$Yum China Holdings, Inc.(YUMC)$
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Call Start: 19:00 January 1, 0000 8:21 PM ET
Yum China Holdings, Inc. (NYSE:YUMC)
Q4 2023 Earnings Conference Call
February 06, 2024 07:00 PM ET
Company Participants
Joey Wat - Chief Executive Officer
Andy Yeung - Chief Financial Officer
Michelle Shen - Director of Investor Relations
Conference Call Participants
Michelle Cheng - Goldman Sachs
Brian Bittner - Oppenheimer
Xiaopo Wei - Citi
Lina Yan - HSBC
Sijie Lin - CICC
Kevin Yin - J.P. Morgan
Chen Luo - Bank of America
Operator
Thank you for standing by, and welcome to the Yum China Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to Ms. Michelle Shen, IR, Director. Please go ahead.
Michelle Shen
Thank you, Operator. Hello, everyone. Thank you for joining Yum China's fourth quarter 2023 earnings conference call. On today's call are our CEO, Ms. Joey Wat; and our CFO, Mr. Andy Yeung.
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. You can find the 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?
Joey Wat
Thank you. Hello, everyone, and thank you for joining us today. As Chinese New Year is coming Saturday, I want to wish everyone a happy and healthy Year of the Dragon.
I would like to kick off today's call by expressing my sincere appreciation to all our employees. Their incredible effort help Yum China deliver exceptional growth in the fourth quarter and for the full year. 2023 was a pivotal time for our business. This transformation of our business fundamentals in the past few years has enabled us to seize opportunities emerging from China's reopening and evolving market conditions.
In 2023, we hit record breaking revenue of $11 billion and grew system sales 21% year-over-year, outperforming the industry. Operating profits soared to $1.1 billion, an all-time high excluding special items. Core operating profits grew 79%. We opened a record 1,697 net new stores, expanding our total store count to 14,644 stores. KFC reached 10,296 stores, Pizza Hut reached 3,312 stores.
On today's call, I would like to walk you through the tremendous growth opportunities we see and discuss our strategies to capture them in 2024 and beyond. For the past 36 years, we have been the market leader in China. During this time, hundreds of restaurant operators have passed in and [indiscernible]. Instead of being Huang Ji Huang, or the flavor of the month, we want to be [indiscernible] or the flavor of the decade, or even next several decades.
In this developing market, where the restaurant industry is still growing double-digit, even during 2023 we see a long runway of growth for our brand. KFC still only serves 1/3 of the China population. Our next ambitious target is to extend our reach to half of the population by 2026. How? By being closer to our customer. That means adding store density in existing cities and entering new cities.
KFC currently operate across 2,000 cities in China, and is tracking an additional 1,000 cities. For Pizza Hut and our emerging brands, the whitespace is even larger. China is fast with significant regional and city tier [ph] differences. In lower tier cities, urbanization and long-term consumption upgrades are presenting attractive opportunities for us. With lower living costs, consumers in these cities have significant purchasing power for our products.
So as an example, premium beef burgers sell well in lower tier cities, just as in high tier cities. Over half of our new stores in recent years are in lower tier cities. These stores have performed well benefiting from lower labor costs and rent, and the ticket average is as good as in higher tier cities. For now, we are mainly serving middle class consumers in these markets.
As we expand, we see further opportunity in widening price points to broaden our addressable customer base. Our mission is to reach 20,000 stores by 2026. We will continue to protect our new store pay back at 2 years for KFC and 3 years for Pizza Hut. Over the past years, we have been improving our fundamental capabilities to reach this target. This is the key reason we can expand at an accelerated speed.
Some of these improvements include: first, flexible store format with lower upfront investment, open up more sites potential across at APS [ph]. Second, cost structure rebasing lower our rent ratio in 2023 to 8.7% of sales, the lowest level in the past 10 years. The majority of our leases are based on variable risks. Third, improved operating capabilities. AI enabled digital tools empower our capable restaurant managers to oversee multiple stores without compromising quality. This also solves the bottleneck of having enough good RGM as we expand rapidly.
Finally, strategic franchise partnerships allow us to gain access to locations that were beyond our reach before, such as highway service centers. In addition to a new store growth, our same-store sales grew 7% in 2023. It was fueled by a 12% increase in transactions indicating healthy growth. Our innovative menus, excellent value for money and effective online channels captured over 1.7 billion transactions last year.
Now, let's talk about food innovation. In 2023, we rolled out more than 500 new or upgrade products. That means we offered something new every week. Some examples include KFC's Beef Wrap with spicy blood and Chicken Taco with bull sauce and Pizza Hut's [indiscernible] pizza. This may sound a bit exotic, but I can assure you they're very popular in China.
Over the years, many of our most popular products have entered our 100 million club in U.S dollar sales and 2023 was no exception. Our Golden SPA chicken burger, (Huang jin SPA ji pai bao) launched in quarter four of 2022 joined our 100 million Club in 2023 with very little spent on marketing. It offers amazing value for money using chicken breast meat and is very popular with younger customers. Chicken breast meat is very high-quality protein, but the cost of breast meat is much cheaper in China than that meat.
Our juicy whole chicken, means [indiscernible] is another remarkable success story. We launched it in 2021 and by 2023, We sold over 50 million whole chicken. Whole chicken and beef burgers combined now contribute close to 6% of our sales, more than the original recipe chicken that we have been selling in the last 36 years.
K-COFFEE also grew rapidly in 2023, driven by product innovation and improving accessibility. 190 million cups were sold last year, a 35% increase year-over-year. Our coffee offers great value for money as low RMB9.9 per cup. Great value for money remains a key factor to drive traffic. In addition to the great food that I just mentioned, we have strategically enriched our menus with entry price point products to attract incremental customers. Our super in-house supply chain empowers us to innovate and offer fantastic value, while protecting margins.
At KFC, apart from our long lasting value platform, Crazy Thursday, (Feng kuang xing qi si), we identified entry price combos as huge underserved market segments. Last year, KFC expand the choices of its RMB20 combo including our recent Chinese burgers [indiscernible], which has been well received by customers. For pizza, the under RMB50 segment represent a significant portion of the market, but it's underserved at Pizza Hut.
In November last year, we launched four entry priced pizza, including the delicious Texas barbecue chicken pizza. We will continue to add more cost cautious choices to our menu this year to capture incremental sales. We also see amazing potential to further grow delivery sales. We are adjusting our delivery pricing structure to be more aligned with market norms. This will help us capture incremental traffic, especially in the smaller ticket segment and from more price sensitive customers.
Our third traffic driver is the effective use of our own and third-party online channel. In 2023, our digital sales surpass $9.2 billion, of that about 1/3 came from our own Super APP, 1/3 from many programs, and 1/3 from aggregators. Our own Super APP sales grew rapidly last year, up 35%. We continue to actively recruit and engage members.
Our loyalty program exceeds 470 million members, who contributed a record 65% of our sales. The purchase frequency of our K-Friends, our most loyal customers, was more than 100x a year. Our collaborations with major eCommerce and social media platform extend our reach beyond physical stores. This allows us to attract new customers and promote new offers in a cost effective manner. We consistently lead the industry in terms of sales generated on this platform. A brand that deeply ingrained in China, well loved and trusted by consumers, we continued to deliver amazing growth despite operating in a challenging environment.
Call Start: 19:00 January 1, 0000 8:21 PM ET
中国餐饮控股有限公司（NYSE：YUMC）
2023年第4季度盈利电话会议
2024年2月6日 晚上7:00 美东时间
Company Participants
Joey Wat - 首席执行官
Andy Yeung - 财务总监
Michelle Shen - 投资者关系总监
Conference Call Participants
Michelle Cheng - 高盛
Brian Bittner - Oppenheimer (布赖恩·比特纳 - 奥本海默)
小泼魏 - 花旗
Lina Yan - HSBC 鄢丽娜 - 汇丰银行
林四杰 - CICC
凯文·尹 - 摩根大通
陈罗 - 美国银行
Operator
谢谢您的等候，欢迎参加百胜中国2023财年第四季度及全年收益电话会议。【操作员指示】现在我将把会议交给投资关系总监沈女士。请开始。
Michelle Shen
谢谢，接线员。大家好。感谢您加入百胜中国2023年第四季度收益电话会议。今天的电话会议上有我们的首席执行官Joey Wat女士和我们的首席财务官Andy Yeung先生。
我想提醒大家，我们的收益电话会议和投资者资料中包含前瞻性声明，这些声明受未来事件和不确定性的影响。实际结果可能与这些前瞻性声明有实质性差异。所有前瞻性声明应与我们收益公告中的警示性声明以及在美国证券交易委员会提交的风险因素一起考虑。
本次通话还包括某些非依据通用会计准则（GAAP）的财务指标。您应仔细考虑相应的GAAP指标。非GAAP和GAAP指标的调和已包含在我们的收益发布中。您可以在我们的投资者关系网站上找到本次通话的网络直播和PowerPoint演示。请注意，在今天的通话中，所有同比增长的结果均不包括外汇影响，除非另有说明。
现在，我想把电话交给百胜中国的CEO王蕾。王蕾？
Joey Wat
谢谢。大家好，谢谢你们今天的参与。由于春节即将到来，我想祝愿大家龙年快乐、健康。
我想通过表达我对所有员工的真诚感激来开始今天的电话。他们不可思议的努力帮助百胜中国在第四季度和整个年度实现了杰出的增长。2023年对我们的业务来说至关重要，我们过去几年转变了业务基本面，这让我们能够抓住中国重新开放和不断变化的市场条件所带来的机遇。
在2023年，我们取得了创纪录的110亿美元营收，并使系统销售同比增长21％，表现优异，超过了行业标准。营业利润飙升至11亿美元，创历史新高（不包括特殊项目）。核心营业利润增长了79%。我们开设了创纪录的1697家净新增店铺，扩大了总店铺数量至14644家。肯德基的店铺数量达到了10296家，必胜客的店铺数量达到了3312家。
在今天的电话会议中，我想带领大家了解我们所看到的巨大增长机遇，并讨论我们在2024年及未来如何抓住这些机遇的战略。在过去36年里，我们一直是中国市场的领导者。在这期间，数百家餐厅经营者都已消失无踪。我们不想像黄记煌那样只是一时的风靡，而是希望成为这个十年甚至未来十几年中的常青之味。
在这个不断发展的市场中，餐饮行业仍在以两位数增长，即使在2023年，我们品牌依然有着长期的增长空间。肯德基目前仅覆盖中国人口的三分之一，我们下一个雄心勃勃的目标是在2026年前扩大品牌影响力，覆盖一半的人口。我们将如何做到呢？通过更加接近我们的顾客。这意味着加强在现有城市的门店密度，并进入新的城市。
肯德基（KFC）目前在中国经营了 2000 个城市，并正在追踪另外 1000 个城市。对于必胜客和我们新兴品牌来说，市场空白更大。中国的速度快，不同地区和城市的差异显著。在三四线城市，城市化和长期消费升级为我们带来了吸引人的机遇。在这些城市，由于生活成本较低，消费者拥有很大的购买力购买我们的产品。
所以举个例子，高档牛肉汉堡在低线城市和高线城市销售都很好。在过去几年里，我们新开的店铺有一半以上位于低线城市。这些店铺表现出色，得益于较低的人工成本和租金，客流均与高线城市持平。目前，我们的主要服务对象是这些市场的中产阶级消费者。
随着我们的扩张，我们看到扩大价格范围以拓宽我们能触达的客户群的更多机会。我们的使命是在2026年达到20,000家门店。我们将继续确保肯德基新店的回本期为2年，必胜客为3年。在过去几年中，我们一直在提升我们的基本能力以实现这一目标。这是我们能够以加速的速度扩张的关键原因。
一些改进包括：首先，采用灵活的门店格式，降低最初投资，扩大APS [ph]等地区的潜在场所。其次，成本结构重新调整以将我们在2023年的租金比例降至销售额的8.7％，达到过去10年中的最低水平。我们的大部分租约都基于变动风险。第三，提高了运营能力。AI启用的数字工具赋予我们能力强大的餐厅经理监督多家门店，而不会影响质量。这也解决了我们在迅速扩张时缺乏足够优秀RGM（餐厅总经理）的瓶颈问题。
最后，战略性特许经营合作伙伴关系使我们能够获得之前无法触及的地点，如高速公路服务中心。除了新店增长外，我们的同店销售在2023年增长了7%。这得益于交易量增加了12%，表明了健康的增长。我们创新的菜单，超值的价格以及有效的在线渠道去年吸引了超过17亿次的交易。
现在，让我们来谈谈食品创新。在2023年，我们推出了500多种新产品或升级产品。这意味着我们每周都推出新品。一些例子包括肯德基的香辣血拼牛肉卷和带有牛肉酱的鸡肉塔可饼，必胜客的[不可辨] 披萨。这些听起来可能有些外来，但我可以向你保证，在中国它们非常受欢迎。
多年来，我们许多最受欢迎的产品都进入了我们 1 亿美元销售俱乐部，2023 年也不例外。我们的金色温泉鸡肉汉堡（SPA ji pai bao），在 2022 年第四季度推出，在 2023 年加入了我们的 1 亿美元俱乐部，几乎没有在营销上花费。它以鸡胸肉为原料，物美价廉，深受年轻顾客的喜爱。鸡胸肉是高品质的蛋白质，但在中国的成本却比较便宜。
我们多汁的整鸡意味着[不可辨]是另一个令人瞩目的成功故事。我们在2021年推出了它，到了2023年，我们卖出了超过5000万只整鸡。整鸡和牛肉汉堡的结合现在贡献了接近我们销售额的6%，超过了过去36年我们一直在销售的原味鸡。
K-COFFEE 在2023年也迅速增长，得益于产品创新和改善可及性。去年售出了1.9 亿杯咖啡，同比增长35%。我们的咖啡每杯低至 9.9 元人民币，物有所值。物有所值仍然是吸引顾客的关键因素。除了刚提到的美食外，我们还打算通过低价产品来吸引更多顾客。我们的内部供应链让我们能够不断创新，提供优质产品，同时保护利润率。
在肯德基，除了我们持久的价值平台和疯狂星期四（Crazy Thursday），我们确定了低价套餐作为一个巨大的未开发市场细分。去年，肯德基扩大了RMB20套餐的选择，增加了我们最近推出的中国汉堡，受到了顾客的好评。至于披萨，低于RMB50的市场细分代表了一个重要的市场份额，但在必胜客中未得到充分开发。
去年11月，我们推出了四种入门级价格的披萨，包括美味的德克萨斯烧烤鸡披萨。今年，我们将继续在菜单上添加更多价格敏感的选择，以吸引更多销售。我们也看到通过送货服务进一步增长销售的巨大潜力。我们正在调整送货的定价结构，以更符合市场规范。这将帮助我们吸引更多的交通量，特别是来自小额消费者和更注重价格的客户的流量。
我们的第三个流量驱动因素是有效利用我们自己和第三方的在线渠道。在2023年，我们的数字销售超过92亿美元，其中大约三分之一来自我们自己的超级应用，三分之一来自各种项目，三分之一来自聚合器。我们自己的超级应用销售量去年快速增长，增长了35%。我们继续积极招募和吸引会员。
我们的忠诚计划拥有超过 4.7 亿会员，他们贡献了销售额的创纪录 65%。我们最忠诚的客户“K-Friends”的购买频率每年超过 100 次。我们与主要的电子商务和社交媒体平台合作，将我们的覆盖范围扩大到线下商店之外。这让我们能够以成本效益的方式吸引新客户并推广新的优惠。我们一直在该平台上引领行业，不断产生销售额。作为一个深植于中国市场中、深受消费者喜爱和信任的品牌，尽管在具有挑战性的环境中运营，我们依然能够持续实现惊人的增长。
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