Prepared remarks
Good day, everyone, and thank you for standing by. Welcome to Yum China's Second Quarter 2026 Earnings Conference Call. Please be advised that today's conference is being recorded. Now it's my pleasure to hand the conference to Florence Lip, Senior Director of Investor Relations. Please proceed.
Thank you, operator. Hello, everyone, and welcome to Yum China's Second Quarter 2026 Earnings Conference Call. With me on the call are our CEO, Ms. Joey Wat; and our CFO, Mr. Adrian Ding. Before we begin, I will remind everyone that our remarks and investor materials contain forward-looking statements. These are subject to future events and uncertainties, and actual results may differ materially. Please refer to these forward-looking statements together with the cautionary statement in our earnings release and the risk factors included in our SEC filings. We'll also be talking about non-GAAP financial measures. We encourage you to review the comparable GAAP measures, along with the reconciliation of non-GAAP and GAAP measures provided in our earnings release, which is available on our Investor Relations website at ir.yumchina.com. You can also find both the webcast replay and a PowerPoint presentation on our IR website. Please note that all year-over-year growth rates discussed today exclude the impact of foreign currency, unless we mentioned otherwise. With that, I'll now turn the call over to Joey Wat, CEO of Yum China. Joey?
Hello, everyone, and thank you for joining us. We delivered strong second quarter results. For the ninth consecutive quarter, we achieved system sales growth, operating profit growth and OP margin expansion at the same time. I would like to thank our team again for making this possible. Revenue grew 13%. Operating profit increased 14% and diluted EPS rose 21% year-over-year, partially supported by favorable foreign exchange impact. Excluding foreign exchange impact, system sales grew 6% in quarter 2, up from 4% in quarter 1 and continued to outperform the catering industry. Same-store sales growth also improved sequentially to 1%, driven by the 14th consecutive quarter of same-store transaction growth. We opened 560 net new stores with expansion accelerating year-over-year across both equity and franchise stores. With our dual focus on innovation and operational efficiency, Q2 restaurant margins and OP margins stayed resilient despite significant cost pressure from a higher delivery mix.
Our breakthrough side-by-side modules are scaling rapidly, especially in higher-tier cities. KFC's KCOFFEE Cafe and KPRO are effectively capturing new customer occasions. Pizza Hut's new Burger Bar was well received by our customers. At the same time, KFC's Small Town model and Pizza Hut WOW are helping us penetrate lower-tier cities quickly. Together with innovation in our core menus, these initiatives are unlocking new opportunities for us. Let me start with Pizza Hut, which made significant progress in quarter 2. Pizza Hut same-store sales growth returned to positive at 1%, while new store openings accelerated, almost double what we did in quarter 2 last year. This brings net new store openings to 381 in the first half, nearly matching our 2025 total. In April, we launched Fajitas and Shakshuka on the spring menu to enrich Pizza Hut's protein platforms and enhance the dining experience.
In May, we extended our pizza category into lighter meal occasions with a new multigrain crust and new protein and vegetable toppings. Duoguwu Neng Liang (multigrain energy) pizza. The pizza's colorful look, nutrient-packed profile and grain-rich texture make it our best-selling crust since launch in June. We also introduced an individual-sized multigrain pizza with less than 500 calories, helping us attract more solo and light meal diners. Beyond pizza, we are taking Pizza Hut's burger category to the next level with a new side-by-side module, Pizza Hut Burger Bar. In just six months, it has expanded to more than 200 locations, contributing double-digit incremental sales and meaningful profit to parent stores. Pizza Hut Burger Bar features a tight menu centered on make-to-order burgers from an open kitchen. Our buns are baked fresh in-store every day and our patties come straight off the griddle, releasing a rich savory aroma.
Great-tasting burgers, amazing value for money and a quick service model have proved very appealing to young consumers and solo diners. With light investment and by utilizing space in existing stores, we believe Pizza Hut Burger Bar can unlock significant growth opportunities for Pizza Hut. We plan to accelerate the rollout in the second half, reaching 500 to 600 locations by the end of 2026. That would represent around 10% of Pizza Hut's nearly 5,000 store portfolio. And we are about to reach a major breakthrough by becoming the owner of the Pizza Hut brand in Mainland China after operating the brand in the market for 36 years. In the near term, the savings in license fees will enhance store economics and make Pizza Hut restaurant margin closer to KFC's. This will enable more potential new stores to meet our payback requirement of 2 to 3 years. Over the longer term, brand ownership will give us greater strategic flexibility and allow us to respond more nimbly to market opportunities and consumer needs.
While we are still reviewing our growth plan, our initial assessment points to accelerated store openings beginning next year. In 2027 and 2028, we now expect net new openings to exceed 800 per year, up from our original target of over 600. As we step up our efforts at Pizza Hut, KFC continues to be our number one growth driver, delivering strong results. In quarter 2, both system sales and core operating profit grew 7% year-over-year. Same-store sales grew 1%. In the first half, KFC opened nearly 800 net new stores, around 200 more than in the first half last year. KFC's hero products and their extensions continued to drive strong sales and repeat purchases. Chicken has become a major platform for at-home consumption, generating over CNY 2 billion in sales last year. This category has delivered double-digit growth every year since its launch in 2021 and remains on track for double-digit growth in 2026.
In April, we added the aromatic paper-wrapped roasted chicken to the permanent menu. It's super juicy and high in protein, appealing to consumers seeking lighter meals. Zinger is another top-selling platform for KFC. In quarter 2, we introduced a limited-time offer: a more fragrant, spicier Zinger. The Extra Spicy Chicken with secret sauce and toasted sesame aroma attracted younger customers. Sales were especially strong in spicy-loving provinces such as Jiangxi and Sichuan. With more regional flavors to come, we see strong potential for the Zinger category to exceed CNY 5 billion in sales by the end of 2026. KFC's side-by-side modules, KCOFFEE Cafe and KPRO, continue to gain momentum and deliver incremental sales and profits. KCOFFEE Cafe grew to more than 3,300 locations, and we are on track to reach 5,000 locations by the end of 2027. In addition to coffee offerings, KCOFFEE Cafe is broadening its tea and food options, including more top flavors and breakfast pairings to expand its addressable market.
KPRO has expanded to over 450 locations and has proven more promising than we expected. Earlier this year, we raised our year-end rollout target from 400 to 600 locations, and we now expect to reach around 800 locations. Following its success in higher-tier cities, we are expanding KPRO into select lower-tier cities. Beyond increasing its footprint, we are capturing the growing demand for lighter meals through menu innovation. In addition to our signature energy bowls, we recently launched sandwiches featuring whole wheat buns with chia seed and high-protein ingredients. The sandwiches became an instant hit with good repeat purchases. In fact, more than 80% of KPRO sales came from KFC members, showing the power of cross-selling and membership. Combined with our trusted food quality standards and strong value for money, KPRO is well positioned to become a leading player in China's light meal business.
Aside from new modules, KFC is also rolling out car-side pickup service to improve convenience for customers who drive. More than 8,000 KFC stores now offer either drive-thru or car-side pickup, where our restaurant staff bring orders to designated pull-up areas. While customer awareness and habits are still in the early stage, the service is gaining traction, supported by strong repeat purchases. Over 7 million members have used this service this year, yet that still represents only 3% of our active member base, leaving significant room for growth. Let me now turn the call over to Adrian.
Thank you, Joey. Let me update key highlights by brand, starting with KFC. In quarter 2, both KFC same-store sales growth and system sales growth improved sequentially. System sales grew 7%, up from 5% in quarter 1. Same-store sales grew 1%, the fifth consecutive quarter of growth. Same-store transactions grew 4%, more than offsetting the ticket average decrease of 3%. Ticket average was CNY 36 lower year-on-year, mainly due to incremental smaller orders from new customer segments and locations such as KCOFFEE and KPRO. Despite significant rider cost headwinds, KFC's restaurant margin expanded 20 basis points to 17.1% in quarter 2. OP margin also expanded by 20 basis points, once again demonstrating KFC's strong execution and nimble operations at scale. KFC's side-by-side modules continue to drive incremental sales and profit while improving store economics through model iteration. KCOFFEE Cafe delivered around mid-single-digit sales uplift to its parent stores, while KPRO delivered around 20%.
CapEx for both KCOFFEE Cafe and KPRO has come down by around half from earlier modules last year, and both are showing solid margin improvement. Now moving on to Pizza Hut. In quarter 2, system sales grew 6% year-over-year, accelerating from 4% in quarter 1, driven by the sequential improvement in same-store sales growth to 1%. Same-store transactions grew strongly by 13% in quarter 2, marking the 14th consecutive quarter of growth, offsetting an 11% ticket average decrease. Ticket average was CNY 68, moving closer to our target range of CNY 60 to CNY 70 in line with our mass market strategy, mainly driven by better value for money and incremental smaller orders, including those from solo diners and Burger Bar. Pizza Hut restaurant margin was down 40 basis points, mainly due to the increased costs associated with higher delivery sales mix, better value for money and expenses related to the launch of the Pizza Hut Burger Bar.
The new initiative successfully drove incremental sales and profit with a modest margin investment. In the first half, restaurant margin was up 10 basis points year-over-year. OP margin expanded by 60 basis points, mainly driven by lower closure and impairment expenses, reflecting improved store performance. In the second half, we expect greater year-on-year improvement versus the first half in Pizza Hut restaurant margin as efficiency continues to improve and rider cost headwinds soften. Moving on to store opening. We opened around 1,200 net new stores in the first half, about double the pace of the same period last year and entered more than 200 new cities. Both equity and franchise store openings accelerated year-over-year. In the higher-tier cities, we continue to densify our network, primarily through equity stores to sustain our powerful brand momentum and operational mode. At the same time, franchisees, which accounted for 40% of total net new openings in the first half, are unlocking incremental opportunities for us.
They provide additional resources to help us expand into lower-tier cities, remote areas and strategic locations. With franchise stores accounting for only 18% of total stores of Yum China, we're confident there are significant opportunities ahead. Let me now go through our quarter 2 P&L. System sales grew 6% year-on-year. Same-store sales grew 1%, sequentially improved from quarter 1. Our restaurant margin was 16.1%, in line with the prior year level. Improvements in occupancy and other costs offset growth in cost of sales and cost of labor. Cost of sales was 31.5%, 50 basis points higher year-over-year, mainly due to better value for menu offerings, increased packaging costs due to higher delivery sales mix and Pizza Hut's new menu items, which have higher cost of sales and are still being optimized. Commodity prices remain favorable, though the benefit was smaller than before. We also improved our procurement efficiency through menu innovation and dynamic price management.
Cost of labor was 27.6%, 40 basis points higher year-on-year. Rider costs continued to increase year-on-year in quarter 2, driven by the strong growth in delivery sales mix, which rose from 45% last year to 54% this year. The margin impact from rider cost was 140 basis points, slightly lower than in quarter 1, and we offset most of that through enhanced store operations. Occupancy and other was 24.8%, 90 basis points lower year-over-year. The rent ratio improved through lease renegotiations and more favorable rent in lower-tier cities. We also implemented other initiatives to enhance operational efficiency. Our OP margin was 11.1%, 20 basis points higher year-over-year, achieving the ninth consecutive quarter of OP margin expansion. Savings in G&A expenses helped improve OP margins. Operating profit was $348 million, a second quarter record, growing 7% year-over-year. Net income was $244 million, up 6% year-over-year.
Excluding our investment in Meituan, net income grew 3% year-over-year. Our investment in Meituan had a negative impact of $6 million in quarter 2 compared to a negative impact of $14 million in quarter 2 last year. As a reminder, we recognized $13 million less in interest income in quarter 2 this year due to a lower cash balance resulting from the cash we returned to shareholders and lower interest rates. Diluted EPS was $0.70, 14% higher year-over-year or up 10%, excluding our investment in Meituan. Now moving on to our 2026 outlook. Let me start with sales. Since June, we have been lapping a higher delivery sales base, and that tougher sales comparison will continue through the second half. That said, given our disciplined execution last year and multiple growth drivers, we remain confident in our ability to lead the catering industry in China. July tracked broadly in line with our expectations.
We are working hard to maintain positive same-store sales growth in quarter 3 and deliver the 15th consecutive quarter of positive same-store transaction growth. Moving on to margins. Before considering the impact of the Pizza Hut deal, we expect quarter 3 restaurant margin to be stable to slightly positive year-on-year. Relative to the first half, incremental rider cost pressure is expected to moderate slightly as delivery sales mix already increased to 51% in quarter 3 last year. Our continued efforts to improve operational efficiency and optimize store costs, including rent, labor productivity and CapEx are expected to support margins, giving us room to reinvest in growth. We expect OP margin to be roughly in line with quarter 3 last year. There was a positive margin impact of about 20 basis points from some ad hoc government subsidies in quarter 3 2025 that are not expected to repeat in quarter 3 this year.
Some similar subsidies were already recognized in the first half this year, though in smaller amounts. For the full year, without considering the impact of the Pizza Hut deal, we're confident in meeting our 2026 targets, which are consistent with the range we shared at our Investor Day last year and in February. These include 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 a slight improvement in restaurant and OP margins. Additionally, we remain on track to reach 20,000 stores by year-end. Now let's turn to the Pizza Hut deal, which is on track to close in August. We plan to fund this transaction primarily with debt. We expect to borrow an offshore bridge loan of around $1.2 billion equivalent for up to 12 months. For longer-term financing, all options remain on the table. We'll proceed in the best interest of our shareholders and execute financing when market conditions are appropriate.
We'll provide an update once our financing plan is finalized. The savings in the 3% license fee payments to Yum! Brands are expected to add 2.8% to Pizza Hut's restaurant OP margins after taking VAT into account. This translates to approximately 60 basis points for Yum China overall. For quarter 3, we expect around 30 to 40 basis points positive impact to both Yum China's restaurant and OP margins and for the 2026 full year, around 20 to 30 basis points. After accounting for deal-related costs, financing interest expense, tax and without considering the potential higher growth of Pizza Hut, we expect the deal to be accretive to diluted EPS, slightly accretive in 2026 and mid-single-digit accretive in 2027 and 2028. In terms of capital returns to shareholders, we remain on track to return $1.5 billion to shareholders in 2026, equivalent to around 10% of our current market cap. In the first half, we returned $718 million, including $515 million through share repurchases and $203 million through quarterly cash dividends.
We stepped up share repurchases in quarter 2, reflecting what we believe was a relatively attractive share price. From 2027 onwards, we remain committed to returning around 100% of annual free cash flow after subsidiaries' dividend payment to noncontrolling interests. This translates to an average of $900 million to $1 billion plus in 2027 and 2028 and exceed $1 billion in 2028 and beyond. With ownership of Pizza Hut brands supporting faster growth, we also see potential upside to our future free cash flow. With that, let me hand it back to Joey for her closing remarks.
Thank you, Adrian. Looking ahead, we are firing on all cylinders to drive sales and expand our addressable market. A number of our initiatives have each reached or are about to reach the meaningful milestone of CNY 1 billion in sales or around 1% of Yum China sales. KCOFFEE Cafe generated around CNY 1 billion in sales last year. We target to double that to nearly CNY 2 billion this year. KPRO is expected to quadruple in sales year-over-year this year and exceed CNY 1 billion in sales next year. KFC's drive-thru and car-side pickup are gaining strong momentum. We target to reach CNY 1 billion in sales this year. Pizza Hut Burgers, a category we introduced two years ago, is also gaining popularity. We now target over CNY 1 billion in sales this year or around 5% to 6% of Pizza Hut sales. We remain confident in the strength of our brands and our ability to deliver sustainable growth even in the current dynamic environment. And we continue to see significant long-term growth potential in China. Together with our team, I look forward to achieving our growth targets for 2026 and beyond. Now let me 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 to one at a time. Operator, please start the Q&A.
Questions and answers
Our first question is from Michelle Cheng with Goldman Sachs.
Congrats again for the very solid results. My question is about the overall consumption environment and also the pricing and promotion trend. We actually heard from many consumer companies and also looking at the macro data, second quarter market has been turning softer. And even into third quarter, it's not exciting and definitely the weather didn't help at all. But you still delivered a very solid result in second quarter. So can you share with us your observation on the overall consumption trend? And I remember a few quarters ago, you mentioned the promotional activities have been better in China. But given this kind of consumption trend, do you see any risks on the reemergence of this pricing trend or promotion activities in the market? And since we know we have an easier base on margin, I still want to hear your thoughts on how to balance this pricing trend and the promotional activities to drive the sales growth.
Thank you, Michelle. We are encouraged to see the rebound. In June, retail sales compared with May actually improved. And as Adrian mentioned earlier in prepared remarks, July tracked broadly in line with our expectations. There was some extreme weather, but it was temporary and had certain regional impact in July. There are a few trends worth noting. Consumers are still willing to spend on certain occasions. They are still growing nicely and present attractive opportunities such as coffee and light meals; they're willing to spend money on innovative products and experiences, strong value for money and emotional value. We are also seeing some stabilization in pricing trends. More players are willing to take pricing, reflecting a stable consumer environment, and competition between delivery platforms is more rational. These are positive signs. On top of that, we continue to see ongoing increase in what we call 'chainification.'
China's restaurant chain penetration has grown from roughly 20% to over 30% and it's still relatively low compared with 60% plus in mature markets. Since April, the government has tightened oversight of food delivery related to so-called ghost kitchens. We view this as a positive development, raising the standard of the industry, and we expect to benefit from our well-established food safety, which is a strategic moat for us. Thus, Michelle, the Yum China team is working hard to drive traffic, sales and profit all at the same time, and we target to maintain positive same-store sales growth in quarter 3 and deliver the 15th quarter of same-store transaction growth as well. Thank you, Michelle.
Our next question comes from Chen Luo with Bank of America.
Congrats again on the strong results for Q2. My question is focused on our Pizza Hut China brand acquisition. Just now, Adrian mentioned that there will be a 12-month bridge loan. But regarding the future refinancing plan, do we have any options in mind that we can share with investors, say, whether these options may include syndicated loans or even convertible bonds (CB)? In particular, there have been some market concerns from some investors that if we are opting for CB, whether this will have some negative impact, either in terms of dilution or in terms of the share price performance. I understand that we are always trying to take a very disciplined approach, always trying to maximize shareholder value. So any color or comment on our future refinancing plan would be appreciated.
Sure. Thank you, Chen. As I mentioned in the prepared remarks, we expect to take a bridge loan of approximately $1.2 billion equivalent for up to 12 months to close the transaction first. The closing will take place in August. The bridge loan interest rate will be approximately 2%, so it will be quite favorable. Regarding takeout financing or long-term refinancing, all options are on the table, including syndicated loans, bonds and convertible bonds. Speaking specifically about CBs, although it is still preliminary and we have no inclination on which instrument we will take, there are methods to meaningfully minimize potential dilution. For instance, the issuer can increase the conversion premium from typical levels to as much as 70% or 80% above the issuance price, so dilution would only occur if the share price rises significantly. Additionally, net share settlement can be used so that only the in-the-money portion results in share issuance, further limiting dilution. Some other large companies have used similar structures to reduce dilution. Again, we're still studying the different long-term refinancing options and all options are on the table, but I wanted to share this color since you asked about CBs.
Our next question comes from Lillian Lou with Morgan Stanley.
My question is focused on Pizza Hut again. I think in the previous statement, you mentioned second half Pizza Hut margin will see some improvement. Just a little clarification: does that include the margin accretion from the reduced license fee or is that underlying margin improvement? And the major question is more on the Pizza Hut store expansion acceleration. How do you balance this store expansion pace versus maintaining a positive same-store sales?
Yes. I will take the question first, Lillian. On your clarification question, our guidance in the prepared remarks is without taking into account the Pizza Hut deal. We do expect the restaurant margin for Pizza Hut in the second half will enjoy a greater expansion compared to the first half, primarily because of moderation in rider cost pressure. In the second half of last year, the delivery sales mix in the base was higher, so the year-over-year delta this year will be smaller, meaning rider cost pressure will be more manageable. For other cost lines, the trends should be similar. For cost of sales on the second half for Pizza Hut, it will be broadly stable year-over-year. In our last earnings release, we guided a full-year approximate 34% cost of sales for Pizza Hut, and we expect to deliver consistent results relative to that guidance. On the long term, COS for Pizza Hut is around 31% plus or minus 1%, as we have previously commented.
For occupancy and other operating expenses, we see opportunities for improvement. Regarding the relationship between store opening and comp sales for Pizza Hut, we have always tried to balance comp sales, store opening, margin and profit growth. Over the past few quarters we have generally delivered a proper balance. We see lots of untapped opportunities for Pizza Hut in China, including in lower-tier cities where we are underrepresented compared to KFC and some local QSR brands. We will not slow down store openings. We will open stores across different tiers. There are ways to manage or reduce sales transfer when opening stores—for example, opening in strategic channels like hospitals or university campuses, which are closed trade zones, or opening in lower-tier cities and outskirts where white space is large. As always, we'll try to balance the different metrics and deliver satisfactory results to our shareholders.
Our next question comes from Kin Shun Ling with Jefferies.
Also on Pizza Hut side, we see the Pizza Hut Burger Bar having very good momentum, and you are expanding to more locations. But I'd like to understand: because you are offering burgers, the product is somewhat similar to other burger offerings. How do you prevent cannibalization? It seems you have incremental sales. As a customer, when I go to the store, I might choose a burger instead of pizza. So how do you maintain or prevent cannibalization? Also, for the incremental growth coming from the Burger Bar, where is that market share coming from? Which customers are new to you?
Cannibalization with what? The overall burger market is growing nicely, which is a good starting point. When we decided to launch Pizza Hut Burger Bar, we were clear that the product needed to be unique. The buns are baked fresh in-store, which is unique compared to KFC and many other incumbent players. The patties are prepared on order, so product quality is excellent. After testing over 200 locations, we see we are competing more with brands that focus on beef burgers rather than with KFC. KFC's beef burger share is mid-single digits, and our burgers are quite distinct and different. Regarding cannibalization with pizza, we see incremental sales because offering choice attracts more customers. The Burger Bar is delivering double-digit incremental sales to parent stores with good margins. Within a few months, we've built over 200 locations and are targeting 500 to 600. We are aiming for CNY 1 billion in sales for this category, or about 5% to 6% of Pizza Hut sales. Fundamentally, product quality matters most, along with value for money and the strength of the brand. We are very excited and hopeful about this incremental business.
Yes, definitely. I see that you're offering the burger at Huang Ji Huang. I'm looking forward to trying it.
It tastes really good. I hope you like it.
Our next question comes from Xiaopo Wei with Citi.
I'd like to take this opportunity to ask more about Pizza Hut because it's the first time you talk to investors after announcing the acquisition of the brand. We are trying to understand how big changes you will bring to the business after acquisition. For example, from your revitalization experience over the past few years, what do you think will be the low-hanging fruit on the business after you acquire the brand? What have been the big challenges during the revitalization process? How could owning the brand help bridge the differences and make the challenges less? Also, will you make big changes in the business looking forward, like even transforming the business model of Pizza Hut? Any color on that would be very helpful.
I suppose we may need a separate meeting just for that topic, but let me answer at a high level. You asked about the challenges in revitalization and whether acquisition changes things. We started the Pizza Hut transformation back in 2017. By 2024, we shared with shareholders that we'd reached an inflection point. The transformation has been long and fundamental. We rebuilt core capabilities, for example in product and dough technology—our DoughMaster and crust know-how. We launched the multigrain crust in June, which became an instant hit, and that wouldn't have happened without years of building core dough capability. We rebuilt our menu. Pizza right now is only 14% of our sales in China, which is significantly different from Pizza Hut business outside China. We also recently launched the burger business. With brand ownership, many processes will be faster. In the past, because we did not own the brand, even brilliant ideas like the Pizza Burger Bar required many conversations with the global brand owner about impact and positioning.
While Yum! Brands has been a very good partner, those communications take time. By owning the brand, we will own the recipe, the trademark and other assets, giving us better ability to react and respond to market changes faster and more sharply. Strategic independence and speed are quite valuable. Brand ownership also helps us open stores faster. When we evaluate a store, we look for a 2 to 3 year payback. With the additional margin benefit of about 2.8% to Pizza Hut restaurant margin, more potential stores will meet our payback requirement. Therefore, we are increasing our guidance for next year's new store openings to 800, on the condition they meet our 2 to 3 year payback threshold. There are many other benefits as well, and we can go deeper on this topic another time. Thank you.
We probably need an Investor Day on this topic.
One moment for our next question that comes from Christine Peng with UBS.
I have a question for Joey. In the presentation, you spent quite a bit of time talking about new initiatives, especially product innovations. Broadly, the Chinese government has been advocating a healthier diet for the general public given rising healthcare cost pressures. What are management's thoughts towards this initiative? Also, what are the supply chain efforts and challenges when introducing healthier choices such as KPRO to Yum China consumers?
Thank you, Christine. We highlight the growth of new initiatives because, given KFC's size, it's hard to highlight the scale of each initiative. Once pointed out, they are quite large individually—for example, KCOFFEE at CNY 1 billion and KPRO targeting CNY 1 billion. On your question about diet and health, both KFC and Pizza Hut offer healthy choices. Protein is healthy—chicken is a good protein. KPRO focuses on light meals, which is an important concept and is growing nicely. Light meals include protein-focused dishes and balanced offerings with vegetables. Pizza Hut's multigrain crust with protein toppings like chicken and egg mixed with vegetables is an example. On the drink side, protein-enriched drinks are gaining popularity as well. KPRO is not entirely new; we opened the first KPRO in 2017 and have been improving the menu year after year until we reached the right balance of protein, calories and vegetables that customers like.
Regarding the supply chain, our key focus in China is food safety. We are absolutely committed to it. Everything we produce for KPRO and light meal options for Pizza Hut comes from our supply chain, and we share suppliers across brands. Food safety is our strategic moat, and we are confident in delivering healthy choices while maintaining high food safety standards. Importantly, food safety requirements for light meals such as salads are even higher than for fried chicken, and it is harder to achieve, but we have invested in meeting those standards.
Our last question comes from Ethan Wang with CLSA.
My question is on KCOFFEE. KCOFFEE is now an important contributor to KFC sales. I'm wondering how same-store sales growth trended in the second quarter and into the third quarter. For other coffee and milk tea companies, because of a high base and earlier delivery subsidies, same-store sales growth has been weak starting from the second quarter. So how is that going with KCOFFEE?
Thank you, Ethan. You know us quite well already. Whatever we do, the execution is always disciplined, and that applies to KCOFFEE as well. Last year we reached roughly CNY 1 billion in sales for KCOFFEE. For 2026, we are targeting over CNY 2 billion. It's contributing about a mid-single-digit uplift to same-store sales for parent stores. The ticket average or price per cup is still at a similar level compared to last year. So the answer is a rather stable one, which reflects our disciplined approach.
Indeed, Ethan, we don't separately disclose comp sales for KCOFFEE Cafe as a module. What we can say is daily sales are higher than the pre-delivery-war period, reflecting consumer mindshare improvement. KCOFFEE Cafe has benefited from the delivery war and increased consumer mind share, which has supported rapid location expansion. It is now more than 3,300 locations, and we guided to more than 5,000 locations by the end of next year, which is two years ahead of schedule. A key precondition for that expansion is that daily cup sales increase in a healthy way, and we are happy to see that daily cup sales are higher than the pre-delivery period. We are satisfied with the performance.
Thank you.
Thank you.
Thank you, Joey and thank you, Adrian. Now we will conclude our Q&A session. Thank you for joining the call today. Thank you.
And this concludes our conference. Thank you for participating, and you may now disconnect.