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The call presented a broadly positive operational and financial update: record operating profit, meaningful store expansion, strong KFC and Pizza Hut momentum (including improved Pizza Hut margins), rapid scaling of modular additions (KCOFFEE and KPRO), and aggressive shareholder returns. Key challenges remain around elevated delivery mix and rider costs, higher labor and packaging-driven cost of sales, and near-term softness in March/seasonal timing that left same-store sales effectively flat. Management provided conservative near-term margin guidance but expressed confidence in margin recovery in the second half and reiterated full-year targets. Overall, the positives (record profit, growth initiatives, store rollout, and strengthened profitability at Pizza Hut) outweigh the negatives, which are being actively managed.
Management guided that Q2 should deliver positive same‑store sales (with the 14th consecutive quarter of positive same‑store transaction growth) and sequentially improving comps for Yum China, KFC and Pizza Hut, while striving to keep operating profit (OP) margin roughly in line with the prior‑year period; rider costs remain the biggest near‑term headwind though they expect rider‑cost pressure to ease in H2 and margins to sequentially improve versus H1. For full‑year 2026 they reiterated targets of a same‑store sales index of 100–102, 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, and to surpass 20,000 stores by year‑end. They also confirmed capital return plans to return $1.5 billion in 2026 (~$400M dividends and ~$1.1B share repurchases, ~9% of market cap) and a plan from 2027 to return ~100% of annual free cash flow after subsidiaries’ dividends to noncontrolling interests (expected ~$900M–$1B+ in 2027–28 and >$1B thereafter).
Revenue grew 10% in reporting currency; operating profit increased 12% in reporting currency (positively impacted by foreign exchange). Excluding FX impact, system sales grew 4% and operating profit grew 6% with OP margin expanding 20 basis points year-over-year.
Operating profit was a Q1 record at $447 million, up 6% year-over-year. Diluted EPS was $0.87, up 7% year-over-year (or up 11% excluding investment in Meituan). Net income was $309 million (flat YoY), and excluding Meituan net income grew 4%.
Opened 636 net new stores in Q1 (over one-third of annual target). On track to open >1,900 net new stores for 2026 and to surpass 20,000 total stores. Franchisees contributed 42% of Q1 net new stores and franchise portfolio exceeded 2,500 stores (from ~1,800 a year ago).
KFC system sales +5% and same-store sales +1% (fourth consecutive quarter of comp growth). Restaurant margin at KFC remained healthy at 19.1%. KCOFFEE Cafes exceeded 2,600 locations (added ~400 in Q1), with KCOFFEE sales more than doubling YoY; KPRO reached 280 locations (up from 200) and uplifted parent stores by ~20%.
Pizza Hut delivered 18% operating profit growth in reporting currency. System sales +4% and same-store transactions +5% (13th consecutive quarter). Restaurant margin improved 60 basis points YoY to 15.0% and OP margin improved 100 basis points, aided by WOW format expansion and operational efficiencies.
This marks the eighth consecutive quarter delivering simultaneous growth across the three metrics (same-store sales, system sales, operating profit). Same-store transactions grew for the 13th consecutive quarter overall.
Launched new permanent and LTO products (e.g., Crackling Golden Chicken Wings at KFC, expanded Pizza Hut spring menu with ~30 new dishes). Hero products at KFC account for ~30% of sales and high member penetration; whole chicken sales nearly tripled since 2022 and exceeded CNY 2 billion in 2025.
Returned $316 million to shareholders in Q1 ($214 million buybacks, $102 million dividends). On track to return $1.5 billion in 2026 (~9% of current market cap) with $400 million in dividends and $1.1 billion in buybacks; guidance to return ~100% of free cash flow starting 2027.
Good day, and thank you for standing by. Welcome to the Yum China First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Senior IR Director, Florence Lip. Please go ahead.
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'll 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 o...