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    YUMC
    Earnings call· Mar 2026(Q1 FY26)

    Yum China Holdings Q1 FY26 earnings call YUMC

    Apr 29, 2026 Source

    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

    5

    • 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

    4

    • 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

    21
    CategoryTargetConfidence
    KCOFFEE Cafe locations
    5,000 locations
    medium materiality
    High
    KPRO locations
    600 locations
    medium materiality
    High
    Net new stores
    more than 1,900
    high materiality
    High
    Total stores
    surpass 20,000
    medium materiality
    High
    Same-store sales growth
    positive, sequentially improve
    high materiality
    High
    Same-store transaction growth
    positive, 14th consecutive quarter
    medium materiality
    High
    Operating margin
    roughly in line with prior year period
    high materiality
    High
    Year-over-year margin comparisons
    sequential improvement
    medium materiality
    High
    Same-store sales index
    100 to 102
    high materiality
    High
    System sales growth
    mid- to high single-digit
    high materiality
    High
    Operating profit growth
    high single-digit
    high materiality
    High
    EPS growth
    Double-digit
    high materiality
    High
    Restaurant margin
    slight improvement
    high materiality
    High
    Operating margin
    slight improvement
    high materiality
    High
    Capital returns to shareholders
    $1.5 billion
    high materiality
    High
    Dividends
    around $400 million
    medium materiality
    High
    Share repurchases
    $1.1 billion
    medium materiality
    High
    Annual free cash flow return to shareholders
    approximately 100% of annual FCF after subsidiary dividends
    high materiality
    High
    Average annual FCF return
    $900 million to $1 billion-plus
    high materiality
    High
    Annual FCF return
    exceed $1 billion
    high materiality
    High
    Pizza Hut restaurant margin
    exceeding 14.5%
    medium materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    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%

    Operational metrics

    30
    Revenue growth
    10%YoY
    Q1 FY26

    Supported by positive foreign exchange impact.

    System sales growth
    4%YoY
    Q1 FY26
    Operating profit growth
    6%YoY
    Q1 FY26

    Eighth consecutive quarter of growth across revenue, operating profit, and operating profit margin.

    Operating profit margin expansion
    20YoY
    Q1 FY26

    Eighth consecutive quarter of growth across revenue, operating profit, and operating profit margin.

    KCOFFEE Cafe locations
    over 2,600
    Q1 FY26

    Sales more than doubled year-over-year.

    K-Pro locations
    280up from 200 at the end of 2025
    Q1 FY26

    Primarily focused on Tier 1 and Tier 2 cities, expanding to select Tier 3 cities.

    Pizza Hut WOW store count
    around 390doubled year-over-year
    Q1 FY26

    Lower CapEx model and simpler operations, supported by franchisee model.

    Gemini stores (WOW side-by-side with KFC)
    nearly 80
    Q1 FY26

    Leveraging franchisee resources to tap into growing underload demand.

    Highway service station stores
    nearly 100
    over a year

    Accelerating pace this year.

    KFC stores with drive-thru or carside pickup
    more than 7,00 0up from around 2,000 a year ago
    Q1 FY26

    Car-side pickup reduces capital expenditure and offers greater flexibility for takeaway sales.

    Drive-thru repeat purchase rate
    nearly 1/3
    Q1 FY26

    Showing strong potential and stickiness.

    Restaurant margin
    18.2%40 bps lower YoY
    Q1 FY26
    Cost of sales
    31.6%40 bps higher YoY
    Q1 FY26
    Cost of labor
    26.7%10 bps higher YoY
    Q1 FY26

    Rider costs now account for close to 30% of cost of labor.

    Delivery sales mix
    54%up from 42% last year
    Q1 FY26

    Increased rider costs.

    Rider cost margin impact
    190
    Q1 FY26

    Due to increased delivery sales mix.

    Occupancy and other
    23.5%100 bps lower YoY
    Q1 FY26
    Operating profit
    $447 million6% growth YoY
    Q1 FY26
    Net income
    $309 millionflat YoY
    Q1 FY26
    Net income excluding Meituan investment
    4%growth YoY
    Q1 FY26

    Meituan investment had a negative impact of $9 million in Q1 FY26 vs. positive $2 million in Q1 FY25.

    Meituan investment impact
    - $9 millionvs. +$2 million in Q1 FY25
    Q1 FY26

    Negative impact in Q1 FY26.

    Interest income decrease
    $10 millionless YoY
    Q1 FY26

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

    Diluted EPS
    $0.877% higher YoY
    Q1 FY26
    Diluted EPS excluding Meituan investment
    11%up YoY
    Q1 FY26
    Capital returned to shareholders
    $316 million
    Q1 FY26
    Share repurchases
    $214 million
    Q1 FY26

    Part of Q1 capital returns.

    Quarterly cash dividends
    $102 million
    Q1 FY26

    Part of Q1 capital returns.

    KFC hero products sales contribution
    30%
    Q1 FY26

    Purchased by about 80% of ASIC members.

    KFC [indiscernible] sales
    nearly tripled
    since 2022

    Introduced in 2021, good option for home consumption.

    Pizza Hut COS (full year)
    33% and 34%higher than last year
    FY26

    Due to all-you-can-eat campaign, new menu items, and higher delivery mix package costs.

    Industry KPIs

    3
    MetricValueDetails
    Comparable sales compsslightly positive, though round to 0%
    Global system wide sales4%%
    Net unit growth development pipeline636net new stores

    Product announcements

    6
    ProductTypeDetails
    Crackling Golden Chicken Wingslaunch
    Aromatic Paper Rapid Roasted Chickenlaunch
    Pizza Hut Spring Menulaunch
    Pizza Hut Hand-Tossed Pizza with Multigrain Crustupdate
    KFC Chinese buns stocked with [indiscernible]launch
    Pizza Hut Roman style Spicy pasta with sausagelaunch

    Risks & headwinds

    5
    Increased rider costs from higher delivery mixQ1 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 increaseQ1 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 investmentQ1 FY26

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

    Lower interest incomeQ1 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 salesthis 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

    5

    Same-store sales growth

    Q2 FY26
    Currentslightly positive, though round to 0
    Targetsequentially 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.

    Q&A highlights

    5

    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 read6 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    06

    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.

    AI-generated summary of the company’s earnings call. Not investment advice.