Good day, and thank you for standing by. Welcome to the 2024 Earnings Conference Call and Webcast. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question and answer session. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. I would now like to hand the conference over to your speaker, Florence Lip. Please go ahead.

Thank you, Operator. Hello, everyone. Thank you for joining Yum China Holdings, Inc.'s fourth quarter 2024 earnings conference call. On today's call, our CEO, Joey Wat, and our acting CFO, Adrian Ding. I'd like to remind everyone that our earnings call and investment materials contain forward-looking statements. These 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 a cautionary statement in our earnings release and the risk factors included in our filings. 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, which is available to the public through our Investor Relations website located at ir.yumchina.com. You can also find the webcast of this call and a powerful 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 Holdings, Inc. Joey?

Hello, everyone, and thank you for joining us. We just celebrated Chinese New Year last week, and I want to wish everyone a happy and healthy Year of the Snake. I'm excited to share that we achieved another quarter of strong results. In quarter four, capping a record-breaking year, system sales grew 4% year over year, outperforming the industry. Same-store sales index sequentially improved to 99% of prior year levels. Restaurant margin and operating profit margin expanded significantly year over year. Core operating profit grew 35%. For the full year, we set multiple new records. We opened a record 1,751 net new stores, ending the year with 16,395 stores. Adjusted operating profit reached $1.2 billion. Core operating profit increased 12%, and diluted EPS grew 22%. Our focus on operational efficiency and innovation led to improvements in both the top and bottom lines. Despite a challenging environment and value-minded consumers, our efforts have led to eight consecutive quarters of positive transaction growth. We have sequentially improved the same-store sales index and expanded margins since quarter two. KFC has shown considerable resiliency and growth momentum. KFC accelerated store openings and reached over 2,200 cities in China. Delivery sales grew 16%, continuing our decade-long double-digit annual growth momentum. 2024 feels like an inflection point for Pizza Hut. It has made significant progress in transforming itself by enhancing its mass market appeal and operational efficiency. Core operating profit more than tripled in quarter four and grew 19% for the full year. Both brands have tapped into underserved markets and expanded into adjacent categories to drive incremental traffic, sales, and profit. Our breakthrough models, K Coffee Cafe and Pizza Hut Wow, showed promising results and have significant potential for further growth. I want to thank our incredible team for delivering these strong results. Embracing our people-first culture, we celebrated our achievements with over 11,000 restaurant managers at our RGM convention in Hong Kong. We continue to delight our customers with great food and excellent value for money, and we are grateful to our shareholders for your continued support. With that, let me turn the call over to Adrian to discuss our results in detail. Afterwards, I will share additional highlights on our CNY activities and our strategy.

Thank you, Joey, and happy Chinese New Year, everyone. In 2024, all of our brands made notable progress. Let me share some color by brand. I'll start with KFC, which consistently delivered strong performance. In 2024, KFC grew system sales by 6%, exceeding industry levels. We have developed innovative products for our flagship categories of Original Recipe Chicken and juicy whole chicken, resulting in double-digit sales growth. We have also expanded our delivery market share on aggregated platforms, capturing more smaller orders. At the same time, we improved rider efficiency and further enhanced customer experience. KFC opened a record 1,352 net new stores in 2024, bringing our total store count to 11,648. Our flexible models enable us to broaden our reach with a mix of company-owned and franchise stores. We added nearly 1,000 company-owned net new stores in 2024. The payback period from new stores remained healthy at two years. Thirty percent of KFC's net new stores were franchise stores. They help us unlock incremental opportunities in lower-tier cities, remote areas, and strategic locations such as highways, campuses, and tourist areas. KFC's growth potential in China is huge. Coffee is a key growth driver for KFC. In 2024, KFC sold 250 million cups of coffee, marking 30% growth. Our breakthrough K Coffee Cafe model expanded from around 50 cafes in 2023 to 700 cafes in 2024. We plan to expand the model to 1,300 locations by the end of 2025. KFC and K Coffee Cafe generate good synergies, driving incremental sales and profit. In terms of product innovation, aside from our signature fruity sparkling coffee, this winter, we launched the Handshaking Americano with Frozen Pear. The drink features a real frozen pear, a traditional Northern Chinese delicacy, and has generated significant social buzz. Pizza Hut has made substantial progress in becoming more affordable for customers and profitable for our company. In 2024, Pizza Hut achieved the highest level of operating profit in RMB since our spin-off. Same-store transactions grew 5%, and restaurant margin expanded by 60 basis points on a comparable basis. Pizza Hut also opened a record of 412 net new stores, bringing the total to 3,724 stores. Pizza Hut's payback period for new stores improved from three years in 2023 to two to three years in 2024. We're transforming Pizza Hut into a more mass-market brand by widening the price range and enriching the menu. Sales of pizza priced under 50 yuan increased 50% year over year. Pizza dough burgers, a new category we launched in April, have already reached a low single-digit percentage of our sales mix, showing good potential. As Pizza Hut expanded its addressable market, we also streamlined operations to improve efficiency. We managed to reduce our cost of labor by 110 basis points in 2024. Our breakthrough Wow model is gradually maturing, exceeding 200 stores in 2024. Dine-in sales saw solid growth while delivery sales also improved. Wow stores attract younger customers and meet functional needs, expanding Pizza Hut's addressable market. Although the ticket average is lower by design due to smaller party sizes and lower per person spending, we successfully drove transaction growth. Margins have improved since launch. We'll continue to refine the Wow model and expand to more locations in 2025. The Lavazza continued to grow with fuel growth engines of coffee shops and retail businesses. Store economics have meaningfully improved due to better operational efficiency and reduced new store capital expenditure. The retail segment saw sales growth of over 30% and became profitable in 2024. We've made good progress in building appreciation for Lavazza's coffee expertise and enriching food choices, such as Lavazza's signature kappa beans, considered the first coffee on earth. For Little Sheep and Huang Zhi Huang, our focus has been on improving their menus, refining store models, and strengthening their supply chain. Little Sheep's new conveyor belt hot pot model is designed to appeal to solo diners and younger consumers. Huang Zhi Huang has demonstrated resilience, delivering profits for five consecutive years since our acquisition. For Taco Bell, in 2024, we pruned our store portfolio to focus on key markets, Beijing and Shanghai. These efforts led to improved operating results. Let me now go through our quarter four P&L. As a reminder, restaurant margin on a comparable basis excludes additional VAT deductions, as well as temporary relief from landlords and government agencies received in the prior year. Core operating profit further excludes foreign exchange impact and special items. For quarter four, system sales grew 4% year over year, and same-store sales index sequentially improved to 99% of prior year levels. KFC system sales increased 5% year over year, and same-store sales index improved sequentially, reaching 99% of prior year levels, with a 3% same-store transaction growth year over year. Our widened price range, reduced delivery fees, and smaller ticket items like coffee and breakfast successfully attracted consumers. Quarter four ticket average was 38 yuan, 4% lower than prior year levels, yet stable with quarter three. Pizza Hut system sales increased 3% year over year. Same-store sales index achieved 98% of prior year levels, improving by four percentage points sequentially. Same-store transactions grew 9% year over year, the highest growth quarter in 2024. The ticket average was 10% lower year over year, which is in line with our strategy to transform Pizza Hut into a more mass-market brand. More importantly, Pizza Hut's profitability continued to grow. Core operating profit in quarter four more than tripled year over year. Our restaurant margin was 12.3%, 160 basis points higher year over year. On a comparable basis, restaurant margin was 180 basis points higher year over year. We achieved savings across all cost lines. Cost of sales was 31.9%, 50 basis points lower year over year. Cost of sales improved through favorable commodity prices and our spending better and buying better initiatives under Project Redeye. We continue to pass savings from these initiatives to our consumers, offering excellent value for money. Cost of labor was 28.2%, 80 basis points lower year over year, or 90 basis points lower on a comparable basis. Improved operational efficiency more than offset wage increases for our frontline staff. Occupancy and other costs were 27.6%, 30 basis points lower year over year, or 40 basis points lower on a comparable basis. This came from cost optimizations such as utility savings and simplified operations. Our operating profit margin was 5.8%, 140 basis points higher year over year, driven by improved restaurant margin. Operating profit was $151 million, growing 35% year over year. Core operating profit also increased 35% year over year. Net income was $115 million, growing 17% year over year. As a reminder, our mark-to-market equity investment had a negative impact of $9 million in quarter four, compared to a negative impact of $14 million in the same period last year. We recognized $16 million lower interest income this year from a lower cash balance. Diluted EPS was $0.30, growing 27% year over year, or 20% excluding mark-to-market equity investment impact. For the full year, system sales grew 5%, and same-store sales index reached 97% of prior year levels. Restaurant margin was 15.7%, steady year over year on a comparable basis. G&A expenses were 5.0% of revenue, in line with our target, and 80 basis points lower compared to 5.8% in the prior year. This was due to operational efficiency gains and lower performance-based compensation in the year, among other factors. Operating profit grew 8% to $1.2 billion. Core operating profit increased 12%. Effective tax rate was 26.7%, in line with our guidance and prior year. Net income was $911 million, up 13% year over year. Diluted EPS was $2.33, or 22% year over year, or 12% excluding mark-to-market equity investment impact. Now let's turn to capital returns to shareholders. We're on track to return $4.5 billion to shareholders from 2024 through 2026, with a total of $3 billion allocated for 2025 and 2026. The average annual amount is equivalent to around 9% of our market cap. In 2024, we returned $1.5 billion, including $248 million in quarterly cash dividends and $1.24 billion in share repurchases. Total repurchases exceeded 31 million shares, representing 8% of our total shares outstanding. We generated $714 million in free cash flow in 2024 and ended the year with $2.8 billion in net cash. With our healthy cash position and robust cash-generating capabilities, we're stepping up our quarterly dividend significantly by 50% from $0.16 to $0.24. Assuming $0.24 per quarter, our payout ratio will be equivalent to over 40% of our diluted EPS in 2024. Additionally, our $360 million share repurchase plan for the first half of 2025 has been executed diligently. We're committed to providing attractive capital returns to shareholders. Finally, moving on to our 2025 outlook. We continue to maintain our dual focus on system sales and same-store sales growth. In terms of our footprint expansion, we're on track to reach 20,000 stores by 2026. In 2025, we expect to open between 1,600 and 1,800 net new stores. Capital expenditure in 2024 totaled $705 million. In 2025, we expect capital expenditure to be in the range of $700 million to $800 million. Turning to margins, while commodity prices remain largely favorable, we continue to expect wage inflation in 2025. With our ongoing efforts in operational efficiency, we expect G&A expenses as a percentage of revenue to slightly decrease for the year. For 2025, we expect to hold core OP margin relatively stable or even slightly improve it year over year. By brand, we're committed to maintaining healthy restaurant margins for KFC and improving Pizza Hut's in the mid to long run. As consumers celebrate the Chinese New Year, we're offering them delicious food, great value, and an enjoyable experience. While trading so far has met our expectations, we need to closely monitor post-holiday trading. The external environment remains dynamic. Consumers are willing to spend more during holidays and may become more cautious afterward. We remain hopeful that stimulus policies may positively impact consumption in the mid to long run. For quarter one, we're confident that the same-store transaction index will continue to be positive for the ninth consecutive quarter, and our goal is to outperform the industry. Let me pass it back to Joey for her comments on CNY and our strategy.

Thank you, Adrian. Building on Adrian's observations on Chinese New Year trading, I was delighted to see our stores bustling with customers. We offered them great food at incredible value and an exciting campaign featuring Olympic champions and popular IPs. At KFC, we brought crayfish back for the eighth consecutive year. We even combined it with our iconic beef wrap to create a new customer favorite. Our Chinese New Year tradition is the golden bucket. This year, for the first time, it included a whole chicken, making it a great choice for sharing with family and friends. At Pizza Hut, we introduced festive tray-up options for our pizzas, such as pistachio-stuffed crust and fortune cat crust, a crust in the shape of a cat in China. The pistachio symbolizes happiness, and the fortune cat represents luck and prosperity. Customers love these good wishes for starting the new year. As I reflect on our industry-leading results over the past few years, I come back to our dual focus on operational efficiency and innovation. I think it's fair to say that most view leads to a trade-off. To get one, you must compromise on the other. In China, we reject that as a forced trade-off. We need both, and both is the only outcome we will accept. Operational efficiency has been a hallmark of Yum China Holdings, Inc. from the beginning, but we have dialed up our efforts significantly in the last couple of years. Our Project Fresh Eye and Red Eye initiatives have given us new perspectives on our operations and transformed our organization. They have made us more efficient, agile, and competitive from our restaurants and shared service centers to our supply chain. At the same time, we have doubled down on digitization, leveraging technology, and generated AI to enhance customer experience and efficiency. The gains we have realized from these initiatives are not merely incremental. They represent structural improvements in our business capabilities for profitable growth far into the future. Innovation colors everything we do in every aspect of our business. We introduced around 600 new or upgraded menu items in 2024. Exciting new food and excellent value for money drive traffic to our stores. We innovated new store models such as KFC Small Town Mini and Pizza Hut Wow to tap into underserved customer segments. We have found that operational efficiency and innovation reinforce one another. We have employed innovation to attack the problem of operational complexity. At KFC, our menu innovation focuses on infusing fresh energy into our flagship categories to unleash their huge potential. Original Recipe Chicken Burger, Gigantic Egg Tart, and Crispy Whole Chicken generated a lot of excitement. At the same time, we are simplifying operations to support these menu innovations. The same strategy applies to Pizza Hut. In December, we launched a brand new menu with delicious new products while streamlining operations. For example, the Golden Salty Egg Chicken Pizza, crafted with our existing ingredients, instantly became a popular choice. We also lowered prices on several of our iconic products while protecting margins. Our value-for-money communication is now more straightforward and compelling. Customers love our new menu. In quarter four, Pizza Hut achieved the best same-store transaction growth in 2024. Before we turn to Q&A, I would like to recap the three key takeaways from today. First, we achieved record-breaking results in 2024 from top line to bottom line. KFC remains our key growth engine and profit contributor. Pizza Hut has made significant progress transforming in every aspect and feels to me as though it has reached an inflection point. Second, our dual focus on operational efficiency and continuous innovation has made our business more resilient and competitive, positioning us for long-term sustainable growth. Lastly, we remain committed to both sustainable growth and capital returns to shareholders. We are on track to return $4.5 billion to shareholders from 2024 through 2026. The average annual amount represents around 9% of our market cap. This quarter, we are stepping up dividends by 50%. With that, I will 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 your questions to one at a time. Operator, please start the Q&A. Thank you.

We are now going to proceed with our first question. The questions come from the line of Michelle Cheng from Goldman Sachs. Please ask your question.

Hi, Joey, Adrian. Congrats again for the very solid results. And we understand the consumption environment is quite fluid. So I would like to take a chance to hear your observation on the competitive landscape. So we see this year some companies who are slowing down, like expansion, and even they are starting to withdraw some of the promotional activity. And we noticed that KFC actually started to raise the price earlier this year. So, are we seeing the competitive landscape improving? And also, do we see more opportunities to further accelerate, penetrate, and expand our market share? So it would be great to hear your insight. Thank you.

Thank you, Michelle. We do see some rationalization of marketing promotion and also a little bit of price increase, including ourselves. So I think that is healthy because very modest price increases and the rationalization of the promotion do help to manage the cost pressure. So that is sort of the overall what we are observing. However, most importantly, I think for us, we know what our focus is. And maybe I'll take this time to, you know, just really highlight a few things that Adrian and I both made in our opening remarks earlier. You know, obviously, our hard work in Pizza Hut has changed. Let me start with Pizza Hut. We have done something right because we actually use the word "inflection point" for this quarter because we really have seen every aspect of the business has been transformed in a very positive way. The results speak for themselves, you know, very nice improvement of the same-store sales, 4%. And then the OP improvement is solid. And then the net new store opening is 412 this year, 2024. It's the best net new store in the last ten years, really. And still, the breakeven is two to three years. And the breakthrough of the two business models, one is, you know, just to become even more mass market, which has been our goal in the last many years, with the introduction of additional products and lowering the price. And then the second breakthrough is the Wow model. So very nice results with very clear growth drivers. So we are at the inflection point for Pizza Hut. For KFC, it is a very big business already, but yet we still see quarter four an ongoing strong momentum and performance in three ways. One is we continue to widen the offering in terms of the price point, increasing the entry price point, but also higher ticket average such as whole chicken. And then, also, the second is the coffee improvement. It's 30% growth for KFC alone. And that's very, very nice. And then the delivery too. Delivery is not only one quarter. It's ten years. Ten years of double-digit increase. And net-net for both businesses, you know, just to do another health check is the same-store transaction growth is nice and healthy, you know, on the eighth quarter of such. So with all these happening, we are capturing incremental business and hopefully a little bit of market share. But with that said, Michelle, it's still a very big market. And our market share, relatively speaking, is still very small, even though we are the biggest player in the market. And there's still a lot of opportunities for us to expand the business, have more market share by going to lower-tier cities and going for the incremental franchisee store, etc. I'll pause here. Thank you, Michelle.

Thank you, Joey, for the explanation, and congrats again.

Thank you. We are now going to proceed with our next question. The questions come from the line of Chen Luo from Bank of America. Please ask your question.

Hi, Joey, Adrian. Congrats again on the results. So my question is focused on the new store expansion. Because I noticed that, a, we have opened more and more smaller stores, and b, we are also expanding more into the lower-tier cities. Number three, we are now shifting from an equity store-focused model to a hybrid model with more and more franchise stores to be opened in the next few years. What's the implication from these changes? For example, if you look at the second half numbers of last year, our net new store opening growth was around low teens. But then if you look at the revenue contribution from new stores, it should be around 5% for Q4, I know. About 6% for the second half. Meanwhile, our franchise stores as a percentage of total net new stores increased to about 33% versus only teens in the first half. So with all these things in mind, is it fair to say that the near-term contribution in terms of the revenue from new store openings in the coming few quarters could be just around 5% or 6%, similar to the second half of last year, due to the increase in smaller stores and more expansion into the lower-tier cities, as well as the franchise stores? Hope my question is clear. Thank you.

Thank you, Chen. I'll address your question on the new store and franchise, and Adrian can help elaborate a bit in terms of the relationship of the store number versus the revenue contribution. So, I mean, Chen, we are pursuing a dual focus on both returning a lot of capital to the shareholders and, at the same time, pursuing high growth. So we have addressed the capital allocation already in our opening remarks. So on the new store opening area, you can see that we just continue to be very aggressive with that. Because as I answered my question to Michelle earlier, there's still a lot of opportunity for us to open stores both in top-tier cities and lower-tier cities. And the strategy needs to be slightly different, but we see that opportunity. And then the lower-tier city right now is a big focus because even if we observe the trading in the last year or even last quarter, lower-tier cities are still doing better. So we'll continue to do that. But it does require a different model. For example, lower investment, smaller menu, simpler operation. But net-net, the criteria is we still want a two-year payback for the stores across all city tiers for KFC and two to three years for Pizza Hut. As long as we can achieve that, we'll continue our journey to open more stores in top-tier cities and lower-tier cities. When it comes to the relationship between company-owned and franchisees, you know, our franchisee store opening in the last year and particularly last quarter, the company-owned stores still contribute to the vast majority, actually specifically 85% of our entire portfolio. So it's going to take a while for the franchise stores to catch up, even though we are catching up. So for the company-owned stores, it does have very nice store economics. However, why are we accelerating the franchisee stores? Because they're incremental. They're incremental in two areas. One is strategic locations, such as highway service centers, college campuses, hospitals, etc. And secondly, they are in the lower-tier cities and remote areas as well. So both are incremental. And operationally, we can do it. Our team can do it, and operationally, we have the appropriate store model such as KFC Small Town Mini for KFC. And then right now, the Pizza Hut Wow is very promising for the lowest-tier cities as well. So, therefore, we are doing more. So it's a natural development of our company's capabilities. And then I'll pause here and let Adrian answer the relationship between the revenue and the store.

Thank you, Joey. So, you are exactly right that the size of the stores is becoming smaller and smaller. And it's worth noting that even for the larger stores, in the first year of their opening, the revenue tends to be smaller. Overall, our new stores that opened this year enjoy 50% to 60% of revenue compared to the mature stores. So that's the first point. The second point is store weeks also play a role here. So if keeping all else equal, then the net new store growth rate is the same, you know, the time at which we open the stores within a quarter plays a role in the system sales growth there. So I think these two points combined will address your question on the mathematical relationship. And lastly, I think you asked the question. Over the next few quarters, is our system sales growth guidance? I think if the overall macro situation is stable as it is right now, we would, as you pointed out, enjoy a mid-single-digit growth of system sales this year in 2025. Obviously, new store openings play a portion of the role here. It's important to note that same-store sales are also important in deciding what is the ultimate system sales growth. So, you know, these two combined will contribute to the final figure of system sales growth. By this point in time, we do expect a mid-single-digit growth for the year 2025. Thank you, Chen.

Thank you. That's very clear. Congrats again, and also happy 2025.

Thank you. We are now going to proceed with our next question. The questions come from the line of Anne Ling from Jefferies. Please ask your question.

Hello. Thank you very much for taking my question. Just one question regarding the ticket average. So I understand that the same-store sales growth, you know, the decline has actually narrowed. But then, like, you know, if we take a look at the breakdown, the ticket average is still negative. But, however, you know, we have a very strong transaction count to offset this. So my question is, you know, when do you think that, you know, this ticket average will start to turn positive or yeah. So I think that's the key question that I have, especially for KFC. Thanks.

Thank you, Anne. So our ticket average trend is basically consistent with our intended strategy to drive traffic. And, you know, as you point out, we continue to drive the same-store transaction growth. It's the eighth consecutive quarter, and that allows us to grow our business in underserved market segments, which is working. And at the same time, it's important to note that while we are doing that, we are able, at the same time, to protect the margin. As it shows in the quarter four margin, restaurant margin and operating profit margin both actually improved because our ticket average strategy is also aligned with our dual focus on operational efficiency and innovation. And then answering your question about our plan going forward, in the longer term, we take a balanced approach to maintain a steady ticket average. For example, you know, our quarter four ticket average, which is KFC, would be 38 RMB. It's still higher than the ticket average pre-pandemic. In the short term, our goal for the ticket average is to remain relatively stable. Our quarter four ticket average, 38 RMB, again, is stable versus quarter three. And our focus is on value and then also widening the price range and also to drive the traffic. And it's working. And we don't have any material plan to change our approach even after the modest price increase back in December 2024. And for Pizza Hut, you know, our strategy is to continue to drive the ticket average down to make it more mass market while improving the sales and the profit. Thank you, Anne.

Thank you.

We are now going to proceed with our next question. The questions come from the line of Lillian Lou from Morgan Stanley. Please ask your question.

Thanks a lot. Hey, Joey and Adrian. Congrats again. My question is more on margin. Obviously, I think the fourth quarter is another evidence of very strong execution efficiency and all-around operation management. And in particular, I think the payroll and the labor cost savings were quite significant. So trying to understand going forward in 2025 with all the cost projects and initiatives continuing, what are the line items in particular where we are seeing more chances for savings further? And what kind of overall margin improvement trend can we expect for 2025? Thanks.

Thank you, Lillian. So let me try to address this question. Firstly, sales is an important factor in determining the margin for 2025. And I'll actually first state the conclusion first on the overall margin trend and then break it down for the different drivers. After a conclusion, as I mentioned in the prepared remarks, we look to keep the core operating profit margin for the full year relatively stable or even slightly improve it year over year. By brand, we are committed to maintaining a healthy restaurant margin for KFC and improving Pizza Hut's restaurant margin in the mid to long run. And then now I'll break it down into different drivers. Firstly, I'll discuss cost of sales. We continue to invest in value for money to drive incremental traffic. And commodity prices remain favorable, as I mentioned in the prepared remarks. In the near term, we will continue to seek improvement through Project Red Eye initiatives, redesigning our product approach to optimize ingredient use. Our long-term guidance is to keep our cost of sales at 31% plus or minus 1%. But for the year 2025, this ratio is likely to fall in the upper half of our guided range, with some slight improvement year over year from 2024. Cost of sales as a percent of sales will slightly improve year over year, but it will fall in the upper half of our guided range. So that's on cost of sales. In terms of cost of labor, we will face some headwinds. We are facing ongoing cost pressure from wage inflation, which over the years tends to be low single-digit or mid-single-digit. And the increase in our rider cost is also a challenge because the delivery mix will increase. But to clarify, the rider cost per ticket will go down as we previously discussed. But, you know, increasing delivery mix will make the rider cost as a percentage of our sales increase. We will continue to make every effort to drive operational efficiency to partially offset those cost pressures on cost of labor. But overall, we do expect to face some headwind on cost of labor as a percentage of sales. And then thirdly, coming to occupancy and other costs, we do see much improvement in occupancy costs from the past few years. If you compare it to 2024 from 2019 before the COVID times, there's a significant improvement in rental. Back then, the rental was around 10% of sales. Now, it's around 9%, although we don't disclose the exact figure. Depreciation also meaningfully improved as a result of capital expenditure improvement. And, also, we seek a higher return on investment on advertising expenses. So advertising and promotion expenses have been improving over the past five years. And then speaking of 2025, we will continue to look for opportunities to generate some savings in occupancy and other costs. The overall cost as a percent of revenue is likely to be stable year over year from 2024 to 2025. The opportunities that I mentioned include the advertising and promotion opportunities, particularly for Pizza Hut because the advertising and promotion as a percentage of sales for Pizza Hut is still slightly higher than KFC, we do see some opportunities there. But for some other line items within the occupancy and other costs, we also feel some pressure. So overall, we're optimizing other costs. It's likely to be stable. And lastly, coming to G&A, as I mentioned in the prepared remarks, we target the full year G&A as a percentage of sales to slightly decrease, but we do expect some quarterly fluctuations. So that helps give you some more color on our margin. And in a nutshell, the conclusion is the core operating profit margin will remain relatively stable or slightly improve year over year. Thank you, Lillian.

Thank you, Adrian. Maybe I'll take a moment to add one short comment regarding the cost of labor. In terms of approach, specifically, what exactly have we been doing? Mainly focusing on a few things: simplification, automation, centralization, digitization. So all these activities in the stores are going through this approach to improve the efficiency of cost of labor. So exactly what are we doing? Well, for example, generative AI. We've been using generative AI to create millions of resumes and then also forecasting, etc. And that certainly helps save on labor costs. And we're also outsourcing some activities in the stores to the central kitchen. And, you know, not only save on cost of labor but also change the profile of the staff number in the store, which we're going to share more in the annual report later on. So specifically, that's what we have been doing, and it's been ongoing and particularly focused since Project Fresh Eye last year as well. It will be ongoing. Thank you, Lillian.

Thanks a lot, Joey and Adrian. That's very detailed and very helpful. Thank you again.

We are now going to proceed with our next question. The questions come from the line of Christine Peng from UBS. Please ask your question.

Thank you, management, for the opportunity to raise a question. So I have a very quick question regarding the Pizza Hut Wow. I think, Adrian probably mentioned earlier that Pizza Hut Wow, the capital return is actually pretty good compared with the traditional Pizza Hut store, but I just want to get more clarity in terms of the store economics. Such as unit revenue margin, so that we can better understand the potential of this new format going forward. Thank you.

Thank you, Christine. Indeed, as I mentioned in the prepared remarks, Pizza Hut Wow, we do observe some pretty encouraging progress, but I need to caution that, you know, it's a new model. Only, like, seven months old. It takes time for any new model to become mature. And the right word we are using in the prepared remarks was the model is maturing. As in the process of maturing. So we do observe some early signs of significant outperformance on the dine-in part of the sales. And the delivery part of sales is improving since the first Pizza Hut Wow model opened in May. But, you know, still there's a slight gap versus the regular Pizza Hut model in delivery sales. And in terms of margin, you know, as it's always our philosophy, you know, the transaction comes first and then sales and then margin. So margin, we're still in the process of fixing the margin. Currently, you know, in terms of the 200 Wow stores, the cost of sales and cost of labor for many of those stores become broadly on par with the regular Pizza Hut model as a percentage of sales. But the overall margin, there is still a slight gap versus the, you know, the main model. So we are still in the process of fixing those. So for the year, for 2025, you know, the focus here on the Wow model is really to, you know, firstly, improve the delivery sales and secondly, to, you know, fix the margins. Obviously, over the past seven months, over the 200 Wow stores, a vast majority or almost, you know, almost all of those stores are flipping from the regular Pizza Hut models. We only opened the first new Pizza Hut Wow store in December. This year, we'll test, you know, opening new Pizza Hut Wow stores. Especially, we do see some good potential in lower-tier cities and in highly competitive trade zones. Where consumers do seek value for money. So, you know, it's a new model again, and then it takes time for the model to mature. But we do have high hopes and excitement for this model. Thank you, Christine.

Thank you, Adrian.

We are now going to proceed with our next question. The questions come from the line of Vincent Wong from CLSA. Please ask your question.

And just a follow-up question on Adrian's previous comment on the headwind on labor cost. So Adrian mentioned the labor cost per ticket for delivery is going down, but because delivery sales are going up, so that may. I just want to understand more on that point. Because actually, the renewal sale as a percentage of total revenue has been going up last year. But when are we able to achieve lower labor cost per ticket? That's quite impressive. So why is that not the case going into 2025? Just want to understand it. Thank you.

Thank you, Vincent. So just to offer some more color here, you are right in pointing out that in 2024 we successfully managed to improve the operational efficiency significantly to offset the impact of delivery sales mix increase on the cost of labor. So as a natural consequence, that will be a high base for us. That will be a tough landing for us. As you know, Project Fresh Eye actually kicked off in late 2023. So the full year impact was on 2024. And the cost of labor is one of the key areas, you know, Project Fresh Eye. You know, in terms of efficiency enhancement and productivity improvement. So with this tough landing and tough base, for 2025, I just gave some, you know, pretty transparent guidance on how the cost of labor as a percentage of sales may evolve. First, I'll break it down into two parts, just to offer some more color. The first part is the non-rider part. Right? The non-rider part, obviously, we do face a low mid-single-digit wage inflation, and we will make every effort to try to further enhance our operational efficiency to hopefully offset that wage inflation. So we do look at the non-rider part of cost of labor to be broadly stable as a percentage of sales for the full year 2025. And then the second part is obviously the delivery part. In terms of the delivery cost per ticket, it will be lower year over year from 2024 to 2025. You know, there are lots of efficiency measures there. You know, notably, the platform riders, which you know, is one of the key initiatives. It, you know, improves the cost and at the same time, the quality of the service is still, you know, improving. As we mentioned in one of our previous earnings releases, KFC currently already enjoys around half of the stores with platform riders doing the delivery. And Pizza Hut is having a lower percentage. And, obviously, there is room to improve on both this, you know, penetration for platform riders on our stores. So that's, you know, some of the drivers to drive down the ticket cost on delivery. But the increase in delivery mix as a percent of sales is probably more than the savings we can generate from there. So all in all, the delivery part of the cost of labor as a percentage of sales may likely slightly increase year over year. So overall, if you add these two together, one is probably stable. The other one is slightly increased. We do face some headwind there on cost of labor. But, you know, as I mentioned, we do have some other margin initiatives. For instance, cost of sales, hopefully, it will be slightly better year over year for both the brand and for Yum China Holdings, Inc. And all in all, it will be probably stable. All in all, as a result, the restaurant margin for KFC, we hope to maintain a healthy level of restaurant margin year over year. For Pizza Hut, we look to improve it over the mid to long run. Hopefully, we start to improve it for this year as well. And for Yum China Holdings, Inc. as a whole, for 2025, the core operating profit margin we expect that to be stable or slightly increase year over year.

Got it. Thank you, Adrian, and congratulations.

Thank you. We are now going to proceed with the last question. And the questions come from the line of Laurent C. Jalene from CICC. Please ask your question.

Thank you for the chance for the last question. Thank you, Joey and Adrian. Happy Chinese New Year. And I have one question. So our pricing strategy is very clear both for KFC and Pizza Hut. So just want to further evaluate our access. So for Pizza Hut, it has been going through promotional activities from December last year to February this year. So how does this affect same-store sales and margin? And also, we see that the ticket average for Pizza Hut has already reached 78 in Q4. So do we think this level has already reached our expectation or it still has some room to trade down in the future? Thank you.

Thank you, Laurent. For Pizza Hut, I'll go actually. We'll continue to drive down the ticket average for the Pizza Hut model. It's very impressive what the brand team has done to move it to 78, but we see room to go slightly further, but above 10% obviously. And also about, then I think we'll be happy. In terms of the pricing and promotion, you know, let's take the new menu that we just launched. We launched 40 new products in the December 2024 new menu. And then we lowered the list price of about 30 iconic products for the Pizza Hut model. Starting from 9.9 yuan for the drinks and dessert. It's very attractive. And then in the price reduction, some items, very iconic, for example, the wooden. We have the price. However, here's the little very important point. We kept the margin neutral through the innovation. So we are very happy that we found ways to deliver our iconic products with much value for money for the customer and also protect the margin. And the communication becomes very straightforward as well. You know, no need to go through the very sophisticated promotional pricing. We just go straight to the very attractive menu price, and we still get the margin. So that's what we have been doing, and customers resonate very well with that. And thus, we have observed the very nice transaction growth. So we'll continue to do that. So I'm glad that our team took a very bold move with that 30 iconic product price reduction and still protect the margin. So we'll continue to find new ways to serve our customers even better going forward. Thank you.

Thank you, Joey. And congrats again.

Thank you. Thanks, Joey. Thanks, Adrian. Thank you, everyone, for joining the call today. For further questions, please reach out to the information in our earnings release and on our website. Thank you.

Thank you all. This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you.