Given Q1 OP margin expansion and expected easing rider cost pressure in H2, is there upside risk to the full-year OP margin guidance of "flat to slightly upward trend"?

Adrian Ding reiterated the full-year guidance of a "slight increase" in OP margin for the group, noting that Q1's 20-30 bps expansion was "broadly in line" with expectations of "generally stable." He detailed that COS for Pizza Hut will be higher (33-34%) due to value campaigns and new menu items, while COL will face headwinds from delivery mix. However, O&O will see tailwinds from better rent and lower depreciation. The long-term Pizza Hut restaurant margin target of 14.5% by 2028 remains, with potential to achieve it earlier. “Overall, the annual guidance on margin, which is a slight increase in OP margin for the group is unchanged. And hopefully, we are able and we are confident to be able to deliver that.”

What are the underlying demand trends and pricing momentum? Is competition moderating, and is there a chance for industry-wide pricing improvement?

Joey Wat confirmed improving consumer sentiment and observed stabilization in pricing trends, with more players taking pricing. She believes the rationalization of delivery competition is constructive. Adrian Ding cautioned that while the pricing environment is more favorable, KFC's average ticket (TA) may still decrease due to mix shifts towards lower-TA modules like KCOFFEE and K-Pro, which is different from inflationary indices in other markets. “Not only we take the pricing but we also see more players taking pricing. So that might be a sign that shows [indiscernible] more supportive consumer environment.”

Elaborate on KPRO's success and expansion, and estimate how many KFCs are suitable for KPRO.

Joey Wat expressed excitement for KPRO, noting its 7-year development. KPRO offers healthy, filling Chinese-style light meals with a strong drink mix. It adds about 20% sales uplift to parent KFC stores with good margins and has an "incredibly good reputation on food safety." The business could reach up to $1 billion in sales with 600 stores in 2026. The company is open-minded about further growth beyond the current target, depending on testing in Tier 3 cities. “The food is the Chinese style [Foreign Language] So the food is healthy, very reasonable carry, but you're still full, you're not hungry. That's important.”

YUMC

Yum China (YUMC) Q1 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q1 FY26)· Consumer Discretionary· Apr 29, 2026

Source: earnings call transcript

Executive summary

Yum China Q1 FY26 — Solid Growth and Accelerated Store Expansion

Yum China delivered solid Q1 FY26 results, driven by its LGM 3.0 strategy, balancing resilience, growth, and moat. The company accelerated store expansion, opening 636 net new stores, while maintaining positive same-store sales and transaction growth across brands. Despite persistent rider cost headwinds from increased delivery mix, operational efficiencies and strategic value offerings supported overall margin expansion and strong operating profit growth.

Highlights

Revenue grew 10% in reporting currency, with operating profit increasing and OP margin expanding 20 basis points year-over-year.
Opened 636 net new stores, over 1/3 of the full-year target and ahead of schedule.
KFC same-store sales grew 1%, marking its fourth consecutive quarter of growth, with restaurant margins at 19.1%.
Pizza Hut operating profit grew 18% (reporting currency), with restaurant margins improving 60 basis points to 15.0%.
KCOFFEE Cafes sales more than doubled year-over-year, with a target to reach 5,000 locations by year-end 2027, two years ahead of schedule.

Concerns

Rider costs from higher delivery mix increased, impacting restaurant margin by 190 basis points, partially offset by operational efficiency.
Cost of sales increased 40 basis points year-over-year due to value offerings and less favorable commodity prices.
Investment in Meituan had a negative impact of $9 million in Q1 FY26, compared to a positive $2 million impact in Q1 FY25.
$10 million less in interest income due to lower cash balance from shareholder returns and lower interest rates.

Guidance & targets

Category	Target	Timeline	Confidence
KCOFFEE Cafe locations	5,000 locations medium materiality	by year-end 2027 · FY27	High
KPRO locations	600 locations medium materiality	by year-end · FY26	High
Net new stores	more than 1,900 high materiality	full year · FY26	High
Total stores	surpass 20,000 medium materiality	in 2026 · FY26	High
Same-store sales growth	positive, sequentially improve high materiality	Q2 FY26	High
Same-store transaction growth	positive, 14th consecutive quarter medium materiality	Q2 FY26	High
Operating margin	roughly in line with prior year period high materiality	Q2 FY26	High
Year-over-year margin comparisons	sequential improvement medium materiality	second half · FY26	High
Same-store sales index	100 to 102 high materiality	full year · FY26	High
System sales growth	mid- to high single-digit high materiality	full year · FY26	High
Operating profit growth	high single-digit high materiality	full year · FY26	High
EPS growth	Double-digit high materiality	full year · FY26	High
Restaurant margin	slight improvement high materiality	full year · FY26	High
Operating margin	slight improvement high materiality	full year · FY26	High
Capital returns to shareholders	$1.5 billion high materiality	full year · FY26	High
Dividends	around $400 million medium materiality	full year · FY26	High
Share repurchases	$1.1 billion medium materiality	full year · FY26	High
Annual free cash flow return to shareholders	approximately 100% of annual FCF after subsidiary dividends high materiality	From 2027 · FY27	High
Average annual FCF return	$900 million to $1 billion-plus high materiality	2027 and 2028 · FY27-FY28	High
Annual FCF return	exceed $1 billion high materiality	2028 and onward · FY28+	High
Pizza Hut restaurant margin	exceeding 14.5% medium materiality	by 2028 · FY28	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
KFC Fourth consecutive quarter of same-store sales growth. Rapid growth of smaller orders offset by increased delivery mix. Same-store sales growth: 1%Same-store transaction growth: 1%Same-store ticket average: down 1%	—	5%	—	19.1%
Pizza Hut 13th consecutive quarter of same-store transaction growth. Restaurant margin expanded 60 basis points year-over-year. Ticket average moving closer to long-term target range of 60-70. Operating profit grew 18% in reporting currency. Same-store sales: 99% of prior year levelSame-store transaction growth: 5%Same-store ticket average: down 5%	—	4%	—	15.0%

YUMC operating KPIs by quarter

YUMC operating KPIs stated on its earnings calls, by fiscal quarter
KPI	This call Mar 2026 Q1 FY26	Jun 2026 Q2 FY26	Change vs prior quarter
Stores K-Pro	280+ Take Coffee cafes are now in over 2,600 locations and K-Pro in more than 280 locations. Source: earnings call transcript	450+ KPRO has expanded to over 450 locations and has proven more promising than we expected. Source: earnings call transcript	—

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Product announcements

Product	Type	Timeline
Crackling Golden Chicken Wings	launch	Chinese New Year
Aromatic Paper Rapid Roasted Chicken	launch	April
Pizza Hut Spring Menu	launch	last week
Pizza Hut Hand-Tossed Pizza with Multigrain Crust	update	May
KFC Chinese buns stocked with [indiscernible]	launch	—
Pizza Hut Roman style Spicy pasta with sausage	launch	—

Risks & headwinds

Increased rider costs from higher delivery mix Q1 FY26, persist in Q2 FY26, moderate in H2 FY26

190 basis points impact on restaurant margin in Q1 FY26. Delivery sales mix increased from 42% last year to 54% this year.

Mitigation:Mitigated around half through enhanced store operations. Expects moderation in H2 due to higher delivery mix in the base.

Cost of sales increase Q1 FY26

40 basis points higher year-over-year in Q1 FY26.

Mitigation:Primarily due to strong value for money offerings and less tailwind from favorable commodity prices. Management secured majority of this year's procurement contracts, expects limited impact from Middle East situation.

Negative impact from Meituan investment Q1 FY26

$9 million negative impact in Q1 FY26, compared to a positive $2 million impact in Q1 FY25.

Lower interest income Q1 FY26

$10 million less in Q1 FY26.

Mitigation:Due to lower cash balance from shareholder returns and lower interest rates.

Middle East situation impact on cost of sales this year

limited impact

Mitigation:Majority of this year's procurement contracts already secured. Will monitor and manage procurement and logistics nimbly.

What to watch in Q2 FY26

Same-store sales growth

Q2 FY26

Current slightly positive, though round to 0

Target sequentially improve

Why it matters

Indicates underlying demand strength and effectiveness of value offerings and innovation.

On sales, we are working hard to deliver positive same-store sales growth and the 14th consecutive quarter of positive same-store transaction growth. March sitting between Chinese New Year and the extra school spring break in April was slightly softer. However, April benefited from the additional traffic Taken together, March and April were broadly in line with our expectations, giving us confidence that same-store sales growth will sequentially improve for Yum China, KFC and Pizza Hut in quarter 2.

Find out whether YUMC delivers this. Inve re-checks your case every morning.

Q&A highlights

How has the promotional environment for delivery impacted sales vs. margins? What are the current trends in subsidies, and what is the strategy for takeaway/in-store consumption?

Management noted early signs of more rational delivery platform competition, with subsidies moderating, especially for smaller orders. They maintain a disciplined approach balancing sales growth, margin potential, and brand integrity. While delivery mix will continue to grow, rider cost pressure is expected to moderate in H2. The strategy focuses on operational growth, food innovation, and value, alongside driving takeaway and in-store consumption.

“We see early signs of more rational delivery performed competition recently for sure, and we welcome the development and believe that it will benefit our industry over time.”

asked by Michelle Cheng · answered by Joey Wat

2 min read 6 chapters

Detailed narrative

LGM 3.0 Strategy and Q1 Performance

Yum China's Q1 FY26 results reflect the successful execution of its LGM 3.0 strategy, balancing resilience, growth, and moat in a dynamic environment. The company achieved 10% revenue growth and a 6% increase in operating profit (reporting currency), with a 20 basis point expansion in operating profit margin. This marks the eighth consecutive quarter of growth across these three metrics, demonstrating consistent performance.

Accelerated Store Expansion and Franchise Growth

The company significantly accelerated its store expansion, opening 636 net new stores in Q1, representing over one-third of its full-year target. This aggressive expansion is driven by both KFC and Pizza Hut, with franchisees contributing 42% of net new stores, particularly in lower-tier cities and strategic locations.

The franchise portfolio now exceeds 2,500 stores, up from 1,800 a year ago, supporting capital-efficient growth and improved ROIC.

KFC Innovation and Side-by-Side Modules

KFC continued its innovation with successful LTOs and new permanent products like the "Crackling Golden Chicken Wings." Its side-by-side modules, KCOFFEE Cafes and K-Pro, are scaling rapidly. KCOFFEE Cafes are in over 2,600 locations, with sales more than doubling year-over-year, and are targeted to reach 5,000 locations by year-end 2027.

K-Pro reached 280 locations, adding 20% sales uplift to parent KFC stores, and its target was raised to 600 locations by year-end 2026.

Pizza Hut Expansion and WOW/Gemini Models

Pizza Hut accelerated expansion with 207 net new stores in Q1, nearly half of last year's full-year openings. The WOW format, with its lower CapEx and simpler operations, is driving growth in new cities and lower-tier markets, with over 100 new stores using this format.

The Gemini model, co-locating WOW stores with KFC, is also expanding, particularly in highway service stations, leveraging franchisee resources to tap into underserved demand.

Delivery Dynamics and Cost Management

Delivery sales mix increased to 54% in Q1, up from 42% last year, leading to increased rider costs which impacted restaurant margin by 190 basis points. However, the company mitigated about half of this impact through enhanced store operations. Management noted early signs of more rational delivery platform competition, with subsidies moderating, especially for smaller orders, which is viewed as constructive for the industry long-term.

Consumer Sentiment and Pricing Environment

Management observed improving consumer sentiment since Investor Day and noted stabilization in pricing trends across the industry. While KFC's average ticket may decrease due to mix shifts towards lower-TA modules like KCOFFEE and K-Pro, Pizza Hut's strategy involves a lower average ticket to appeal to the mass market. The company continues to focus on great food and value, alongside pricing, to drive traffic and sales.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.