Yum China Q2 Earnings Call Highlights

Yum China NYSE: YUMC reported second-quarter growth in sales, operating profit and earnings, extending what Chief Executive Officer Joey Wat described as the company’s ninth consecutive quarter of simultaneous system sales growth, operating profit growth and operating-margin expansion.

Revenue increased 13% in the quarter, while system sales rose 6% excluding foreign-exchange effects. Same-store sales grew 1%, improving from the first quarter, supported by a 14th consecutive quarter of same-store transaction growth. The company opened 560 net new stores during the quarter and about 1,209 new stores in the first half, roughly double the pace of the prior-year period.

Chief Financial Officer Adrian Ding said operating profit reached a second-quarter record of $348 million, up 7% year over year. Net income rose 6% to $244 million, while diluted earnings per share increased 14% to $0.70. Excluding the impact of Yum China’s investment in Meituan, diluted EPS increased 10%.

KFC Posts Sales Growth as New Modules Expand

KFC system sales increased 7% year over year in the second quarter, accelerating from 5% growth in the first quarter. Same-store sales rose 1%, with a 4% gain in transactions more than offsetting a 3% decline in average ticket. The average ticket was CNY36, reflecting more small orders from new customer segments and locations including KCOFFEE Cafe and KPRO.

Despite higher delivery-related rider costs, KFC’s restaurant margin expanded 20 basis points to 17.1%, while its operating margin also increased 20 basis points. Ding said delivery sales represented 54% of Yum China’s sales in the quarter, compared with 45% a year earlier, and rider costs reduced margin by 140 basis points.

The company continued to expand KFC’s side-by-side formats. KCOFFEE Cafe exceeded 3,300 locations and remains on track to reach 5,000 locations by the end of 2027. KPRO, the company’s light-meal concept, expanded to more than 450 locations. Yum China now expects KPRO to reach about 800 locations by year-end, above an earlier target of 600.

Ding said KCOFFEE Cafe generated a mid-single-digit sales uplift for parent stores, while KPRO generated about a 20% uplift. Capital expenditures for both modules have fallen by about half compared with earlier modules last year, he said.

Wat said KCOFFEE Cafe generated about CNY1 billion in sales last year and is targeted to approach CNY2 billion this year. KPRO is expected to quadruple sales this year and exceed CNY1 billion in sales next year. More than 80% of KPRO sales have come from KFC members, according to Wat.

Pizza Hut Gains Momentum and Plans Faster Expansion

Pizza Hut system sales rose 6% in the second quarter, following 4% growth in the first quarter. Same-store sales returned to growth at 1%, as a 13% increase in transactions offset an 11% decline in average ticket. The average ticket declined to CNY68, moving closer to Yum China’s CNY60 to CNY70 target range under its mass-market strategy.

Pizza Hut opened 381 net new stores in the first half, nearly matching its total openings for all of 2025. The company said it is preparing to become the owner of the Pizza Hut brand in mainland China after operating the brand for 36 years.

Wat said ownership is expected to save license fees, improve store economics and provide greater flexibility to pursue new products, formats and expansion plans. Yum China now expects Pizza Hut net new openings to exceed 800 annually in 2027 and 2028, compared with its prior target of more than 600.

The company’s Pizza Hut Burger Bar had expanded to more than 200 locations within six months. Wat said the format has delivered double-digit incremental sales and meaningful profit to parent stores. Yum China plans to expand Burger Bar to 500 to 600 locations by the end of 2026, representing roughly 10% of Pizza Hut’s nearly 5,000-store portfolio.

Pizza Hut restaurant margin declined 40 basis points in the second quarter, primarily due to a larger delivery mix, value-oriented offerings and expenses related to launching Burger Bar. However, operating margin expanded 60 basis points, aided by lower closure and impairment expenses. Ding said the company expects greater year-over-year improvement in Pizza Hut restaurant margin in the second half as efficiency improves and rider-cost pressure moderates.

Brand Acquisition, Outlook and Capital Returns

The Pizza Hut transaction is expected to close in August and will initially be funded primarily through an approximately $1.2 billion-equivalent bridge loan of up to 12 months. Ding said the bridge loan’s interest rate is expected to be about 2%, while longer-term financing options, including syndicated loans, bonds and convertible bonds, remain under consideration.

Yum China expects savings from the 3% license payments to Yum! Brands to add 2.8% to Pizza Hut restaurant operating margins after value-added tax, or about 60 basis points for Yum China overall. The company expects the transaction to add 30 to 40 basis points to restaurant and operating margins in the third quarter and 20 to 30 basis points for the full year. Management expects the deal to be slightly accretive to diluted EPS in 2026 and mid-single-digit accretive in 2027 and 2028, after accounting for transaction costs, financing interest and taxes.

For 2026, Yum China reiterated its targets for a 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, and slight improvements in restaurant and operating margins. The company also remains on track to reach 20,000 stores by year-end.

Yum China returned $780 million to shareholders in the first half, including $515 million through share repurchases and $203 million in cash dividends. The company continues to target $1.5 billion in shareholder returns during 2026.

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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