.

We do not talk enough about it. I mean, pizza is 40% of our business.

And year to date, we sold 180 million pizzas already. And the number is 17% up year over year.

And that is the number of pizza. I mean, the sales number is slightly less, because these are the incremental.

A lot of it is incremental, like the smaller order, the smaller pizza, solo diner. But that is fantastic because this is 40% of our business.

And particularly, the 1 person pizza, the smaller 1, it increased by 40%. I mean, in this market, like anything double digit, not to mention 40%, is something that we are excited about.

Certainly, the burger bar that we talked quite a bit, we expanded to 50 cities in just 9 months, 300 location, and we are targeting 500 by end of this year and 1 thousand locations by 2027 and in. And the investment is rather sensible and modest, really.

But, yes, it delivered double digit sales uplift and incremental profit. To the parent stores.

that is something to be excited about for the pizza business. And then the third, wow, Pizza Hut, wow, is still going very nicely.

And the store count doubled. Year over year to 490.

Year to date and then we so to and we are gonna do more by end of the year. And this is very effective to help us entering new cities.

For many years, Pizza Hut business stuck at 900 cities. But now with the new modules and more store format, We enter 350 new cities this year,, which is fantastic breakthrough and milestone for future So all these are something that we are quite excited about.

And then not to mention, buying back the brand allows us to do something strategically much faster. For example, retail.

I do not know whether some of you guys have tried already. it is just this week, we start to sell frozen durian which is just retail.

Like, sold through retail. I try it myself.

It smells fantastic. It smells and tastes like durian ice cream,, but it is real durian frozen.

I mean, now we own the brand. We can make this kind of decision, try new things much, much faster.

So quite excited about Pizza Hut growth prospect in the short term and the long term too. Thank you, Lillian.

Thanks a lot, Joey and Adrian.

Yeah. Thank you very much, management team.

Just a quick 1. You know, I just wanna check regarding last year.

Q4, you know, how much of the 3% same store is coming out from the delivery subsidy, and how much is coming out from the autumn, like, you know, spring. The autumn break.

So just wanted to check, like, you know, like, if we are trying like, the base impact. And regarding, like, you know, the Q4 outlook, it is like, you know, we are expecting a sequential improvement versus third quarter.

Right? So I do like, you know, do you expect that, you know, you will also be, like, you know, at this point, able to gain some share from the peers?

So of the same store sales is actually coming out from the peers rather than, like, you know, the industry growth. Thanks.

Yes. Thank you, Kin Shun Ling.

Well, I think this question is it is very hard to break down the impact of the delivery subsidy back in quarter 4 last year versus the school break. In quarter 4.

But what I would say is, given it is the first time, for multi provincial school break in quarter 4 last year, The impact was actually a little positive surprise to us, right, back in quarter 4. That.

that is why when we reported our February earnings, we also mentioned kind of the same comment. And then hopefully, the 3% positive comp sales was a little surprise to the market.

But, yeah, I did not give the exact breakdown, because it is to break down that way. And this year is the second time with the you know, the ad hoc school break in November.

it is slightly more broad based compared to last year. And we look forward to seeing, how the trading goes in November.

And, I would encourage people to also focus equally importantly October November, and December. Right?

So December is important as well. We have a lot campaigns lining up in the coming, 2 months.

So yeah, I mean, at this point in time, what we can say is, we are working very hard to try to achieve sequential improvement comp sales in quarter 4. And your second part of the question is whether we are taking if I remember correctly, whether we are taking shares from a competitor's Right.

I would say the market is large enough. Right?

And then I think, you know, previous earnings as well as earlier in the q and a, Joey did comment on the fact that the chainification rate here in China is still quite low. I mean, for restaurant, it is 20, 30%.

For beverage, it is much higher. Right?

If I remember correctly, it is around 60% for beverage chainification rate. So that is why you will see a lot of new players and existing players are actually in the catering space and opening stores in a very fast fashion.

And so the market is large enough to accommodate lots of successful players. And if anything, if you were thinking about the consumer sentiment, right, as we mentioned earlier on the call, we think overall speaking, you know, the overall consumer is more open minded about, you know, the rational discounting.

More rational discounting, as well as a little bit of pricing, right, that we all throughout the year. Although, arguably, week over week over month, there is some volatilities in the in the overall promotional environment.

But if you compare this year over next year, sorry. This year over past year, I think arguably, most people would believe that the whole consumption sentiment is more rational.

And all I am trying to say is that the market is still quite, favorable for a chain restaurant like us. And, also, it is not only favorable to us.

It can you know, accommodate and support multiple successful players in the space. And we look forward to growing our market share, continue building our brand, in this part.

In China. And we give quite a bit of color in how.

In terms of how we think about a store opening strategy in our prepared remarks as well as earlier on q and a as well. So that is, I guess, the response to your question, Kin Shun Ling.

Just to Just 1 more comment for yyour question, Kin Shun Ling. Last year, with the platform subsidies, Yum China, in general, we are quite disciplined.

With our you know, trading, particularly in food because the cost of sales in food is quite high. So we are very disciplined.

We do take some subsidy and invest in the emerging business like the and, you know, the smaller emerging business? And drinks.

Trains for us, for KFC, is about mid teens in terms of mix it is about low teens for Pizza Hut in a mix And both drink business actually for quarter 3 grow quite nicely. Actually, they have positive growth.

Because we have quite a few new drinks launched which were proven popular among customers. So I think that is the context I can share with you, Anne.

Thank you.

Thank you, Joey.

Hi. Thanks for the comments given by the management so far.

So I have a question specifically for Adrian in terms of your earlier comment about labor cost. So, basically, your comments point to a steady cost of cost of labor as a percentage of revenue in 2027, But having said that, we do notice that the Chinese government is putting into place a stricter enforcement of social insurance collection, especially in recent months, So I just want to understand what are the assumptions behind this cost of labor stable kind of trend you are foreseeing in 2027, are there any specific nudges you can share with investors And 1 thing I also want to clarify with you is that you are mentioning the Pizza Hut China acquisition is bringing 30 basis points of margin expansion in a third quarter alone, but when I look at the details, the cost of occupancy and the address of revenue for Pizza Hut actually is the same they dropped than 200 bps.

On a yearly basis. And so I just want to understand the 30 bps margin expansion you know, how that compare with the 200.

More than 200 bps of March expense. Savings in the cost of occupancy for Pizza Hut in the third quarter alone.

Thank you.

Thank you, Christine. The final part of our question, I think the 30 basis points margin expansion is for the group.

And then if you were to calculate the impact on I believe it will be around 160 or 170 basis points for Pizza Hut. So that kind of, is the difference there.

And the second part of your question, I guess I will. I am responding in a reverse order.

Please bear with me. The second part of the question is on the assumptions on COL.

So, the recent stricter compliance or requirements by the government on social benefit and Social Security, has, you know, no impact on us because as you and hopefully everyone else on the call, know that we are super compliant in terms of for the different regulations. And, specifically, on Social Security.

Right? Our Social Security base for our full time employee is calculated on the actual wage, which include the base pay, the bonus, the overtime, etcetera, etcetera.

it is not calculated on the minimum wage. Right?

So hopefully, that is kind of the core part of your. Second part of the question.

First part of your question is on the COL outlook for next year. You mentioned broadly stable.

I think, yeah, that is kind of what we meant, but more specifically, what we mean here is, the pressure on COL and the pressure on rider cost will be much more moderate next year compared to this year. Right?

Because this year, we are having mid-50s delivery mix for the full year lapping last year, you know, especially in the first half of last year around 40% in the mix. Right?

So that is a significant pressure on the rider cost. But coming into quarter 3, if you look at the rider cost, it is only 30 basis points of cost increase.

So the pressure already meaningfully moderated compared to more than 150 basis points in the first half of the year and then. So hopefully, moderation rider pressure will last into quarter 4 and next year because next year, as we mentioned in the earlier part of the q and a, the delivery sales mix will be broadly stable compared to where we are right now And if you use, you know, the broadly stable figure, the mid fifties percentage of delivery sales mix lacking this year, which is, you know, let's say, 53% to 54%, I believe, for the full year.

It will be only slightly increased or probably stable. Right?

And then if you take into account the wage inflation and all that, the COL hopefully, the pressure will be much more moderate. And the key levers in driving COL efficiency to mitigate a wage inflation is really you know, the digitalization, the process optimization, and centralized of, you know, many of the top including recruitment, training, interviewing, inventory replenishment, labor scheduling, and even some of the preparation work of the raw materials, we centralize all.

Some of those. Right?

So these are the measures as we mentioned in this earning and previously, to drive our COL efficiency But overall, COL, that will not decrease, just to be to be clear. it is just the pressure will be much more moderate.

Compared to previously.

Just 1 comment on the other side of the course. While we will maintain the stable COL with all the factors Adrian talked about, I just want to highlight that our store managers really are the hero to help us manage the COL.

Because right now, between KFC and Pizza Hut, somewhere between 70% to 80% of the stores are run by what we call mega store manager, who run 2 to 4 stores. With the help of the, you know, centralization, digitization, automation.

The other side of the equation I want to emphasize is 1, these mega RGM their take home pay has been increasing by mid teens in the last 2 to 3 years. Despite we keep the overall labor cost stable.

And the turnover rate is somewhere between mid to mid single digit for the mega RGM. So not only have we kept the COL stable, but we are retaining the best store manager and we will continue to give them very nice salary increase.

So that we have the best people to run our source, which is the best way to protect the business. in the short term and long term.

Thank you.

Okay. Thanks for taking my question.

I am Suyang Wang from CICC. Congratulations on delivering resilient growth.

My question is on new store openings. You have raised the year's net opening target to 2.4 thousand.

What new market opportunities have led you to increase the target And how do the sales and the profit of new stores compare with those of mature stores? that is all.

Thank you, Suyang. So indeed, we raised our target from 1.9 thousand to over 2.4 thousand for the year, which represent roughly 13% of the store base.

End of last year. And, we do see vast opportunity, ample opportunity, and white space here in China.

And as we mentioned in our prepared remarks, over half of our new store openings have been in lower tier cities, strategic channels, and areas or trade zones with no existing dine in or delivery coverage. Right?

So those we call the, right, double white space. So that actually incremental opportunity for us, and it is important for us to open stores there quickly.

To better serve our consumers there and build our brand equity because we firmly believe you know, the strong brand equity and 1 of the leading brand equity we enjoy in the Western QSR space here in China is, you know, with the past 4 decades, you know, hard work, you know, building a lot of our store, in higher-tier cities followed by mid-tier cities. And now we are actually expanding to lower tier city in a fast fashion.

Leveraging on our new store model like KFC small town, Pizza Hut WOW, and KFC and Pizza Hut Gemini model. And, you know, we are conscious of, you know, achieving a balance of comp sales I e, limiting the sales transfer, at the same time grow our top line as a whole and profitability as a whole.

And that is why, you know, we give the color on over half of our new store open that were in locations with limited or no sales transfer. Yeah.

So that is kind of how we look at it. And, you know, it is exactly because of the ample white space that we see here in China that we believe, you know, this step up pace of store opening is something that we will continue to do.

Over the next few years as well. And, hopefully, with that, coupled with the solid comp sales, we will be able to deliver our 3 year guidance as shared on our Investor Day for both the top line, bottom line.

Last year in November.

And for both KFC and Pizza Hut, we still have 1.5 thousand cities that does not have our stores. Particularly for pizza.

there is still 500-plus cities that has KFC but not Pizza Hut. Just very, very simple math there.

And 1 last comment of our new store opening is above all the new store target or new store opening, we are very disciplined very, very disciplined that we want our new store to deliver 2 to 3 years payback. And that is the quality requirement before we talk about the numbers.

Therefore, buying back the Pizza Hut brand, helps Pizza Hut new store opening because we do not have to pay 2.8% royalty anymore and expand the margin allow more store to meet our requirement. And we can up the target.

And now we also have the modules that are very suitable for entering the lower-tier city; it really helps. Thank you.

Thank you, Joey, and thank you, Adrian as well. This concludes our q and a session.

Thank you for joining the call today.