Yum China NYSE: YUMC executives said the company delivered “solid results in a dynamic environment” in the first quarter of 2026, citing continued execution of its RGM 3.0 strategy and accelerated store expansion while keeping a focus on both same-store sales and system sales growth.
First-quarter performance and brand results
CEO Joey Wat said first-quarter revenue rose 10% and operating profit increased 12% in reporting currency, aided by a favorable foreign exchange impact. Excluding foreign exchange, she said system sales grew 4%, operating profit increased 6%, and operating profit margin expanded 20 basis points year over year. Wat added that same-store sales were “slightly positive, though rounded to zero,” while same-store transactions grew for the 13th consecutive quarter.
By brand, Wat said KFC “remained resilient,” with same-store sales up 1% for a fourth consecutive quarter, system sales up 5%, and restaurant margin at 19.1%. She said Pizza Hut continued to grow both scale and profitability, delivering 18% operating profit growth in reporting currency, with restaurant margin improving 60 basis points year over year to 15%.
Store expansion, franchising, and new formats
Management emphasized a record pace of development. The company opened 636 net new stores in the quarter—more than one-third of its full-year target—putting it on track to open more than 1,900 net new stores in 2026 and to surpass 20,000 total stores during the year.
The company said franchisees contributed 42% of KFC and Pizza Hut net new stores in the quarter, helping extend the footprint into lower-tier cities, remote areas, and strategic locations. The franchise portfolio exceeded 2,500 stores at quarter-end, up from around 1,800 a year earlier.
Pizza Hut accelerated openings with 207 net new stores in the quarter, which Wat said was nearly half of last year’s full-year net openings. The company highlighted expansion of its WOW model, with store count doubling year over year to around 390. It also pointed to “Gemini” sites—Pizza Hut WOW stores opened side-by-side with KFC—saying nearly 80 WOW openings in Q1 were Gemini stores, mostly in new lower-tier cities and operated by franchisees. Management also said it had signed franchise agreements with more than 12 provincial and municipal highway operators and added nearly 100 stores at highway service stations in just over a year.
Yum China also discussed new convenience-led initiatives. The company said more than 7,000 KFC stores now offer either drive-through or car-side pickup, up from around 2,000 a year ago, and noted that nearly one-third of drive-through customers made repeat purchases in the first quarter. It also said it is partnering with multiple car companies, including BYD, to enable in-car ordering, and that select stores will have fast-charging stations nearby.
Product, value, and module growth initiatives
Wat framed innovation and value as central to performance, highlighting Chinese New Year offerings and limited-time promotions at KFC, as well as Pizza Hut’s collaborations with entertainment IP and its All-You-Can-Eat campaign. She also pointed to KFC’s side-by-side modules as a growing contributor.
Management said KCOFFEE cafés expanded to more than 2,600 locations after adding around 400 in the quarter, and that KCOFFEE sales more than doubled year over year. The company said it expects KCOFFEE to reach 5,000 locations by year-end 2027, “two years ahead” of its prior target.
KPRO reached 280 locations, up from 200 at the end of 2025, and Yum China raised its KPRO target to 600 locations by year-end. Wat said KPRO is delivering about a 20% sales uplift to parent KFC stores and characterized the margin as “good.” She also said KPRO could reach “up to CNY 1 billion sales” at 600 stores in 2026, while noting the pace could depend on results from testing expansion into tier 3 cities.
Looking ahead, Wat said KFC’s six “hero products” account for around 30% of sales and are purchased by about 80% of active members. She also highlighted Whole Chicken, saying sales “nearly tripled since 2022” and surpassed CNY 2 billion in 2025, and noted the addition of aromatic paper-wrapped roasted chicken to the permanent menu in April after a successful limited-time run.
At Pizza Hut, Wat said a spring menu launched with more than 30 new dishes—about one-third of the menu—and that the company plans to upgrade its hand-tossed pizza with a multigrain crust and new toppings in May.
Margins, delivery mix headwinds, and capital returns
On the P&L, the company reported restaurant margin of 18.2%, down 40 basis points year over year, which management attributed primarily to increased rider costs from a higher delivery mix, partially offset by improved operational efficiency. Cost of sales was 31.6%, up 40 basis points, which the company linked mainly to value-for-money offerings and a reduced benefit from favorable commodity prices compared with prior periods.
Cost of labor was 26.7%, up 100 basis points. Management said delivery mix increased to 54% from 42% a year earlier, and rider costs now represent close to 30% of labor costs. Occupancy and other expenses were 23.5%, down 100 basis points, which management said reflected better rent and other efficiency initiatives.
Operating profit margin was 13.7%, up 20 basis points year over year, marking what management called the eighth consecutive quarter of operating profit margin expansion. Operating profit was $447 million, described as a first-quarter record, and grew 6% year over year. Net income was $309 million, flat year over year; excluding the company’s investment in Meituan, management said net income grew 4%.
CFO Adrian Ding said the Meituan investment had a negative $9 million impact in the quarter versus a positive $2 million impact a year earlier, and noted interest income was $10 million lower year over year due to a lower cash balance and lower interest rates. Diluted EPS was $0.87, up 7% year over year, or up 11% excluding Meituan.
In discussion of delivery, Wat said the company is seeing “early sign of more rational delivery platform competition,” and said reductions in subsidies have been more pronounced for smaller orders, while only slightly lower in quick service. Ding said delivery remains a long-term growth trend, but the company expects rider cost pressure to persist near term as delivery mix continues rising, with pressure expected to moderate in the second half as comparisons ease.
For the second quarter, Ding said Yum China expects sequential improvement in same-store sales growth for the company, KFC, and Pizza Hut. He said the company is aiming to keep second-quarter operating profit margin “roughly in line with the prior year period,” with sequential improvement in margin comparisons expected in the second half.
Management reiterated full-year 2026 targets consistent with prior ranges shared at Investor Day and in February, including:
- 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
- Slight improvement in restaurant margin and operating profit margin for Yum China
On capital returns, Ding said the company returned $316 million to shareholders in the first quarter through $214 million in repurchases and $102 million in dividends, and reiterated plans to return $1.5 billion for the full year. He also said Yum China plans, starting in 2027, to return approximately 100% of annual free cash flow after subsidiary dividend payments to non-controlling interest.
About Yum China NYSE: YUMC
Yum China Holdings, Inc operates as the largest quick-service restaurant company in China, through its ownership and franchising of brands such as KFC, Pizza Hut and Taco Bell. The company's core business encompasses full-service and fast‐casual dining, takeout and delivery channels, as well as ancillary services including loyalty programs and digital ordering platforms. Yum China's restaurants offer a diverse menu that adapts global brand concepts to local consumer preferences, featuring items such as soy‐marinated chicken, customized pizzas and region‐inspired side dishes.
In addition to its signature brands, Yum China has expanded its portfolio to include innovative concepts tailored to evolving market trends, such as plant‐based offerings, self‐service kiosks and mobile app integrations.
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