Thank you for your patience, and welcome to the Yum China First Quarter 2024 Earnings Conference Call. I would now like to turn the call over to Florence Lip, Senior Director of Investor Relations. Please proceed.

Thank you, operator. Hello, everyone. Thank you for joining Yum China's First Quarter 2024 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 investment 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?

Hello, everyone, and thank you for joining us today. I'm proud to share that we delivered a strong performance in the first quarter. System sales increased by 6% year-over-year, building on a 17% growth last year. Our revenue reached USD 3 billion for the quarter, marking an all-time high. Core operating profit rose to USD 396 million from $392 million last year. Adjusted operating profit in the first quarter of last year was the highest in the past 30 quarters since our spin-off, and this quarter was the second highest. We achieved these results in a challenging competitive environment due to our resilient business model and the hard work and flexibility of our team. We have shown our ability to adapt to changing conditions and achieve solid results. We continued to invest in our growth, opening a record number of stores and surpassing the milestone of 15,000 stores. At the same time, we returned a record amount of cash to our shareholders through share repurchases and cash dividends totaling USD 745 million. Let me discuss our store opening strategy. We remain optimistic about China, viewing the market as offering significant opportunities for years to come, and we plan to expand our store portfolio accordingly. In the first quarter, we opened 378 net new stores, surpassing the 15,000 store milestone. It took us 25 years to reach our first 5,000 stores in China, 8 years for the next 5,000, and just 4 years for the last 5,000. We are well on track to reach another 5,000 stores by 2026. Contrary to some reports, China continues to grow rapidly, with hundreds of new shopping malls and residential and commercial developments opening each year. The urbanization and long-term upgrades in consumption in Tier 2 cities and below present a particularly valuable opportunity for us, with housing and living costs being more affordable there. We expect about 30% of our new stores this year to be located in new cities or strategic areas such as transportation and tourist locations. Our flexible store models and franchise partnerships provide us the tools to take advantage of every opportunity. Looking closely at our flexible store models, they allow us to expand across different city tiers. In the first quarter, two-thirds of our new store openings were in smaller formats. On average, it now costs between RMB 1.2 million and RMB 1.5 million to build a new store, and we are continuously seeking ways to lower those costs while innovating new formats. KFC has introduced a small, time-efficient model for lower-tier cities, featuring a simplified menu, with store CapEx potentially as low as RMB 0.5 million. Meanwhile, Pizza Hut, with only 3,400 stores, still has considerable potential for expansion. We have developed a compact model that is smaller than our standard stores but provides greater dining space and more menu choices than our satellite model. These new models help us increase store density and enter smaller cities more flexibly and profitably. Transportation and tourist locations currently represent only a small portion of our store mix, but they are crucial for capturing the increase in travel volume during peak holiday periods. Same-store sales at these locations surged around 20% during Chinese New Year. We are opening more stores at highway service centers across over 20 provinces to leverage the rise in car ownership. Some of our stores will be opened through franchising, as this partnership is key to unlocking opportunities in lower-tier and remote areas. Last year at our Investor Day, we estimated that 15% to 20% of our net new stores over the next three years would come from franchising. In the first quarter, this mix reached 19% at KFC. We maintain a disciplined approach to ensure our expansion is strategic. Payback periods have remained stable at 2 years for KFC and improved from 3 years to 2 to 3 years for Pizza Hut, and we closely monitor these key performance indicators to ensure we open high-quality stores. Now, let's discuss our brand strategy. We have established strong strategies to cater to diverse consumer demands in China. We satisfy our customers' cravings with innovative food and foster an emotional connection with them. By combining premium and affordable options, we ensure there is something available for everyone. We recorded over 460 million transactions in the first quarter alone, reflecting a 15% year-over-year increase. This was a challenge, as even though our restaurants remained open, many other restaurants opened during the holidays this year. However, our customers have responded positively to our offerings, which is evident in the transaction growth and our successful strategy to diversify our price points and expand into lower ticket orders, allowing us to capture more market share. Now, let’s focus on each brand, starting with KFC, our primary growth driver. Delicious innovative food and excellent value have been fundamental to our success. KFC's sales of beef burgers and whole chickens grew in double digits this quarter. We aim to drive traffic while maintaining our ticket average by launching the super juicy pineapple beef burger, which combines pineapple with beef for an exotic taste that customers enjoy. Additionally, we've added entry-level beef burgers to our weekday value combo, offering both value and premium options to meet diverse consumer needs. Our signature Crazy Thursday promotion has continued to draw significant traffic to KFC, with Thursdays even outperforming weekends. By fully utilizing chicken, we offer excellent value to our customers at sustainable costs. Our delivery business remains strong, with delivery sales growing double digits annually for the past decade. We identified smaller orders as an opportunity and responded by reducing delivery fees and increasing one-person meal options. These initiatives attracted substantial traffic, especially in lower-tier cities. We are continually searching for new growth avenues. K-Coffee has experienced solid growth, achieving a 30% increase in cups sold in the first quarter. We are enthusiastic about expanding this segment in the burgeoning coffee market through a side-by-side K-Coffee model, which creates a café ambiance connected to KFC stores, allowing us to share kitchen resources and reduce costs. As summer approaches, we encourage everyone to try our refreshing sparkling coffee, which has already become a best-seller. Next is Pizza Hut, which has over 3,400 stores and is ready for rapid growth. In the past year, Pizza Hut added over 400 stores and increased its presence in over 750 cities by 10%. We aim to broaden its market appeal with a strong value proposition, focusing on expanding our price points, entering new categories, and delivering emotional value to customers. We have enhanced our entry price pizza offerings, with sales from items priced below RMB 50 growing in double digits this quarter. Our Bolognese pizza priced at RMB 39 quickly became one of our top five best-sellers, reflecting its traditional flavors. We have also revived our popular all-you-can-eat promotion at RMB 178 for five days, offering Beef Wellington, Durian pizza, and crayfish, creating a strong buzz and driving sales. We are expanding offerings to capture the growing demand for one-person meals, recently launching the Pizza Dough Burger in around 2,000 stores, which features freshly baked pizza dough buns. This unique product has generated positive results, and we believe it will contribute to incremental sales. We are also committed to offering emotional value to our customers beyond tasty food. In this quarter, we more than doubled our collaborations with popular animations and games, appealing to younger consumers. Let's briefly touch on Lavazza, which is seeing positive developments in both its coffee shop and retail segments. We have reduced costs for our small store formats and improved store economics. Our retail business has reached premium outlets like five-star hotels and Michelin-star restaurants, further building the Lavazza brand in China. Looking ahead, we plan to partner with a local roaster for fresher beans, competitive pricing, and smoother operations. Now, regarding our Chinese dining brands, Little Sheep and Huang Ji Huang saw strong recoveries last year. Huang Ji Huang maintains a resilient model with significant growth potential, while Little Sheep is progressing well with its new one-person hot pot concept, achieving initial success in Shanghai with pilot locations leading to further franchise opportunities. We are also exploring international expansion, including re-entering the U.S. with a new Little Sheep store in New Jersey. As we expand to serve more customers, we're pursuing greater operational efficiency to strengthen our business. In line with our RGM #1 philosophy, we initiated Project Fresh Eye to assess our operational processes. Our goal is to empower restaurant general managers and enhance their support. We are focusing on improving efficiency, agility, and cost effectiveness across all aspects of our operations, integrating resources to achieve synergies. Technology will continue to play a vital role in driving efficiency, including using AI for creative marketing and recruitment. We also benchmark against industry standards to identify opportunities and develop targeted strategies. We strive to be best-in-class and cost-effective, passing on any savings to our customers. Our ability to meet the evolving needs of our consumers helps us build emotional connections over time. Our innovative digital capabilities for supply chain management and unmatched operational efficiency give us a competitive edge and support sustainable growth in this dynamic market. With that, I will turn the call over to Andy. Andy?

Thank you, Joey, and hello, everyone. We delivered solid results in the first quarter, driving sales, operating profit, and EPS growth despite a higher base. During the action-packed first quarter, we launched an exciting offering and took both strategic actions to expand our addressable market. At the same time, we are pressing on with our cost structure rebasing, driving operational efficiency to support long-term sustainable growth. Let's now look at our first quarter performance in more detail. System sales increased 6% year-over-year, led by 8% net new unit contribution. Same-store sales were at 97% of high year levels against a very strong performance last year. By brand, KFC system sales increased 7% year-over-year, driven by net new store contribution. KFC's portfolio reached 10,603 stores, adding 307 net new stores in the quarter. Same-store sales were at 98% of prior year levels, with 4% same-store traffic growth and a 6% lower ticket average. Putting this into perspective, our ticket average in the quarter was RMB 42. This is sequentially higher than RMB 39 in the fourth quarter last year due to holiday impact. And it is also higher than RMB 39 in the first quarter 2019. Now in line with our strategy to drive incremental traffic, we offer higher ticket average products like whole chicken and beef burger while enriching entry-level combo. We also lowered our vendor fees to capture smaller ticket orders. And we had a nice rebound in breakfast, coffee and ice cream sales, which have a lower ticket average. Pizza Hut's system sales increased 4% year-over-year driven by net new unit contribution. Pizza Hut's portfolio reached 3,425 stores with record first quarter net new stores of 113. Same-store sales were at 95% of the prior year level, led by strong traffic growth of 8% and a 12% lower ticket average. As Joey mentioned, we are specifically enriching our entry-priced pizza, taking smaller party size options and one-person meals at Pizza Hut. This helps Pizza Hut tap into underserved customer segments and roll out to more locations, capturing incremental traffic. Operating profit was $374 million. Our operating margin as a percentage of revenue was 12.6%. We're delighted that our core operating profit was not only stable but also grew by 1% on top of the very strong performance last year. As a reminder, core operating profit excludes foreign exchange impact, special items and other items affecting comparability. Our proactive savings in G&A expenses partially offset the year-over-year low restaurant margin. As Joey mentioned, we have challenged ourselves to strive for high efficiency so that we can drive sustainable growth. Now let's go through our restaurant margins and key cost items. Our restaurant margin was 17.6%, 230 basis points lower than last year or 130 basis points lower on a comparable basis. The year-over-year difference was mainly due to higher cost of sales and cost of flavor while our occupancy and other costs continued to improve. Total sales was 32.1%, 200 basis points higher year-over-year, or 170 basis points higher on a comparable basis. We increased value for money offerings. Favorable commodity costs, superb procurement, and efficiency gains from Project Fresh Eye allow us to pass the savings back to customers. Cost of labor was 25.4%, 80 basis points higher year-over-year or 60 basis points higher on a comparable basis. This was mainly due to last year's wage increases for frontline staff and higher rider costs as the delivery mix went up. We improved our labor productivity, which more than offset the sales leveraging impact. Occupancy and other was 24.9%, 10 basis points lower year-over-year or 60 basis points lower on a comparable basis. This improvement came from lower rent expenses as well as lower marketing and advertising expenses. Our G&A expenses decreased 10% year-over-year because of operational efficiency gains across the organization and lower performance-based compensation this year. G&A expenses as a percentage of revenue was 4.7% in the quarter, improving from 5.6% a year ago. Obviously, the ratio would fluctuate with seasonality in sales. But for the full year, we aim to keep G&A ratio to be around 5%. Our effective tax rate was 26.9% in the first quarter. The lower tax rate on a year-over-year basis was due mainly to less non-tax deductible expenses. We expect the full-year effective tax rate to be in the high 20s. Diluted EPS was $0.71, growing 10% year-over-year. Moving on to our second quarter outlook. As a reminder, the second quarter of last year was a phenomenal quarter. System sales increased 32% year-on-year in the second quarter last year. Operating profit last year was the highest among all second quarters. We also benefited from strong demand around Labor Day and Children's Day holidays last year. We recorded around $12 million in temporary relief and VAT deduction benefit, which is not expected to recur this year. So all this was again from a high base for comparison. Looking ahead to the second quarter of this year, we expect the tide to remain choppy. This will test our ability to adapt; we'll continue to execute on our strategy to drive incremental traffic with great value for money offerings. Consumers are indeed more rational in their spending in the new normal, but they do respond well to our exciting offerings and campaigns. On the operational side, we will continue to work hard to improve the efficiency across the organization and pass along the savings to customers. For the full year, with a strong store pipeline, we are expecting to open 1,500 to 1,700 net new stores. In addition to investing for growth, we also returned a record $745 million to shareholders in the first quarter, including buying back 16.6 million shares, which is equivalent to more than 4% of our share outstanding. Our strong cash flow generation and a healthy cash position are what made this possible. At the end of the quarter, we had $3.1 billion in net cash. We are committed to return $1.5 billion to shareholders in 2024 and continue to drive our long-term sustainable growth.

Thank you, Andy. We will now open the call for questions. Operator, please begin the Q&A.

The first question today comes from Michelle Cheng from Goldman Sachs.

Congratulations on the strong results despite challenging comparisons. My question is regarding the same-store sales and consumption trends. While we recognize that offline traffic has been quite poor this year, same-store sales, particularly for KFC, appear to remain robust. You mentioned an increase in ticket sizes and significant growth in transportation hubs, with a notable 20% strength among Chinese consumers. Can you provide more insight into the varying performances by different day parts, consumer segments, or holiday versus post-holiday sales? Additionally, is there any information available on the month-to-date trend and how we should anticipate the second quarter and Labor Day? Given that we also faced tough comparisons last year, how should we view the same-store sales for the second quarter?

Thank you, Michelle. I will provide a brief overview of the Chinese New Year and discuss the current quarter. As I mentioned during our last quarter's earnings call, we expected a challenging Chinese New Year due to a high comparison from the previous year, which was unique because of the reopening and pent-up travel demand. However, we were better prepared than our competitors with new store openings, and we achieved a 6% system sales growth following a 17% growth in the same quarter last year. This was primarily driven by strong transaction growth, which is very encouraging. We're seeing a total transaction growth of 15%, indicating a solid upward trend. Looking forward to the 2024 Chinese New Year, we expect a return to normal sales with more stores available to customers. Business has been strong, particularly in transportation hubs, and we are witnessing diverse consumer demand. Customers value high-ticket items but also appreciate affordable options, resulting in a significant recovery in lower-ticket items such as delivery, coffee, breakfast, and ice cream. Overall, these trends are positive. We have noticed shifts in consumer behavior during holidays, with spending tightening afterwards, but the trend in March showed improvement. Regionally, the North has seen the best recovery due to a lower comparison base from last year, while Eastern China remains resilient, contributing to system sales growth across all regions. As previously noted, Tier 2 cities are performing well, especially in regional hubs like Tianjin, where living costs are lower. Sales at shopping malls, particularly where we have more stores, have exceeded 2019 levels, which is very encouraging. Last year, China added about 400 shopping malls to the existing base of around 6,000, a remarkable figure compared to other countries. This trend is expected to continue in 2024, with several more hundred shopping malls projected. Additionally, delivery services are thriving, with KFC delivery sales up 14%, which marks consistent growth over the past decade. This growth is attributed to our strategy focusing on smaller order deliveries, which has proven effective. I believe Andy will share some insights about the second quarter now.

Thanks, Michelle, for the questions. So I think for quarter 2, as we mentioned, we are committed to delivering compelling value to consumers. Again, our work is going really well. We will introduce more products and execute some more engaging marketing campaigns to drive sales. As in our prepared remarks, we have mentioned we continue to see consumers being more rational in spending, but they do respond positively to our new product introductions, our value propositions, and some of their fun marketing campaigns as well. So that's what we're going to do more. As in terms of quarter two outlook for this year, just remind everyone, we have a very high base last year. Last year, we actually saw a 32% increase in our system sales, and record profit last year in the second quarter which was helped by some very strong performance during the Labor Day and Children's Day holiday sales. As well as last year, we also had some one-time benefits of about $12 million which we're not expecting that to occur this year. So all in all, we will have a high base. Despite the challenges, we mentioned, we focus on our strategy, our values, new product introduction, and campaigns that welcome many consumers. We also have mentioned in the prepared remarks, we are working on Project Fresh Eye to further enhance our efficiency. As we mentioned, we will find more savings to pass on to the customer. We intend to keep our G&A expenses around 5%. So yes, that's the plan.

The next question comes from Brian Bittner from Oppenheimer.

As it relates to the operating environment, I realize it's a very competitive and promotional environment, which I think is driving a lot of the pressure to your average check. But at the same time, it is also helping you drive traffic growth. Your same-store traffic was up 4% in the quarter, which is impressive. And I'm curious where this traffic is coming from? Is it new customers? Or is it coming from loyalty customers? Just more frequency from existing customers? Can you unpack where the traffic growth is coming from? And Andy, as it relates to the average check declines, how long do you expect average check to be a headwind to your same-store sales?

I will take these questions. First of all, I would like to point out that the overall ticket average aligns very well with our specific goal, which is to drive incremental traffic to our store. As you mentioned, we have seen impressive transaction growth, both at KFC and Pizza Hut, which demonstrate that our strategy is working and the strength of our business. If you look at KFC, for example, we experienced a 4% increase in same-store traffic and Pizza Hut, 8%. So that's good. Now when we talk about the ticket average, it's important for us to look at the yearly comparisons, influenced by various factors including delivery mix, product mix, and order size in the post-COVID recovery. However, it's worthwhile to look at the longer trends because it will provide a clear perspective on our strategy there. For example, for KFC, the overall average ticket was RMB 42 in the quarter, very healthy. That is a sequential increase from RMB 39 in the fourth quarter due to the holiday impact. It's also higher than the RMB 39 in the first quarter of 2019. Again, we are committed to managing the ticket average at KFC through a balanced approach over the long term. Our strategy has been focusing on value for money, introducing new products, and launching promotional campaigns to meet customer demand. We also have reduced the delivery fees to capture more small ticket size orders. After the pandemic reopening, we definitely see a strong rebound in our breakfast, coffee, and ice cream items as mentioned before. At the same time, our high-ticket items like whole chicken and beef burgers continued to do well, with double-digit sales growth in the quarter. This is a balanced approach that positions us well to enhance customer value and expand our market reach.

Our pizza business is substantial. I find it helpful maybe to highlight one or two things in the category to show the growth. Although when it translates to total numbers, it might not be that big because our base is considerable. Brian, to give you an example, other than what Andy just said, our coffee business for KFC, K-Coffee, number of cups actually grew by 30%. It does not show in big numbers, but for coffee, it's brilliant. We sold about 50 million cups of coffee in the first quarter alone, translating to a 30% growth. It's a promising category, and we only have around 100 side-by-side stores right now. As mentioned earlier, we intend to grow it aggressively. For Pizza Hut, one highlight here is the lower-priced pizza, which is something that we mentioned in the previous quarter earnings release. The pizza priced below RMB 50 has seven choices in that category, and we, of course, intend to launch more at this price point. It has contributed to double-digit sales growth for Pizza Hut. The transaction growth, which is the question you asked, is even better. This gives a sense of how focused we are on driving the transactional growth.

The next question comes from Chen Luo from BofA.

My question is on the competition side. In the past two quarters, competition has always been a key investor concern. We also noticed that in the recent few months, our promotional intensity has increased. Compared with our last earnings call, do we think competition has actually further intensified or is it still largely stable at the moment?

Honestly, competition has always been very intense throughout decades. We will continue to learn, evolve, and grow with our competitors. It's good to see competitors up their game and increase their investment in the industry. Last year, 2023, the industry actually grew at 20%, although it was barely reported in the mass media. For this year, the industry continues to grow at a nice number, double digits or much faster than the GDP growth. This naturally attracts both domestic and international investors to continue investing in this industry. So that’s really not the best thing at all. What is important is to remain open-minded and continue to reconnect with our consumer. And that's exactly what we have been doing, and we'll continue to do that. Over the last few years, we've learned from local players who launched Chinese burgers, and other players about the potential of the whole chicken. Our strategy remains consistent for KFC; it’s about ensuring relatively stable targets over the long term. Long term, we ensure that our ticket average is stable by having high ticket average items, such as beef burgers or whole chicken, and then introducing entry priced products to grow the transactions, etc. For Pizza Hut, again, we have a consistent strategy to drive down the ticket average. 2017, our ticket average was 132. Now it's 90. We'll continue to drive it down because that strategy has to align with our mass-market store growth strategy. So we'll have a stable and consistent strategy to compete in this market.

The next question comes from Lillian Lou from Morgan Stanley.

I have a question about the diversified consumer demand right now, and there has been some widening of the holiday effect. Are we seeing this in store performance as well, considering the gap between the best performing stores and the relatively worse performing ones in different locations? For instance, the heavy traffic hubs have a greater underlying issue in terms of store performance. In response to that, we are continuing to deliver better efficiency and cost savings. I'm trying to understand how we manage to keep saving more amidst the challenges of varying site performance or customer demand. I think Andy and Joey mentioned trying to get a clearer picture of the ongoing cost-saving progress.

First, I would like to report that for the small diverse demand between the splurge consumption during the holiday and a bit more tightening the belt after the holiday is not unique. I spent 10 years in U.K. Consumer, and they experienced the same despite cultural or language differences. We just learn to train our business better and better. We deal with it by meeting diverse demand during the holiday for high-ticket trading, like whole chicken and beef burger; our customers can splurge. But simultaneously, we will also drive the ticket average, like during Chinese New Year, which is a great example. The locations where customers splurge include lower-tier cities and transportation hubs. In Tier 1 cities, it's still very functional. China is a big country, so we just see trends and deliver what customers want without being judgmental. As we continue our store opening strategy, we're going to accelerate store openings in strategic locations like transportation hubs, tourist locations, and our mini-store model. These are very good models, requiring very low cost investment, RMB 0.5 million. Our standard investment is about RMB 1.2 million to RMB 1.5 million. The smaller investment of RMB 0.5 million, the model we tested, we are happy with that. It's advantageous for strategic locations and low-tier cities where we see an increasing customer base. We will respond swiftly and will be very agile. To ensure the mini-model works, we must maintain cost efficiency. The mini store model's menu consists of only half that of the standard KFC menu, assisting in doing exactly that. We monitor operating costs, including rent and labor, which are also lower, hence the success.

One last comment. The reduction of the delivery fee has a minimal impact on the margin because we experienced a 14% sales growth in delivery at KFC, which offsets that. So it's okay. Before we launch it, we test it, and it's going to be fine.

The next question comes from Ethan Wang from CLSA.

So my question is on the delivery services. Post-COVID, there were concerns that the delivery sales contribution might go down, but actually in the first quarter, it held up pretty well. Has management seen any trend that delivery sales are more resilient than offline dining? And in that case, is that going to affect our planning on salary expense going forward? One more question; we mentioned that in some cities, we are now cooperating with platforms. How should we consider this? Is that a deliberate planning in terms of cost control? How is that going to help?

In terms of delivery as a percent of sales, as I mentioned in a previous question, it has continued to improve and increase over the last 10 years. KFC right now derives about 60-plus percent from delivery and takeaway while about 30% from dining. Our store portfolio reflects that. Our stores are becoming smaller, becoming more delivery-focused. The same applies for Pizza Hut with our satellite stores that are very delivery-driven. For Pizza Hut, the delivery business is high 30s too. These will continue to grow. There are two things to mention regarding delivery sales going forward. One is we are targeting smaller order sizes in the delivery business because traditionally, our ticket average for the delivery business for both KFC and Pizza Hut is high, probably too high. For KFC, we reduced the delivery fee tested in quarter 4 last year and rolled it out in quarter 1 this year to encourage smaller order delivery growth. It’s challenging for a customer to make a choice with high delivery fees when the order size is next to nothing. So we will definitely persist with this strategy. Pizza Hut needs more options before we can properly expand this initiative for smaller orders. We view this positively as there is more opportunity. A second opportunity is our burger business, which is exciting. I love the burgers from Pizza Hut, and the one at KFC is also unique. The goal is to make the pizza bread from the pizza bun from our pizza dough, freshly baked. Now that's unique and the beef itself is brilliant. Besides the great product, it's a one-person meal because the average ticket size at Pizza Hut is above one person. Therefore, we will continue to grow smaller orders for the delivery business, with both being the right things to do and providing significant margins. Regarding platform riders, historically, we’ve used our delivery riders because of quality, even at a slightly higher cost, which we know. Times have now changed, and we’ve learned. We tested select locations last quarter, and we are pleased with the quality of some platform riders in select locations. We will extend this learnings to enhance comparative costs if quality remains satisfactory. In other words, those can be in both high tier and low tier cities.

The next question comes from Sijie Ling from China International Capital Corporation Limited.

Congrats for another solid quarter results under a challenging base. I have one question on the K-Coffee. We are very happy to see that we already have around 100 independent or so-called side-by-side K-Coffee stores in a short time. Could you just add a bit more about the positioning and development strategy of K-Coffee? Regarding the pricing, the menu design, the store format, the store location, etc. What are our similarities and differences compared with the current main coffee players? How can we leverage our own advantages? What's the plan for future store expansion?

The best way to discover more about our K-Coffee side-by-side stores is to visit them yourself. For K-Coffee, we saw significant results; the number of cups sold increased 30% in quarter 1, which is meaningful. We have about 100 K-Coffee side-by-side stores and remember, these are all profitable additions. Despite the price of RMB 9.9 for many coffees, we make our cost structure work. Rest assured, our shareholders don't need to worry about margins. Although we sell K-Coffee in KFC stores, we identified a need for dedicated space for customers. What defines a coffee store versus the fried chicken store? The K-Coffee store has a lovely coffee aroma and this inviting environment. We created that atmosphere without high incremental costs. You will see more of these side-by-side K-Coffee stores in both lower-tier and top-tier cities. As we open many new stores each year, we'll take advantage of that development, maintaining two storefronts. One is KFC, and next to it is K-Coffee. Sharing a kitchen allows us to save on investment since kitchen costs represent a significant portion of CapEx. This enables us to offer affordable pricing. The menu is somewhat unique. If you visit our K-Coffee shop, you should try our signature coffee. It’s a distinguished product, and we've already achieved substantial sales. Our growth strategy for 2024 involves an aggressive rollout of side-by-side K-Coffee shops.

That does conclude today's Q&A session. I will now hand the conference back to Florence Lip for any closing remarks. Thank you. Thank you for joining the call today. For further questions, please reach out through the contact information in our earnings release and on our website.

Thank you very much.

Thank you.

Thank you.