With a combined revenue of $21 trillion and $2.1 trillion in profits, the 2026 Fortune 500 is the definitive list of America's largest companies.

Fortune 500

These companies use the creative forces of capitalism to solve big problems—and do well by doing good.

<p>According to the United Nations, one-fifth of the total food available to consumers—about 290 pounds (132 kg) per year for every person on the planet—goes to waste. Redistributing that surplus food can be both a lifesaving benefit for the food-insecure, and a solution to an environmental problem (since decaying food emits greenhouse gases). In 2020, Yum China—which operates roughly 17,000 KFC and Pizza Hut fast food outlets across China and brought in $11.3 billion in revenue in 2024—launched its Food Bank program, distributing surplus food to those in need. Over 1,000 stations in over 180 cities have saved more than 1,600 tons of food, enough to feed 4,000 people for a year, since the program’s launch. Yum China’s success was included as a case study in how China’s new charity law, which encourages more charitable activities to be community-based, was implemented. Food waste is a priority for the company: Yum China wants to reduce its food waste by 10% by 2030, compared with its 2020 baselines.
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Change the World

Almost $20 trillion in revenue—and a record-breaking $1.87 trillion in profits. Introducing the 2025 Fortune 500, the definitive list of the biggest companies in America.

Industries included in the sector are food services and hotels and casinos.

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CTW-2023-Yum china

China’s rapid development has focused more on its cities than its countryside, with urban disposable incomes almost 2.5 times greater than rural ones. Yum China—China’s largest restaurant manager, and operator of brands like Kentucky Fried Chicken and Pizza Hut in the country—launched its One Yuan Donation program over 15 years ago with a simple appeal to customers to donate just one yuan ($0.14) toward rural causes. The campaign as a whole has channeled over $30 million to rural development initiatives, and now the company’s efforts have expanded to include “grow local” schemes to introduce regional produce, from Yunnan truffles to Tartary buckwheat, to its e-commerce platforms and menu items. (The campaign also now encourages much larger donations.) Yum China is also striving to reduce its food waste and carbon emissions, in part by establishing food banks to distribute excess food to the local community.

The Fortune 500, in its 69th year in 2023, ranks the biggest U.S. companies by revenue.

This year’s Fortune 500 marks the 68th running of the list.

This year’s Fortune 500 marks the 67th running of the list.

F500-2021-363-Yum China Holdings

The spin-off company of Yum! Brands has a workforce of 271,000 employees. It's incorporated in the United States while its operational headquarters is in Shanghai. The company has the exclusive right to operate the KFC, Pizza Hut, and Taco Bell brands in China.

This year's Fortune 500 marks the 66th running of the list.

F500-2020-361-Yum-China-Holdings

The fast food restaurant company separated from Yum! Brands in 2016 to solely focus on growth of the KFC, Pizza Hut, and Taco Bell brands in China. While its operations are mostly in China, it is incorporated in the U.S. and maintains a headquarters in Texas.

Here are the World's Most Admired Companies for 2019 as ranked in their industries. See who made the list.

This year's Fortune 500 marks the 65th running of the list.

This year's Fortune 500 marks the 64th running of the list.

This year's Fortune 500 marks the 63rd running of the list.

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Change The World

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Yum China operates over 16,000 Kentucky Fried Chicken and Pizza Hut outlets, among other brands, across China, making it the country’s largest restaurant company. Born from Yum Brands’ 2016 decision to spin off its China operations into an independent company, Yum China now generates more revenue than its erstwhile U.S. parent. Yum China is now experimenting with more locally inspired fare, while foraying into China’s second- and third-tier cities to reach new markets. Yum China is one of a few Fortune 500 companies to generate almost all of its revenue outside the U.S.

Q2 2026

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Yum China Holdings (YUMC): Company Profile, Stock Price, News, Rankings

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Yum China Holdings

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and thank you for standing by. Welcome to the Yum China First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. I I would now like to hand the conference over to your speaker today, Florence Lipps, Senior Director of Investment Relations.

Thank you for joining Yum China's first quarter twenty twenty five earnings conference call. On today's call are our CEO, Ms. Joey Watt and our CFO, Mr. Adrian Ding. I'd like to remind everyone that our earnings call and investor materials contain forward looking statements, which are subject to future events and uncertainties.

Actual results may differ materially from these forward looking statements. All forward looking statements should be considered in conjunction with the cautionary statement in our earnings release and the risk factors included in our filings with the SEC. This call also includes certain non GAAP financial measures. You should carefully consider the comparable GAAP measures. Reconciliation of non GAAP and GAAP measures is included in our earnings release, which is available to the public through our Investor Relations website located at ir.youngchina.com.

You can also find a webcast of this call and a PowerPoint presentation on our IR website. Please note that during today's call, all year over year growth results exclude the impact of foreign currency, unless otherwise noted. Now, I would like to turn the call over to Joey Wat, CEO of Yum China.

Joey? Hello, everyone, and thank you for joining us. In quarter one, we delivered another solid set of results. Our due focus on operational efficiency and innovation led to improvements in both our top and bottom lines. We achieved first quarter record highs in revenue, net income and diluted EPS.

Our same store sales index advanced to 100% of prior year level for the first time since the first quarter of twenty twenty four for both KFC and Pizza Hut. Same store transactions have grown for nine consecutive quarters. As our top line expanded, our margins also improved. Restaurant margin expanded by 100 basis points year over year. As a result, our operating profit grew by 8% and diluted EPS increased by 10%.

This performance underscores our team's diligent efforts and effectiveness of our strategy. Last quarter, I mentioned that I felt Pizza Hut had reached an inflection point. I'm pleased to report that we've been able to sustain the positive momentum. In quarter one, we achieved notable improvements in both same store sales index and margins. PISA has twenty twenty five new menu further enhanced its value for money proposition and mass market positioning, driving significant traffic growth.

It also enabled simpler operations contributing to the restaurant margin improvement in Q1. KFC remains a resilient fortress, achieving solid growth and profitability through both good times and bad. In Q1, KFC system sales grew by 3% and its restaurant margin expanded to 19.8%. In Q1, we also opened 300 ks coffee cafes, reaching a total of 1,000 locations nationwide. Let me now turn the call over to Adrian to discuss our results in detail.

Afterward, I will share additional color on our strategies. Adrian?

Thank you, Joey. Let me start with KFC. In the first quarter, KFC delivered solid sales and profit growth. We added two ninety five net new stores, bringing our total to 11,943 stores. New store payback remained healthy at two years.

System sales increased 3% year over year. Same store sales index amongst 100% of prior year level for the first time since the first quarter of twenty twenty four, fueled by same store transaction growth of 4%. We observed strong growth in smaller orders driven by wider price ranges, lower delivery fees and rapid growth in coffee. The ticket average for quarter one was 40 Yuan, 4 percent lower than the prior year period, similar to the trend in the second half of twenty twenty four. There may still be some short term fluctuations, but we expect the TA to be relatively stable over the long run.

Despite a lower TA, restaurant margin improved by 50 basis points year over year to 19.8%. Operating profit grew 5% year over year to $386,000,000 We innovated by adding fresh twist to our classic menu items to excite customers and fulfill their changing needs. KFC launched a spicy flavor of original recipe chicken for the first time since we entered China in 1987. The classic taste pairs well with an exotic spicy flavor. Sales mix of original recipe chicken increased 50% during the promotion period.

We also introduced the spicy original recipe chicken burger, which of course comes with the mashed potatoes. These innovative new products resonate well with our consumers, not just regionally, but nationwide attracting new traffic. Serving buckets has been a Chinese New Year tradition for KFC. This year, we enhanced the golden bucket by including our popular whole chicken, making it even more ideal for sharing. To address the trend of smaller gatherings, we also offered a variety of smaller buckets.

Total sales of our Chinese New Year buckets grew over 50% year over year. Let's now move on to Pizza Hut. For four consecutive quarters, Pizza Hut has achieved significant progress marked by sequential improvement in the same store sales index and year over year margin expansion. Operating profit also grew 29% year over year in quarter one. In quarter one, system sales increased 2% year over year.

Same store sales index of almost 100% of prior year level. Also for the first time since the first quarter of twenty twenty four, up two percentage points versus quarter four last year. Same store transactions grew substantially by 17% year over year, driven by rapid delivery growth, increased popularity of pizzas below 50 Yuan and the successful launch

of our new menu. The ticket average was 78 Yuan, 14 percent lower year over year, consistent with our strategy and driven mainly by better value for money offered by our new menu.

Again, despite the lower TA restaurant margins improved 190 basis points year over year. Our new menu allowed for simpler preparation at our stores. We also automated key kitchen processes. Additionally, Pizza Hut all you can eat campaign that took place in quarter one last year was shifted to quarter two this year. And this accounted for nearly half of the year over year margin improvements.

Pizza Hut has expanded to 3,769 stores with a net addition of 45 stores in quarter one. This number is lower than last year due to the timing of store openings and closures. For the full year, we expect double digit percent net new store growth for Pizza Hut. The payback period for new stores remains healthy at two to three years. Pizza Hut has made tremendous efforts to improve its menu and widen its addressable market.

The new menu launched in December 2024 altered Pizza Hut's value for money perception and significantly boosted consumer traffic. In March, we further upgraded the menu with new products such as expanded selection of pizza dough burgers and more one person meal options. For a limited time, consumers enjoy our Super Supreme pizza at just 39 Yuan, half the regular price. Consumers love our flagship Super Supreme flavor. So we extended it from a pizza platform to other platforms, such as burgers, pasta, and rice.

Let me now go through our quarter one P and L. For quarter one, system sales grew 2% year over year and same store sales index was 100% of prior year level. System sales growth was moderate this quarter for three reasons. First, twenty twenty five has one fewer business day as 2024 was a leap year, a 1% impact. Second, we have slightly more temporary closures during the Chinese New Year holiday this year compared with the prior year.

We carefully evaluated holiday traffic patterns in various trade zones and dynamically adjusted our store operations. This enable us to serve our consumers' needs better and more efficiently. In quarter one, net new units contributed 4% to sales growth. We're opening more smaller stores and expanding to lower tier cities. Also, we strategically closed more stores to enhance the strength of our store portfolio for better overall performance.

This led to lower sales growth in quarter one, which will normalize as the year progresses. Our retro margin was eighteen point six percent one hundred basis points higher year over year. Savings in cost of sales and occupancy and other costs offset increases in cost of labor. Cost of sales was 31.2%, ninety basis points lower year over year. Cost of sales improved through favorable commodity prices and continued benefits from Project Red Eye.

We continue to pass these savings from these initiatives to our consumers, offering excellent value for money. The timing shift of Pizza Hut's All You Can Eat campaign also positively impacted quarter one cost of sales. Cost of labor was 25.7%, thirty basis points higher year over year due to higher rider cost as percentage of sales. While cost per delivery order lowered increased delivery volume led to higher overall rider costs. Non rider costs as a percent of sales remain stable year over year.

Simplified operations help offset low single digit wage inflation for our frontline staff. Occupancy and other was 24.5%, forty basis points lower year over year. As a result of the cost optimizations in a number of areas, notably utilities and simplified operations. G and A expenses were 4.6% of the revenue and 10 basis points lower compared to 4.7% in the prior year. Closure and impairment expenses increased year over year due to our strategic store optimization.

Our OP margin was 13.4%, eighty basis points higher year over year, mainly driven by improved restaurant margin. Operating profit was $399,000,000 growing 8% year over year. Core OP also grew 8% year over year. Effective tax rate was 27.8%, ninety basis points higher year over year. Net income was $292,000,000 growing 3% year over year.

As a reminder, we recognized $12,000,000 less interest income this year due to a lower cash balance. As a result of the cash used for shareholder returns. Our mark to market equity investment also had a positive impact of $2,000,000 in quarter one, compared to a positive impact of $6,000,000 in quarter one last year. Diluted EPS was $0.77 growing 10% year over year or 12% excluding the mark to market equity investment impact. Let's now move on to capital return to shareholders.

We're on track to return $3,000,000,000 to shareholders in 2025 through 2026. This is on top of the $1,500,000,000 in cash we returned in 2024. The average annual amount of capital return over the three years is around 8% to 9% of our current market cap. In quarter one, we returned $262,000,000 with $172,000,000 in share repurchases and $90,000,000 in quarterly cash dividends. Our cash position remains healthy.

We ended the quarter with $2,800,000,000 in net cash. Finally, moving on to our 2025 outlook. We're operating in a complex and evolving landscape. Consumer spending remains rational. Our strategy is to offer innovative food and great value to drive traffic to our stores.

We're working hard to achieve ten consecutive quarters of positive same store transaction growth in quarter two. That said, we remain cautious about potential fluctuations in same store sales index, Even with many moving parts, we reiterate our twenty twenty five full year guidance of mid single digit system sales growth. We expect to ramp up net store openings as the year progresses. For the full year, we're on track to open 1,600 to 1,800 net new stores. In quarter one, we opened two forty seven net new stores with franchise stores accounting for 41% of KFC net new opens and 33% for Pizza Hut.

Franchise net new store mix for the 2025 full year is expected to be lower. Mid to long term, our outlook is unchanged. We expect the franchise net new store mix to reach 40% to 50% for KFC and 20% to 30% for Pizza Hut over the next few years. We also target to maintain or slightly improve core OP margins for the full year. On the cost of sales front, we anticipate modest year over year improvements compared to 2024 remaining between 3132%.

We expect no material impact from tariffs as over 90% of our procurement is sourced locally. The direct impact from U. S. Imports on our cost is expected to be minimal. Additionally, we have evaluated the indirect impact of tariffs on our upstream suppliers.

Alternative raw material solutions are available along our supply chain. So, we're protected at the moment, but we will monitor the situation closely. Moving on to cost of labor. We continue to face pressure on the total rider costs driven by rapid delivery growth. Our goal for non rider costs is to keep them stable by offsetting the weight inflation of our frontline staff through more automation, simplification, and centralization.

In terms of occupancy and other as a percentage of sales, these are likely to stay relatively stable year over year. We continue to explore optimization opportunities to offset cost increases. By brand, we expect restaurant margin at KFC to be healthy and stable year over year and Pizza Hut's margin to improve in the mid to long run. Lastly, we expect our G and A expenses as a percent of revenue to slightly decrease and the effective tax rate to be in the high 20s. In terms of quarterly phasing, we expect tougher year over year margin comparisons later in the year.

More meaningful benefits started to trickle in from Project Fresh Eye in quarter two of twenty twenty four and from Project Red Eye in the second half of twenty twenty four. Overall, we're working hard towards our full year targets. Let me pass it back to Joey for her closing remarks.

Thank you, Adrian. Now let me spend some time on our strategy. Like everyone else, we are navigating choppy waters, but we have an excellent team capable of turning challenges into opportunities. We will stay alert and concentrate on what we can manage. Our customers continue to love our brands, our delicious innovative food and our very affordable prices.

Our widened price ranges fueled healthy transaction growth. We also offer abundant emotional value to customers. The eighty fifth anniversary of KFC's original recipe chicken brought back childhood memories for our customers. Pizza Hut celebrates Chinese New Year by wishing them good fortune with the Fortune Cat Crush Pizza,

also collaborate with top IPs to offer member exclusive deals through our own online and offline channels. A notable example was our campaign with the popular Chinese mobile game Identity V. Include tangible and virtual accessories with our meals, successfully engaging many young customers. Besides our amazing food and value, we offer exceptional convenience. With over 16,000 stores in 2,300 cities across China, we are rapidly expanding our store portfolio and deepening our reach.

Our innovative and flexible store models help us profitably expand our addressable market and capture additional dining opportunities. At KFC, K Coffee sustained strong growth in quarter one with both cups and sales up around 20% year over year. We see huge growth potential by leveraging KFC's customers and membership base. In particular, a large majority of our members have yet to try K Coffee. By utilizing KFC footprint, K Coffee Cafe is expanding rapidly in this high potential market.

The incremental investment is light. Both equipment and resources can be shared. With 1,000 ks coffee cafes now, we're aiming for 1,500 locations by end of twenty twenty five, which is 200 more than our original target. On the menu side, in addition to our signature Sparkling Americano, We introduced premium geisha beans, huixia kaffei do, for coffee lovers at just RMB12.9. We also launched a matcha mocha lineup for tea drinkers boosting afternoon sales.

Having coffee in the morning and tea in the afternoon is a great way to stay energised. At Pizza Hut, VAL is a simpler and more efficient model. Compared to the regular Pizza Hut, VAL's per person spending is lower. It's simpler menu, entry price point products, and sharp value for money appeal to young people and solo diners. As we fine tune the model, restaurant margin has expanded year over year.

Building on the successful conversion of some Pizza Hut stores to the valve model, we have started opening new valve stores. A brand new Wow store's CapEx can be as low as half of a regular Pizza Hut store. With reduced CapEx, lower per person spending and simplified operations, while it seems suitable for lower tier cities, thereby expanding Pizza Hut's addressable market. Turning to our due focus on operational efficiency and innovation, Our approach is to rethink our operations from fresh perspectives. Over the past two years, we launched Project Fresh Eye and Project Red Eye.

These initiatives will continue to benefit us far into the future. We have streamlined our menu, simplified food preparation, centralized certain processes, and deployed more automation. Our innovative approach enable us to maintain consistent standards for quality and service. Technology and innovation play a crucial role in boosting efficiency. Our end to end digitization covers key operational processes from customer service and quality control to staffing and inventory management.

There are numerous examples. Just to name a few, we leverage AI to analyse customer feedback from various platforms. This means we can swiftly adjust our operations after a new product launch, often within just a day or two. In our digital customer service center, generative AI helps customers resolve around 90% of issues before they reach our team. We are also exploring the use of robotics to further advance our operational capabilities.

Before we turn to Q and A, I would like just to recap the three key takeaways from today. First, KFC continues to be a resilient fortress, performing well through both good times and bad. Pizza Hut has maintained its positive momentum following last year's inflection point. Second, we are broadening our addressable markets with expanded menus, widened price ranges, and innovative models. These include our K Coffee Cafe, as well as KFC Small Town Mini and Pizza Hut Wow models.

Lastly, we remain committed to our dual focus strategy of enhancing operational efficiency and fostering innovation to capture the amazing opportunities in China and create long term value for our shareholders. With that, I will 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.

Thank you. As a reminder, to ask a question, you will need to press star one and one on your telephone Our first question comes from the line of Lillian Liu from Morgan Stanley. Please go ahead. Your line is open.

This is Lun Yan. Okay. Thanks, Joey, Adrian and Florence. My question is more on competition and the demand trend after first Q. We've been seeing a bit general consumption slowdown post Chinese New Year.

So I want to understand any kind of new update of our business trend. And in particular, since April, we all know that JD started to push on delivery with big subsidies. And a lot of our competitors and the local players are joining. So any impact to our business so far and our strategy to this for the aggregator competition if such competition is going to last for longer run? Thank you.

Thank you, Lillian. So far, our April performance is in line with our expectations, and we have not observed any significant negative impact, but yet we continue to be watchful. Me comment on the consumer trends and then touch upon the JD question. As I mentioned, really have not observed any significant negative impact on our business. But of course, the situation remains fluid.

We'll continue to be alert and monitor the trends with multiple scenario marketing planning. So with all these macro sort of challenging environment, I just want to point out that we have successfully navigated a wide range of market conditions in the last thirty some years. Even in the last few quarters, we have faced challenging market conditions for some time, but we have consistently demonstrated our ability to thrive in both good times and bad times. I would like to make three points about the consumer sentiment. Point one is we are in China and dedicated to serving the Chinese people, and both KFC and Pizza Hut are well recognized brands beloved by Chinese consumer, and we serve over 2,000,000,000 customers annually.

We have earned very strong customer support and established deep connection with them. And in general, Chinese consumers have become more rational, sophisticated, and very pragmatic. Point two is we are also well recognized for supporting millions of jobs in China and giving back to the community. You know, some example, like eighteen years of one year donation and then food bank in over a thousand stores, etcetera, etcetera. Third is our suppliers and franchisees and business partners are very supportive, so we have good momentum.

In terms of competition, in terms of the question regarding the JD, I would like to make two points, Lillian. One is we are open to work with all platforms. Our goal is always to serve customers where they are and attract new customers. With that said, we do things at our own pace. We always balance short term and long term considerations.

Second point is even as we expand on aggregated platform, and by the way, we have continued to grow our delivery business for eleven years, and we just delivered another double digit or 13% increase in delivery business. We continue to maintain strong control over our business. Over 70% of our sales are outside the delivery aggregators. So, these 70% business include diene, takeaway, and our own very own delivery channels, our own APP exclusive perks further drive customers. So, you know, that's where we are, and I think as of yesterday or today, there's another company stepping up the delivery competition.

So we'll remain, you know, watchful and then we'll balance our strategy in the short term, long term. Thank you, Olivia.

you. We'll now move on to our next question. Our next question comes from the line of Michelle Chan from Goldman Sachs. Please go ahead. Your line is open.

Hi, Joy, Lejane and Florence. Thanks for taking my question. My question is regarding Pizza Hut. The first quarter Pizza Hut same store sales and margins were really impressive, especially we know that actually first quarter last year, the same store sales base was high given the OUK E content. So can you share with us how do you think about the same store sales trajectory in the rest of the year?

In second quarter, we launched the OUK E content again. So and but on top of that, we have easier base supportive on second quarter last year. So should we have a better expectation on the same store sales? And overall margins, we these all in campaign, how this will impact the near term margin, while these are low efficiency gain and the same store sales operating leverage is positive side and this should be a positive driver for the rest of the year. So just wondering, like for the rest of the quarter, how should we think about the good performance in first quarter to carry on the Pizza Hut?

Thank you, Michelle. Yeah, if it is okay with you, let me take this chance to actually address the question for both Pizzola and KFC and the group as a whole. Obviously, in terms of SSSG, because your question, you know, brings down to two part. One is top line, one is the margins. I'll speak of the top line first.

In terms of SSSG, the market environment is still quite evolving and complex. Consumers stay rational. And as Joey mentioned, while we have not observed any significant negative impact on business to date, we continue to be watch for the development. And April trading is generally in line with our expectation. But it's worth noting that for the month of June, we have a tougher lapping for that month.

So overall for quarter two, we're striving to achieve a ten consecutive quarters of positive things for transaction growth. But amid uncertain market conditions, we remain cautious about the potential fluctuations in same store sales index. And this comment is actually true for both KFC and Pizza Hut. And now comes down to margin, Specific to Pizza Hut, indeed the Pizza Hut OUK and E campaign that took place in quarter one last year was shifted to quarter two this year. So there is a quarterly shifting on the margins.

But broadly speaking in terms of the margin outlook the two brands respectively, I would say there was no change to our twenty twenty five full year guidance on margin. We expect the core P margin for the group as a whole to stay either steady or slightly improve, right? That's our guidance provided three months ago. And by brand specifically, we expect the restaurant margin for KFC to be healthy and stable year over year in this year, and also over the mid to long run. And for Pizza Hut margin to slightly improve this year and for mid to long run, hopefully the restaurant margin for Pizza Hut will improve in a bigger magnitude compared to this year.

And on the top line, you know, the top line is obviously a very important factor, you know, deciding on the restaurant margin. We reaffirm our guidance for the top line growth, which is a mid single digit growth in the system sales. And then I also like to take this opportunity to provide some more color on the line by line margin outlook, right? For COS, as I mentioned, there is a quarterly shifting for people that have oil can eat campaign. But more broadly speaking for COS as a whole, we expect modest improvement year over year, this year over last year, mainly driven by the benefits of Project Redeye and deflation.

And we'll continue to look to return much of the benefits to our consumers to continue offering great value for money to our consumers. And breaking down into these two brands, you know, specifically, we expect COS for KFC to be remain in the range of 31% to 32% for the full year. And for Pizza Hut to be in the range of 32% to 33% for the full year. And again, both this percentage will have a modest improvement year over year this year over last year. For COL, you know, as mentioned in the previous earning release, we face some headwinds on the COL front, particularly because of the increase in delivery mix.

Although the delivery cost per order decreased this year, driven by the increase in delivery mix, the overall rider costs as a percent of sales will increase for the group and for the two brands this year. And we'll make all efforts to try to offset the wage inflation, which is, you know, kind of the non delivery part by the efficiency gain, the simplification, automation and centralization. So try to keep the non delivery part of cost of labor to be stable year over year. And then comes to occupancy and other costs as percent of sales, that line item is likely to be stay stable. And we continue to explore optimization opportunities to offset the cost increases within that line item.

And I think it's very important to note and ask you also alluded to in the question, there is a quarterly phasing for the margin. We expect tougher year over year comparison on both the restaurant margin and operating profit margin later in the year. And this is because more meaningful benefits started to trickle in for project FreshEye from quarter two of last year and from project RedEye from second half of last year. And obviously the tailwinds from the favorable commodity prices will be narrowing in the second half of this year as well. And lastly, a couple of items, the interest income will obviously be lower as a result of the lower cash balance, given we significantly step up at our shareholder return.

And also there may be some headwind on foreign exchange rate. And, I guess one last item is the mark to market equity investment impact on me to and that's the volatile quarter over quarter and year over year. So overall, we maintain our we maintain reaffirm our annual guidance on margin and our top line. And then, know, in terms of the line by line color that's outside this slide. Thank you, Michelle.

Thank you, Asia for the very detailed line by line explanation.

Thank you. We'll now move on to our next question. Our next question comes from the line of Brian Bittner from Oppenheimer and Co. Please go ahead. Your line is open.

Thank you. Hi. Just for your investors outside of China, can you just maybe talk more about the consumer environment in China and how it's evolving so far in 2025? Are you seeing any positive indicators of maybe a potential inflection moving forward in the consumer? And separately, just I want to address the transaction growth, particularly at KFC.

It's been very solid transaction growth up 4% in the first quarter. Can you help us understand how this compares to the industry? What is the industry transactions looking like so we can understand how much market share KFC is taking recently? Thank you.

Thank you, Brian. Let me start with the consumer sentiment. We have not seen sort of very different consumer sentiment change so far. But I could make some general comment of the consumer preference, and that's sort of reflecting in our number is the preference towards sort of the wider price range and more and product with with even better entry price and still very innovative food. So that is still working for us, and therefore, you know, you can see our transactions are growing very nicely, in terms of our food business and drink business.

So the food business is the breakfast. And then the delivery business as well, we have captured very nice incremental sales from lower delivery order, particularly in lower tier city. So that helps a lot because the delivery transaction for KFC, the TCE growth actually is 24%, while the delivery sales is 13%. A similar trend in Pizza Hut, while the Pizza Hut also achieved 13% growth in delivery, the transaction growth for the sort of lower TA, about 30 to 60 TA, is actually over 50% growth. So that gives you a sense of where we are going.

And also in terms of drinks, I just want to quote you one number. Our K Coffee, so the coffee that we sell in all our KFC store, the increase of cups and sales is actually 20%. So that is sort of overall direction. And I think, you know, we see sort of similar trend in the industry, but I'm happy to report in both KFC and Pizza Hut based on our limited information because, you know, it's a very fragmented market in a way, we see some meaningful increase of our market share, particularly in the delivery business. So I hope that gives you a sense about where things are.

And going forward, we still stick to our focus, dual focus. One is innovation. That means innovations in food, in everything we do, and then operational efficiency, and that's where we get our margin from and supporting the innovation. One last interesting introduction of the innovation, look at our tea coffee business. Not only coffee, we're actually moving to tea as well.

So I hope that gives you a flavor of where things are, Brian. Thank you.

Thank you. We'll now move on to our next question. Our next question comes from the line of Chen Luo from Bank of America. Please go ahead. Your line is open.

Hi, Joanne. Adrian, this is Luo Chen from Bank of America. First, congrats on the same store sales growth turning flattish in Q1. And just now, I also hear you mentioned Diorinka and it happens that my daughter is a big fan of Diorinka. So that actually means to me.

Yeah. So my question is regarding the new store expansion. And in our earnings announcement, I noticed that new store contribute around 4% revenue growth despite around 11% something new store year on year growth. And last quarter in in q four last year, the new unit growth also contributed only roughly around 5% revenue growth. So if we do the math, if we compare the revenue growth from new stores divided by the new store expansion pace.

So this gives you roughly around 40% something ratio. I understand that we tend to open smaller and smaller stores, And I guess this could represent the long term trend in the future. Is it fair to say that in the foreseeable future, because of our mix shift towards the smaller stores for around 10 to 11% new store expansion, we can only expect around four or at best 5% something revenue growth from new stores because of the dilutions of the smaller new stores opened? That's my question. Thank you.

Thank you, Luo Chen. Yes, let me address the question quite directly. I think for this year, as we mentioned in the prepared remarks, in terms of the growth rate in our top line, we do expect the system sales growth to be in the mid single digit range. So that's a reaffirmation of our guidance. And we target to open, you know, 1,600 to 1,800 net new stores.

And obviously there's some quarterly timing shifts for the net new open this quarter versus the rest of quarter of the year. And then specific to a question on the 4% of net new units contribution to the top line. You mentioned the 10% of net new store increase as percentage, but obviously that's an end of the quarter store count. And, you know, even with all at the end of store, end of quarter store count growth rate the same, the store week when we open or close the store within the quarter is actually a very important factor as well. So, you know, the end of the quarter store count only tells one, you know, side of the story.

And then, you know, obviously on the 4% net unit contribution, you know, we are opening smaller stores as we expand into lower tier cities. Around 70% to 80% of our new stores in this quarter are smaller stores. That's opening this quarter are smaller stores. And as we guided to the market previously in the previous earnings release, new store sales are around 50% to 60% of our mature stores in terms of the weekly sales. And there's a ramp up period for the new store sales too.

We mentioned previously that's normally three years of ramp up period when the new store gets to a mature store. And importantly, our new store remain very healthy and maintain very healthy payback periods and profitability. Specific to this quarter, in addition to the smaller store factor, this quarter we strategically closed more stores to enhance the strength of our overall store portfolio, as we mentioned in the prepared remarks. And the net new store open figure will normalize as the year progresses. So that's more of this year, right?

But speaking of mid to long run, you know, if we open, let's say 10%, eleven %, twelve % of our menu stores, you know, in the quarter end figure, what's the system sales growth rate? Would that be mid single digit or low single digit or high single digit? I guess, you know, the store weak and the smaller store, you know, it's one side, you know, one aspect of the algorithm. The other aspect, important aspect is the same store sales growth. And as we mentioned, you know, just now, we remain cautious on the near term, especially this year same store sales index, you know, there may be some fluctuations there in the mid to long run.

Yum China Holdings (YUMC) Q1 2025 Earnings Call Transcript

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