Yum China 2Q26 First Take: solid quarter with slight beats on revenue and profit; net 560 new stores, a record for any Q2. Details follow:

1) Overall: traffic is still up while avg. ticket is down. This mix has defined 2026 to date.

Revenue $3.14 bn; SSS +1%. SSS traffic +5%, marking the 14th straight quarter of growth, while avg. ticket continued to decline. Restaurant margin 16.1%, flat YoY.

Notably, delivery sales rose +26%, with mix increasing from 45% to 54% YoY. This is a key revenue driver, but it also caps restaurant margins given rider costs.

2) KFC: traffic gained by leaning into KCOFFEE and KPRO. The trade-off is smaller orders.

System sales +7% (vs. +5% in Q1); SSS +1%, traffic +4%, avg. ticket -3%. Mgmt attributes ticket pressure to more small orders from new occasions like KCOFFEE and KPRO. In our view, the trade is attractive: low-price small orders bring new customers and dayparts, and as long as restaurant margin holds, it's a net win.

Restaurant margin came in at 17.1%, up 20bps YoY, as commodity tailwinds and lean ops offset rider costs. That suggests the economics currently work. Net 335 openings in the quarter, 45% franchised, taking the store base to 13,789.

3) Pizza Hut: SSS turned positive. Restaurant margin declined.

System sales +6% (vs. +4% in Q1). SSS improved from -1% last quarter to +1%, driven by +13% traffic, offsetting an -11% drop in avg. ticket, reflecting full roll-out of WOW format and value strategy. The cost is clear: restaurant margin at 12.9%, down 40bps YoY and below expectations.

Pressure came from higher delivery mix (43% to 52%) and upfront investment in value SKUs and Burger Bar. Net 174 store openings in the quarter, nearly double YoY.

4) Other brands: store count barely moved. The real third growth curve still sits with the two core banners.

Lavazza, Taco Bell, Little Sheep and Huang Ji Huang added only 23 stores in 1H, ending at 959. Sales were just $12 mn, with an operating loss of $1 mn and restaurant margin of -2.3%. Frankly, this segment is no longer a growth mandate; it's being pared back.

As a result, real category expansion sits under KFC and Pizza Hut. We think this is the right call: extending categories across the existing base of 19k stores and 270 mn members is far more efficient than building a new brand, though the side effect is persistent ticket dilution as seen above.

5) Guidance unchanged. No change to FY26 targets.

All four FY26 targets reaffirmed: >20,000 stores (net adds ≥1,900), 40–50% of new openings franchised, capex $600–700 mn, shareholder returns $1.5 bn. Store rollout is tracking ahead: net 1,196 openings in 1H, already >60% of the full-year goal, leaving room to slow in 2H and still deliver. $YUM CHINA(09987.HK)