百勝餐飲集團 (YUM) 2012 Q1 法說會逐字稿

Good morning.

My name is Roshay and I will be your conference operator today.

At this time I would like to welcome everyone to the Yum!

Brands first-quarter earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks there will be a question-and-answer session.

(Operator Instructions).

Mr.

Jerzyk, Senior Vice President of Investor Relations, you may begin your conference.

Thank you, Roshay.

Good morning everyone and thanks for joining us on the call this morning.

The call is being recorded and will be available for playback.

We are broadcasting the conference call via our website at Yum.com.

Please be advised that if you ask a question it will be included in both our live conference and in any future use of the recording.

I would also like to remind you that this conference call includes forward-looking statements.

Forward-looking statements are subject to future events and uncertainties that could cause our actual results to differ materially from these statements.

All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release last night and the risk factors included in our filings with the SEC.

In addition, please refer to the Investor section of the Yum!

Brands website to find disclosures and reconciliations of non-GAAP financial measures that will be used on today's call.

Also, we would like you to please be aware of a few 2012 Yum!

investor events.

The next earnings release will be Wednesday, July 18.

That will be second-quarter earnings when we will release.

August 22, we will host a YRI investor conference in Plano, Texas.

We would love to have you.

And then the big event is on September 12 and 13 we will host an investor conference in China.

We will be going to Xi'an this year, one of the four ancient capitals of China, a two-hour flight west of Shanghai.

This will be followed by an event in Vietnam on that -- two days later on September 15.

We have a great event for you in September in China and in Vietnam.

Finally, our Investor update meeting will take place on December 6 in New York City.

On our call today we will hear from David Novak, Chairman and CEO, and Rick Carucci, our CFO.

Following remarks from both we will take your questions.

Now I will turn the call over to David Novak.

Thank you, Tim, and good morning everyone.

I am pleased to report each of our divisions produced impressive sales and profit results, driving 21% first-quarter EPS growth, excluding special items.

This performance leads us to raise our full-year EPS growth forecast to at least 12% from our initial guidance of at least 10%.

Our international business is clearly the growth engine that drives our Company and comprises over 70% of our operating profit.

Importantly, over 55% of our operating profit comes from high-growth emerging markets.

Yum!'s strongest businesses are located where the highest growth is expected to occur in the years ahead.

This is a very powerful combination.

We also continue to be optimistic about our ability to dramatically improve our US brand positions, consistency and returns.

While there is still much work to do, we expect significant progress with our US business this year.

Now let me take you through our key strategies.

Let's start with China, where our strategy is to build leading brands in every significant category.

Operating profit in China grew 14%, prior to foreign currency translation.

System sales increased 28% driven by a 17% increase in units and same-store sales growth of 14%.

These fantastic results give us even more confidence our category-leading brands are a strong as ever and well-positioned for sustained, profitable growth ahead.

KFC now has 3,819 restaurants, with average unit volumes of $1.7 million in 800 cities throughout the country, and continues to expand into new cities as well as increase its penetration levels in existing markets.

KFC is deeply rooted in China with its localized menu and broad appeal.

Virtually all KFCs in China serves breakfast, which accounts for about 6% of sales.

Nearly half our KFC restaurants offer delivery service, and over half have 24 hour operations.

These service and daypart extensions are all in the early phases of development and provide tremendous growth potential for years to come as we further leverage our restaurant assets.

This is all made possible through world-class operations and is a testament to the tremendous people capability we have in China.

Pizza Hut Casual Dining now has 662 restaurants and is opening successfully across multiple tier cities.

Its strategy to offer tremendous variety, everyday value and refresh 25% of its menu twice per year has consistently driven sales and profit growth.

Our brand positioning as happy restaurants (technical difficulty) with the Western casual dining experience is resonating with consumers and driving success.

Pizza Hut is without a doubt the number one Western casual dining brand in China.

It is important to note that new unit returns for our two leading brands in China, both KFC and Pizza Hut, are the best in our business with cash paybacks within three years.

We also continue to make progress developing our emerging brands in China.

Pizza Hut Home Service now has 136 units in 15 cities, and East Dawning, our Chinese fast food brand, has 29 restaurants in eight cities.

We are also happy to bring Little Sheep, the leading hot-pot casual dining concept based in China, into the Yum!

China portfolio.

We acquired Little Sheep in February and we are looking forward to strengthening its operating model and increasing its market leadership position.

We are very excited about the long-term potential of this brand and we will make the necessary investments required to ensure its success.

Now as you are surely aware, long-term economic trends are also working in our favor in China.

Rising incomes are making our brands even more affordable for an increasing number of people, and the consuming class is expected to double over the next 10 years to well over 600 million consumers.

With this as an overwhelming macro tailwind, our new unit development will continue at a high rate and we expect to continue to grow same-store sales.

As you know, our long-term model is to grow same-store sales at least 5% as we continue to drive record new unit development.

Now moving on to Yum!

Restaurants International, where our strategy is to drive aggressive international expansion and build strong brands everywhere.

In the first quarter we grew operating profit 9% in constant currency.

System sales increased 8%, driven by net new unit development of 3% and same-store sales growth of 5%.

Importantly, 91% of our new units were opened by franchisees.

We simply love the franchise business because we generate a steady flow of operating profit growth from franchise fees, while our franchisees capitalize the business, which translates to phenomenal returns for Yum!

shareholders.

We also continue to have strong results in high-growth emerging markets.

System sales in emerging markets at Yum!

Restaurants International grew 13%, and over 60% of our new restaurants were opened in emerging markets.

We are especially pleased with our sales performance in Russia.

Last year Russia led our entire system in same-store sales growth.

This continues to be the case so far this year.

We are rebranding KFC Rostik's to standalone KFC's and have increased -- and have increasing confidence we can build a strong, profitable business in Russia.

We are also driving major growth in the continent of Africa, building off our base of 656 stores in South Africa.

We plan to enter several additional African countries in 2012, in addition to expanding our business in South Africa.

We expect to have restaurants in about 20 African countries by the end of the year.

With over 1 billion people throughout the continent we know we are just getting started.

In addition to our progress in emerging markets we are making solid progress in France and Germany.

Our restaurants in France have the highest average unit volumes in the world for Yum!, and we continue to build our scale and increase television advertising.

In fact, we expect to be on television 27 weeks this year; that compares to seven weeks in 2010.

France is also the first market where we are truly a business rental program to drive new unit development and returns.

And we have taken this approach to Germany where we should have the necessary scale to use television advertising next year.

We have 136 KFCs in France and 77 in Germany today.

Our challenge going forward is to secure great site as fast as our people capability allows.

So while France and Germany are certainly developed countries, they are clearly emerging businesses for Yum!

Brands.

These two countries are on the ground floor.

Today our business in Western Europe is minimal, but the upside is enormous.

McDonald makes well over $1 billion in these two countries alone.

Now on to India, our newest division, where we expect to open 100 new units this year.

In fact, we are so excited about our prospects in India and its impact on the future growth of Yum!, that beginning this quarter we have broken it out as a separate division.

System sales increased 34% in the first quarter due to aggressive new unit development and same-store sales growth of 8%.

Even better, our business model is getting stronger every day working in both large and smaller cities.

Our new unit progress with KFC in India is very similar to what we saw in China during its first 10 years.

And while we don't anticipate meaningful profit contributions from our India division this year, we are laying the foundation for this business to have a significant impact on Yum!'s profit growth in the future.

In the United States our strategy is to dramatically improve our brand positions, consistency and returns.

The good news is we are off to a great start this year with operating profit up 27% in the first quarter.

Taco Bell led the way with 6% same-store sales growth, and this should only get better in the second quarter with the historic launch of the Doritos Locos Taco.

Initial results from our First Meal launch, primarily on the West Coast, have been encouraging and we are optimistic about expanding breakfast to 200 more stores in the second half of the year and even further in 2013.

We are also encouraged by an initiative called Cantina Bell, where we are testing a new line of products with exciting new ingredients like whole black beans, cilantro white rice and corn pepper salsa, inspired by celebrity chef, Lorena Garcia.

This initiative is designed to broaden the appeal of Taco Bell.

Obviously, we have a lot going on at Taco Bell and we are pleased with the progress that we are making.

Our US business is clearly in a position to improve upon our 2011 results, and it is really great to see all three US brands -- Taco Bell and Pizza Hut and KFC -- growing same-store sales and profit.

We realize there is much work to be done and we expect more consistent performance going forward.

Before I wrap up, I want to update you on our biggest people capability initiative.

We are in the process of training our RGMs around the world on how to take people with them to drive operational excellence.

RGMs are identifying their single biggest thing in their restaurant that can improve operations and using our training guides to develop action plans with their teams to drive results.

We recognize that operational excellence is the key to our foundation and our goal is to make sure we are world-class everywhere.

This is the single most comprehensive effort we have going on at Yum!

Brands that we are adapting and applying around the world.

In conclusion, while the year is young, we are very pleased with our great start in each of our businesses.

I am encouraged by the positive momentum we have and confident in raising our full-year EPS growth forecast to at least 12%.

Now let me hand it over to Rick.

Thank you, David, and good morning everyone.

Today I'm going to cover three topics -- our first quarter results, some items to consider as we look into the balance of 2012, and a brief update on Little Sheep.

We simply had an outstanding first quarter.

Each division delivered strong sales and profit growth driving 21% EPS growth excluding special items.

In China system sales grew 28% driven by impressive new unit development of 17% and same-store sales growth of 14%.

Operating profit grew 14%, excluding foreign currency translation.

Operating profit included $6 million of nonrecurring expense in the first quarter related to the acquisition of Little Sheep.

Offsetting this our results were enhanced by the additional day from leap year, which provided about a $5 million of incremental operating profit.

As we look deeper into our China results, please keep in mind that our first quarter in China is only two months long and is heavily impacted by the Chinese New Year.

There are several business features associated with the China New Year.

First, sales are typically strong around the holiday period.

At the same time consumers are usually a bit less price sensitive than at other times of the year.

And not surprisingly, landlords and retailers push to open stores before the holiday period.

Restaurant margins in China were a very healthy 23.6%, but down 1.5 points versus prior year.

These margins were slightly better than our expectations given the high commodity and labor inflation in the quarter.

Margins benefited someone from the Chinese New Year as the mix of value menu items was below the levels we saw in the preceding months.

China development set a new first-quarter record with 168 new units.

Due to the early timing of the Chinese New Year, over 150 of these units were opened in January.

That is just an incredible number and it highlights the tremendous development and operations capability of the China team.

It demonstrates the strong capability of our 900 person development team both in real estate and construction.

Opening 150 units in a month also requires putting 150 new restaurant general managers and 150 restaurant teams in place in a short period of time.

Our operations and human resource teams did this seamlessly.

I want to thank the China team for this very special Chinese New Year effort.

At Yum!

Restaurants International we continue to produce solid sales and profit gains consistent with our ongoing growth model.

As David just mentioned, we are constantly improving our competitive position in emerging markets while making significant progress in countries like France and Germany.

Our restaurant margins were down 0.6 points.

As we continue to execute our ownership strategies within YRI, we expect these margins to improve.

In our emerging and strategic markets, like Russia and France, we expect our margins to improve as we gain more scale.

We will also benefit from the planned refranchising of our Pizza Hut UK dining business.

When this refranchising is complete, restaurant margins for Yum!

Restaurants International should be in the mid-teens.

Let me help put this in perspective.

For full-year 2011 our restaurant margins at YRI were 12.4%.

If you exclude the Pizza Hut UK dine-in business, the YRI margins would have been 14.7%, an increase of 2.3 points.

Finally, as David mentioned, we had strong US performance.

Operating profit grew 27% in the first quarter.

I was especially encouraged by the fact that each of our US brands delivered same-store sales, profit and margin growth.

Restaurant margins were 14.4% for the quarter, an increase of 3.7 points over prior year.

About 3 points of this increase was driven by good old-fashioned same-store sales growth.

The bulk of remaining increase was driven by the impact of refranchising.

We currently expect full-year 2012 US margin improvement of about 2 points.

Bear in mind this is in a year where we have to overlap fourth-quarter margins in 2011 that benefited from the 53rd week.

To summarize, we are very, very pleased with our across-the-board strong sales and profit performance in the first quarter of 2012.

Now let me provide a brief update on our balance of year outlook for 2012.

Although we are off to a strong start and we are pleased with our overall outlook for the year, I do want to share some of the challenges and expectations we have in the balance of 2012.

Our expected full-year tax rate is about 26% prior to special items.

This is almost 2 points higher than our 2011 effective tax rate of 24.2%.

A full-year rate of 26% will result in a drag of about 3 points on full-year EPS growth.

We expect the year-over-year impact on tax to be severe in the second quarter due to the unusually low rate of 16.7% last year.

This will materially impact our second-quarter EPS growth.

Next, I want to provide an update on our China margin expectations.

Let me start by discussing our pricing strategy in China as our approach continues to evolve.

Historically our pricing actions have been implemented nationally and all at one time.

Going forward we will take pricing across our system at various levels and at different stages depending on the trade zone.

This will allow our team to more effectively monitor the consumer reaction to pricing.

In 2011 we had a 3% price increase at the end of January.

With the phase-in pricing approach we have a relatively small impact from new pricing in the second quarter.

As a result, we will likely see a decline in margins in the second quarter that is somewhat higher than what we saw in the first quarter.

However, we are still roughly on track with what we outlined in our December meeting.

As you may recall, we estimated that first-quarter margins would be about 2 points below last year.

As the year progresses, we expect a combination of our cumulative staged pricing and moderating inflation to result in year-over-year margin improvement of up to 2% in the second half of the year.

I'm confident the team will continue to generate annual restaurant margins of about 20%.

As we look into the balance of 2012 I believe that this will be another year of improvement to our competitive position in our business model.

Our new unit development opportunities are as robust as they have ever been.

High-return new unit development continues to be the foundation of our growth in China.

As I said before, it is a pretty easy decision to pursue capital investments when you have average cash paybacks of less than three years.

It is even easier when you know how much discipline our China team incorporates into the development process.

Our ongoing model does not meet the high level of same-store sales growth that we have recently experienced.

We expect same-store sales to moderate at some point, although it is difficult to tell when that will occur.

The important point is during 2012 we are again building up dayparts and initiatives that can help drive sales well into the future.

For Yum!

Restaurants International our sales results have been mixed in Western Europe and we expect this to continue at least in the near term.

Our focus on our strategic growth markets remains driving profitable new unit development.

In the United States we expect strong second-quarter sales at Taco Bell.

The first quarter included only a few weeks of the Doritos Locos Taco sales.

This has been an enormously successful product introduction and thus far the second-quarter sales at Taco Bell are running higher than they were in the first quarter.

For the second quarter we expect same-store sales at Taco Bell to be in the high-single-digits or low-double-digits.

In our US business the 53rd week provided $18 million of operating profit benefit in the fourth quarter of 2011.

This benefit was offset with higher spending throughout the year, including franchise development incentives and higher than normal costs from restaurant closures.

While the combined full-year impact is modest, the 53rd week will have a significant operating profit headwind for the US in the fourth quarter of this year.

It will also negatively impact Yum!

Restaurants International operating profit by about $8 million in the fourth quarter.

International development continues to be quite strong.

We opened 297 new units in the first quarter and our new unit pipeline is solid.

We are expecting to open over 1,500 new international units in 2012, including 800 at Yum!

Restaurants International, 100 units in India, and at least 600 units in China.

This is a key growth driver in 2012 and 2013 and I am encouraged by this pace of development.

When we combine all these balance of year factors with our strong first-quarter results, we are pleased with how 2012 is shaping up.

Therefore, we are raising our full-year EPS growth forecast to at least 12% for the year.

Please note that in 2012 we do not expect nearly as large a financial benefit from the combination of Forex tax and share repurchases than we have had in some previous years.

We expect that almost all of our EPS growth in 2012 to be driven by operating performance.

The good news is that we are off to a great start.

However, it is early in the year.

We know that in a global business like ours stuff happens.

So while I'm confident in the strength of our business, my experience tells me that we cannot assume that results like the first quarter will occur throughout the year.

Now I want to provide a brief update on Little Sheep.

As indicated on our fourth-quarter call, with revenue of about $300 million, the Little Sheep business will add about 5% to our revenue base in China this year.

In 2011 the Little Sheep business started strong but struggled in the second half of the year.

Operating profit was about $20 million for the full year.

We are still in the process of getting our arms around Little Sheep as we transition this business into Yum!

China.

We will begin reporting Little Sheep numbers in our second-quarter results.

I want to reiterate when you take into account transaction and transition costs we expect only a modest profit benefit, if any, in 2012.

However, we remain excited about having Little Sheep in our portfolio and we believe in the long-term potential of the brand and will invest behind its future success.

In conclusion, we are happy to start the year on such a positive note and we expect to have a great year.

This gives us even more confidence that 2012 will be another year of double-digit EPS growth for Yum!

Brands.

Back to you, David.

Okay, thank you very much, Rick and Tim, and what we will do now is we will open it up for any questions that you have on our business.

(Operator Instructions).

John Ivankoe.

So many questions.

First, on China, given your current success of getting units open well above I guess the plan that was set a year ago.

What is the gating or the mitigating factor that would prevent that unit growth from going up?

Availability of real estate, is it RGM capability or your development team?

If you could just talk about what kind of capacity that you have in the system in terms of opening these units, especially as we begin to consider out your expectations for unit growth in the division?

Let me just start with historically what we have said and what has occurred, and then I will get to what we expect in the future.

Historically in China it has really had to do with economic development, development of trade zones.

And, again, as we have looked at historic unit counts they plateaued for a few years then they would jump up and they would plateau and then they jumped up.

It hasn't been a smooth, continuous increase.

One of the jump-up years was 2011.

And as we should said in the December meeting, that is really based largely on the China government's five-year plan in developing the city clusters.

And then the other thing that allowed us to raise our number was the success of Pizza Hut's dine-in business.

So those two factors really let us go from a run rate of 500 to about 650 in 2011.

This year we said -- I just said we would open at least 600 units.

We are obviously off to a great start, so our confidence level is quite high that we will reach that at least 600 unit target.

And it is really hard to predict when those numbers plateau and when they jump.

I have been at this for a while and even though the China team -- we have a hard time calling it in advance.

What we have said is that our absolute numbers would grow even if our percentage goes down in terms of new units as a percentage of total.

Interestingly, that January number was our highest percentage new unit openings in three years.

So we obviously feel very good about our prospects.

So the combination of the economic development plan, the factors that David talked about in his speech, the middle-class continuing to grow, people moving from the country to the cities, all those factors continue to make us very bullish that those numbers will sort of, I would say, at least stay the same for a period of time, and hopefully at some point in the future we will have another bump up.

Yes, the only thing I would add to that, John, in terms of long-term and our ability to execute, which is always -- is the key is that when you look at it -- at both operations and our development functions, we have got I think an unparalleled capability not only in China, but I would say of any retailer in the world.

When you look at operations, we have a highly educated RGM core.

90% of our restaurant general managers have at least a college education.

Over 50% of our team members are students.

We have two assistant managers in every restaurant ready to become RGMs.

And we have over 3,800 KFCs now.

We have over 600 Pizza Huts.

So that is why we are able to open up all the stores so successfully.

We are opening it up with very well-trained RGMs and well-trained teams.

And, in fact, our operating team in China looks at every store as a training store.

So we are constantly developing the talent that can open up these restaurants successfully.

Here is an interesting factoid.

We have really started what we call a Whampoa Academy, which is our analog for a famous military Academy in China where we are developing what we think is the retail talent for China in this next century.

We basically say to restaurant general managers or kids coming out of school that in four years you can become an RGM, you can become a franchisee potentially for us, or you can go work at another retailer and be totally well-trained.

Well, in this past year we hired 10,000 management trainees in 2011.

That is going to increase to 15,000 in 2012.

So we are really readying for the new store growth that is going to occur.

And I think on the development side, again, we got 1,000 -- Rick said we have only over 900 people in our development function.

90% of them -- which are based locally.

That means that they are out in the field.

They know the communities.

They know the cities.

They know the trade areas.

And our development managers have averaged being in our Company for eight years.

So we have got a really smart team, a great database and we are establishing the beachheads 50 to 60 new cities a year.

And remember, we have multiple brands.

We have KFC, we have pizza -- our casual dining pizza at home services coming on, ultimately these East Dawning coming on, Little Sheep.

So we are building the operating and the people capability to hopefully be able to accelerate our development over time.

And as Rick said, we are obviously off to a great start this year.

And I think the thing that I'm most impressed with is that we have got the operating and development capability to keep it going, plus the process and discipline and review processes that really make sure that we get the right sites and the right quality of sites.

Each store is reviewed, just like the very first stores we opened up in 19 -- whatever the year was, way back 25 years ago.

It is approved by local -- the local team plus the RSC.

They meet twice monthly.

So we got an unbelievable rigor around how to really open up great restaurants.

So we are very bullish about China's development story in the future.

And, remember, I've always said this, the real story for China is development.

The great thing for us is we got the harmonic convergence of development and same-store sales growth, and we think we are going to have that for some time to come.

And if I may, not to take up too much time out of the call, but when you look at China for the last 10 to 15 years, what opportunities might you have left on the table or maybe you should have done earlier?

For example, I mean, whatever it is of RGM training, of development, of how you're handling the brands and things like delivery that you could perhaps apply to India in its very early days?

First of all, I think that the China team arguably has done the best job of any retailer in the world.

So the good news is that I think with Sam Su and the team we have there we haven't left a whole lot on the table.

I think what we have really embraced more fully in the last couple of years, which is I think unlocking a lot of transaction growth, same-store sales growth and building our base as we go into the future is -- you know, it is an everyday value proposition, making our brand more and more affordable for our customers.

And we have always had great affordability; we are even more so now.

And I think that is a huge advantage when you think about us being in the embryonic stages of building categories and building brands.

If you look at McDonald's great success that they had originally, they broke the code when they had $0.15 hamburgers.

We all had those when we were kids.

We are making our brands now as affordable as they can possibly be in China and we are doing it at great margins.

So we are building a great brand, building great trial, building the brands the right way.

And I think that the good news that we have in India, Vietnam, Indonesia, Brazil, all these places is we now have what we call our emerging market group -- they're going to China.

In fact, they're going to be in China on June 6 and they are going to be there to a really look at the China operating model and take that same model and apply it into those markets.

And I know some of you may have had the opportunity to go to India.

One of the things -- reasons why India is doing so well now with KFC is that Niren Chaudhary and the team there, they spent a ton of time with Sam Su and his team.

And I think they're doing a lot of the things that we did in China.

Great sites, operating capability, all of that is being adapted in India.

And I think China is now beginning to pick up a few things from India as well.

So I think it is a great advantage that we have that we can go to a China and have such a stalwart example of how to really execute.

Just to add to that.

I agree with David.

I think when you're looking at a new country, the combination of brand building and unit economics is key.

And, fortunately, we have both of those in India.

I think the brand that we are building -- the KFC brand is looking very strong.

And we have the unit economics that we talked about there are strong across the country.

I think two specific other learnings that they took from China besides the things David talked about.

One is that we are going to more cities earlier.

I think that traditionally when we opened up countries we concentrated a lot on the capital cities and the bigger cities.

And what we learned in China is that there are opportunities -- and you know, when you have 1 billion people in a country there is opportunities in a lot of cities.

So in India we are going into cities outside the major cities quite quickly.

And the other thing is the quality of the people.

And that was really from day one in India, but I know you just got back from there.

The quality of the people that we have in India, not just at the management level but the store level, is exceptional.

And you always get a lot of confidence when you know the consumer is getting a great experience and then you have management that is as talented as we have there.

Great, thank you very much.

David Palmer, UBS.

Rick, you mentioned the first quarter is only two months long in China and the two weeks of the Chinese New Year being particularly important within that.

And I think one of the implications of that is that this quarter is a far from perfect indicator of your business momentum there for good or ill.

You have the benefit of seeing 4.5 months of 2012 so far, being able to see through the impact of changing promotions, value menus and whatnot.

How would you characterize same-store sales momentum in China from where you sit?

And what sort of range of same-store sales growth should we be thinking about for China in this year, 2012?

Thanks.

Yes, as I said coming into the year, I think it is really hard to forecast same-store sales in a year -- in 2012 coming off a year like 2011, which was so strong from a same-store sales perspective.

On the positive end you have momentum; on the negative side you know you're going to be lapping some big numbers, especially as we get into the second half of the year.

We are not going to give a forecast for the second quarter.

What I would say is traditionally we let people know if there is a significant bending in the trend.

And we are not sort of saying that there is a huge change in the trend versus what we saw in the first quarter.

So we are obviously off to a very good start.

I just want to also just keep framing for people that these same-store sales numbers were on top of just huge development numbers in the back -- in the fourth quarter of 2011 and the first quarter of 2012.

And I know we are used to sort of saying what are same-store sales, et cetera, but we look at system sales a lot, and we have had two quarters of just unbelievably strong system sales.

So while we obviously care about same-store sales, as David mentioned, we are even more concerned or more encouraged by the development that continues to occur in China.

And my expectation, as I said in the speech, at some point I expect same-store sales to grow growth to slow down, but I don't know when that will be.

Yes, we really can't predict that.

The only thing I think I would just build on this is that we are building a model in China that can incorporate a whole lot more average unit volume growth, okay.

Our breakfast daypart is 6% of our business today.

It is now national.

But it is 6% of our business.

We have delivery -- home delivery, business delivery in half of our stores, and we have 24-hour service in half of our stores.

Embryonic stages.

Value is something that we are doing now with our [6/1] breakfast, [12/1] lunches.

So that is all geared towards making our product more affordable to this consuming class that is going to double in the next -- to 600 million people in the next eight years.

And then we are also continuing to innovate, you know, with rice and chicken-based dishes that are new and exciting and make us even more locally relevant.

So the team is very set on leveraging that asset 24/7.

And as we do that we are at the embryonic phases of those dayparts in these segments.

So I don't know when same-store sales growth is going to slow down.

I can't predict that any better than Rick, okay.

But what I do know is that the new unit opportunity we have is beyond even comprehension.

And then the same-store sales growth opportunity is clearly there as we leverage our asset.

But our model needs, as we go forward, we want to continue setting records in new unit development and we need 5 -- about 5% to 6% same-store sales growth.

We think that that is achievable from a long-term model perspective.

Thank you.

Michael Kelter, Goldman Sachs.

Further on, China and what is going on over there.

The macro is clearly slowing a bit and you see it in housing and PMI under 50 and durable goods and things like that.

How is it filtering to your business, whether it -- I don't mean necessarily just what's the comp look like, but what about behaviors in the restaurants, what are consumers doing differently, if anything?

Are you seeing it differently in Tier 1 were 2 versus 3 to 6 cities?

Are you seeing it in different dayparts or menu ordering?

What is going on in the restaurants for you over there?

Well, clearly, given the results we have we are not seeing much on the restaurants, right.

So had both really strong transaction growth, that 14% growth.

I think it was 9% transactions and about 5% ticket, so we had nice balance there.

We have not seen a change in attitude.

It is hard to read the macros in China.

As we said before, the housing -- if they have a housing bubble in China it is a real concern for people because they are worried about can they afford their house down the road.

Some of the other GDP stuff doesn't bother us as much.

And we look at that stuff, but one of the things that the Chinese government has tried to do is to become more dependent on consumption and make that a bigger part of their economy.

It looks like they're being successful in that.

A higher percentage of the growth this quarter was consumption than past quarters.

Confidence of the people have been stagnant for a while.

That is actually picking up a little bit.

So I would say that the macro should -- I would say for us, the short-term macro stuff is mixed, but probably as much positives as negatives.

And as David said in his speech, the long-term macros are still great for us.

And that is in terms of being able to add units for a long period of time.

So overall we were actually comfortable with how the China economy is performing.

My only point is that when I read all these macro trends, and I know that they are out there and we are on top of them just like everybody else is, I haven't read anything anywhere from any expert that says the consuming class is shrinking, okay.

And when people are talking about these macro trends, I am not seeing the same people write about how the growing middle class is going to go from 300 million to 600 million people, which comes from outside sources.

That is not Yum!

Brands estimate.

So I think when you're thinking macro the overwhelming -- the overwhelming macro trend that should affect consumer businesses in China is the fact that there's more consumers, okay.

That is a pretty overwhelming trend.

So, Michael, I know you've got a good consumer goods background but you might want to consider that one.

Yes, Michael, I would just add one thing.

There is -- everyone sees the macros from all their economists and whoever they want to source from, but the one thing that I started to look at a little bit more frequently is the performance of our Pizza Hut Casual Dining business, which as you know, has a much higher guest check.

And I think that is showing some really amazing things.

Obviously, we have done some great things with the concept several years ago.

And the brand is a leader by far and the consumers responded to that.

But in Q1 with 19% same-store sales growth IT lapped a 13, which lapped a 13 year before that.

So we are talking about 45 points of comp growth over the last three years, and in the last quarter was the most -- was the strongest.

I think that is also somewhat of an indicator of the strength of the consumer in China.

And the increase in the consuming class is undoubtedly helping you guys.

One of the other sides of that is the labor inflation side.

I just wanted to understand that a little better, especially in light of what will presumably be moderating same-store sales in the future.

It has been about -- labor inflation has been about a 200 basis point headwind for you for the last couple of quarters.

Might that step up if comps come down to, let's call it, mid- or high-single-digits in a more normalized environment, or is there any reason why you might be able to manage that down despite the lower leverage level?

Well, as we have said before, we sort of see labor inflation as continuing for quite a period of time.

And we said when they set up their new five-year economic plan we expect that in the mid-teen level.

And we just think that is probably going to occur for a period of time.

It has actually come down a bit from the high point that we had in the back end of last year.

So we think that is a normal occurrence.

As we have said before it is a dual edged sword.

We will get the -- we have higher costs that we have to manage.

We will have to pass some of that forward in the form of pricing to consumers.

But the consumers have more money to be able to afford our products and it contributes to the growing middle class that David talked about.

So we look at that as a thing that is going to continue for us.

We think it is going to continue for our competitors and everyone else.

So we just look at that as part of the background.

Thank you very much, guys.

Brian Bittner, Oppenheimer.

Understanding that you have a lot of interesting drivers to grow the AUVs across all your units in China, I'm still trying to better understand the comp performance of new units versus maybe more mature units.

Are new units rolling into the base at much higher comp rates than the existing base as you build the brand beyond Tier 1 and Tier 2 cities or are you generating the similar double-digit comp trends in stores that have been around for a while, given this positive consumer backdrop and your own Company specific initiatives that you continue to implement?

Yes, it is not that easy to figure out, actually.

First of all, just for background, again for some others, our new unit volumes are generally $250,000 to $300,000 below our average unit volumes.

That has been going on for years in China.

Now in terms of the rate of growth, on average our new unit volumes are probably growing a bit higher because they have been in the smaller tier cities and in the Central and West, which has been outgrowing the rest of the country.

But it is very hard to isolate units because we continue to cannibalize ourselves with new units on top of new units.

So in the old days you could sort of figure that out.

Now it is actually extremely complex to figure out.

So I think the way I would think about it is think about those growth as similar and that the margins are the same as the existing base, but they are smaller on average unit volumes as you go to, one, smaller tier cities, and second, more infill units.

Okay, thanks.

And then one more quick one.

As far as Pizza Hut in China trends apprear to be accelerating there.

I definitely saw that in this quarter.

I was wondering if you could touch on anything outside of the positive macro backdrop that is maybe taking place at the brand there at Pizza Hut?

Well, I think the big thing we have there that we have talked about in the past is we are changing out the menu every six months -- 25% of the menu.

We have got the value proposition there -- eat like a rich man; eat like a poor man.

We have daily half-off specials on entrees, which I think is quite successful.

We are leveraging the asset.

Our afternoon tea time continues to grow.

We have brought in new proteins.

We are actually selling steak now with a new pan technology with display cooking, and that product is doing well.

So I think the team is really fully embracing the fact that we want to be the casual dining chain in China with multiple proteins and daypart leverage.

So we have afternoon tea time.

We will be testing other opportunities to leverage the asset throughout the day as well.

So a lot of good news happening there.

Great, thanks.

Jonathan Komp, Robert W.

Baird.

I just want to get a better sense of how you think the US profit performance could play out during the balance of the year?

And, obviously, strong profit growth in the quarter you just reported.

If I look to the balance of the year the comparisons for the next three quarters on a combined basis really look somewhat similar to what you just cycled in Q1 when you account for the extra week.

So my question is was there anything unique from a profit perspective in Q1?

And then as you look to the balance of the year are you thinking similar type growth -- similar type rates of profit growth are possible or how are you thinking about that?

Well, let me repeat a couple of things that I put in my speech just to try to look at what could happen in different quarters.

I think first of all on the second quarter I will mention that Taco Bell sales have strengthened from the first quarter.

So with Taco Bell being a big driver of our US business we would expect a pretty strong second quarter in the US.

And then in the fourth quarter we have the headwinds from the 53rd week, which would not insignificant.

It was $18 million headwind in the fourth quarter.

So that will skew what happens from a quarter-by-quarter basis.

Obviously, you can't expect to grow 27% every quarter from an operating profit standpoint, but we are pretty bullish on the full year for the US at this point.

Great, thank you.

Howard Penney, Hedgeye Risk Management.

Actually, two questions.

In the second half you talked about a 2% improvement in margins in China.

What is the same-store sales assumption that you have with [that piece]?

Yes, we don't have a specific same-store sales assumption.

The biggest impact, we said we expect sales to moderate, but the impact is really inflation was very, very high in the third and fourth quarters last year.

We got behind from a pricing standpoint.

We think this staged pricing will start to have an impact in the second half of the year.

Plus, we expect inflation to moderate in the balance of the year.

Again, to put things in perspective on the inflation side, on the commodity side in particular, we said going into the year we expected 6%.

We had 10% in the first quarter.

If anything, we are gaining more confidence that 6% is the high end of what we expect from commodity inflation.

So we have that benefit plus the cumulative pricing coming in that should help the margins in the second half.

But you do have an assumption for same-store sales for the back half, correct?

We just said less than what they were so far, but nothing we are going to share at this point.

And then another company -- consumer company mentioned that volumes were soft in China because of the cold weather during the Chinese New Year.

Would you agree with that statement or did the weather impact your volumes in China during the New Year?

Yes, we are rarely weather forecasters or talk about the weather unless it was extreme, and so we didn't think it was worth calling out.

Thank you.

John Glass, Morgan Stanley.

One on China comps and then I promise link one that is somewhere else in the world.

But on the China comps can you talk about the composition of them?

In other words, as you cycled the value platform last year, are you seeing incidences ordered off that value menu declining, stabilizing?

Can you talk about the impact of these nontraditional food at KFC, i.e., the more Chinese centric food?

Can you talk about the role that is playing in comp store sales?

Some way to understand maybe how those two elements in particular have played out and maybe how you think about them for the balance of the year?

Yes, I don't have a great breakdown of the second part of your question in terms of the Chinese food yet.

We will obviously learn more as we get more time into the year.

We are obviously very pleased that we have a variety and we think that is one of the competitive advantages we have in China.

So we love the fact that we have the food innovation, but I can't speak to the specific impact that is having.

Regarding the first part of your question on mix, again, in the fourth quarter -- well, just for background again, we introduced value in towards the end of the first quarter last year and then more heavily in the third quarter last year.

That is when you had the biggest shifts.

We said at the end of last year we were low double-digit as a percentage of people offering -- ordering off the value options.

That percentage went down fairly significantly around Chinese New Year, again as we said people are less price sensitive.

Early indications is it going back about to the low-double-digit range, which is in line with our expectations, but we still have to see how that plays out.

That's great.

That is very helpful.

And then on the Pizza Hut UK sale you talked about in the notes, that you got some bids on the business and that is what created this revaluation of the charge you took.

So is the expectation that you will sell all of it year based on those bids, some of it this year?

And then could you just remind us again the size of the business?

I know you gave us the margin impact, but what is the absolute dollar size of both revenues and maybe operation profit contribution in that business?

It is not a big operating profit contributions.

We said is when we refranchise we will make as much money as we are making today.

So it won't be -- it will probably be flatter, accretive from a profit standpoint.

It is about -- I think 400 company restaurants, 450, in that range.

So roughly $0.5 billion of revenue would be the size of it.

In terms of expectations, we expect to sell the entire dine-in business this year.

And so we are going through the process now.

So we will see how that plays out, but that is our goal this year is to complete the sale during 2012.

Thank you.

John West, Deutsche Bank.

It is actually Jason.

Just two fairly quick ones.

One, could you clarify, Rick, on the guidance on the US margins?

You said about 2 points of improvement this year, was that for restaurant margin or EBIT margin?

Restaurant margin.

Okay.

And then just secondly going back to India, just the discussion there on the similarities and differences versus your China expansion.

I know in China one of the important competitive advantages you guys have was owning the distribution model, which allowed you to get into the smaller cities a little earlier than others.

Can you talk about in India how you distribute products, is it similar to what you did in China or is it more traditional kind of third-party partners?

No, we use third-party partners.

Distribution is a challenge in India.

So it is something that because of the infrastructure they are not as developed as China was at the same stage of development.

It is harder to get product around.

That is really just a function of the roads and infrastructure, not the quality we believe of the distributors.

So we do use third-party distributors, which China is really the only country in the world where we own our own distribution system.

We didn't think that was necessary in India.

Okay, thank you.

[Vepa Marchenay], UBS.

I have a few questions on Yum!

India.

Basically the 8% SSD growth, what will be from transactions and what will be from the ticket growth?

I don't know that.

We don't have it handy.

I can certainly get back to you if you call me after the call or e-mail me, I will get you that information.

Okay, sure.

Do you have any idea what the price increases you have taken in the first quarter in the Indian market?

The same thing.

I would say the same thing, just give me a call or e-mail me after the call and I will get you that information.

Okay, sure.

And another question on the same-store sales growth.

Is that 8% growth exceeding your expectations or is it below your expectations?

You know, this sounds flip and I don't mean this to be, we were in the stage of where we are in India what we care about is really healthy unit economics, healthy brand and new unit penetration.

So we want to make sure there is not a problem with same-store sales, but that is why we couldn't answer some of your questions is that we are not as focused in on it at this stage of where we are with development.

Obviously, we are happy with -- anything positive at this stage is good.

Okay, sure.

And just to follow-up on the same thing actually.

The 8% same-store sales growth, I think rhw majority of it would be coming from your KFC business rather than the Pizza Hut business.

You can correct me if I'm wrong.

But the entrance fee for the Pizza Hut business would be much lower than the 8%.

No, actually, it was pretty balanced.

I don't know exactly from a first-quarter perspective, but the trend across the three brands has been solidly positive -- that is KFC, Pizza Hut, casual dining and Pizza Hut Home Service.

They have all been running solidly positive same-store sales growth.

Okay, sure.

And what has been the industry same-store sales growth if you have any idea or QSR in the first quarter?

No, we don't.

Same thing.

I can get you that information.

Just send me an e-mail at Tim.Jerzyk@Yum.com.

Okay, okay, sure.

Thank you so much.

Sara Senatore, Sanford Bernstein.

So, actually, so one obligatory question on China and then I wanted to move to a different region.

So, China, just go back to the line items in the margins.

The questions are, one, occupancy costs, again, those seem to be rising pretty fast, and yet even though a lot of your growth is coming in lower cost cities, I am just trying to understand that, if that is like an inflationary index that is attached to your rent rates?

And the other piece is there any part of the labor cost that is a function of how fast your are growing units like staffing up or redundancy?

Obviously, there is something there.

We have always been increasing units at a pretty high rate.

So the extra unit impact probably had some impact in the first quarter but nothing we could really measure.

We've felt it a little bit in the back half of 2011 as well, but I don't have an exact figure to be able to give you on that.

Okay, and then the occupancy question?

Yes, I'm just looking at the numbers now.

Okay, so then, well, as you're looking if I could ask about Western Europe.

I know you mentioned it was mixed.

Is that Germany and France where you're going so aggressively or are you talking about other markets, and is it safe to say that is because of the macro environment?

Yes, it is in -- it includes France and Germany, where overall our results have been pretty good.

But you do see -- we use the word choppiness -- you will see some weeks up, some weeks down the.

That is always a little bit of a troubling sign for us.

And more recently that we have seen some weakness there.

So the trends in Continental Europe from a same-store sales point had been more negative than positive the last -- over the last month or so.

So that is what we were really calling out.

Again, for our business there we still care more about the profitable new unit expansion, but it is something that we are keeping an eye on.

And on the occupancy side, I have nothing that jumps off the table at us.

In general on occupancy we are facing -- as a percentage it didn't really go up, so we felt okay about that.

In general as we renew leases in the top tier cities we are seeing increases in the occupancy there.

But we are getting better mix in terms of more and more of our new units are coming into the lower tier cities, which is helping go the other direction, which is why the percentage stayed the same, roughly the same.

Okay, thank you.

Jeffrey Bernstein, Barclays Capital.

Just a couple of questions.

One is a follow-up on that last one specific to the China margin and the components.

I know you mentioned still talking about 20%, roughly, for the full year.

We were obviously very impressed by the fact that food costs were down in the first quarter 20 BPs, despite the 10% inflation.

Yet on the labor side it was up 190 BPs on what was, I believe, 17% inflation.

I'm just wondering if you could talk about perhaps the mix changes related to the value menu or whether there are other initiatives that may have helped the food line, and whether you think that kind of even flat or modest leverage is sustainable?

I know you talked about a new pricing structure, but if there is any color on that or perhaps what your best guess would be with this new strategy in terms of pricing for the rest of the year?

And then I had a follow-up.

Well, regarding the first quarter, it is exactly what you said.

It was the mix of the value menu was significantly lower in the Chinese New Year period that was in the months that preceded it.

So that is what really allowed us to have the phenomenon you talked about.

Going forward, we are not going to have that benefit, but on the flip side we expect to see lower commodity inflation.

So we will get results that may be not that far away from that, especially as also the pricing comes into play, to your point.

So my guess is that the commodity as a percentage of sales when you take those into account will be modest changes versus 2011.

Okay, in terms of best guess on the pricing front with this new tool, is there any -- at this point in time based on inflation perhaps easing a little bit and labor you said easing relative to the back half of last year, kind of what you would think about pricing?

We think we will -- because -- if you do the math and if you figure roughly similar margins this year as last year, when you add it all up, you need a couple of points of pricing to make that work, if you look at the overlap from last year.

So we are not going to give exactly what we're going to do from pricing standpoint for competitive reasons, but our strategy has been to lag inflation, but then eventually cover most of it.

So that is the approach we're taking.

And I think this is just a different way of meeting that objective in terms of what we think is just the smarter tactic of doing it.

Understood.

And then, Rick, just separately as you think about the longer-term.

Obviously, you guide every year to the 10% annual EPS.

I know you talked at your last analyst day with your internal models a few points more than that.

And obviously you have achieved very consistent growth, what I believe is in the mid- and low-teens for the past decade.

So I think you mentioned at the analyst data you'd be surprised if you didn't achieve at least 10% for the next decade, which is obviously a very bullish call on the long-term growth.

But I am wondering as you think about the mix components of it would you think that growth rate would inch higher?

I would assume with China being a large percentage of the mix and growing faster -- would you highlight any perhaps offsets to limit such an acceleration, whether it be an increase in your investment or other reasons why as the mix shifts to the higher growth markets that the earnings flow through would similarly shift to the higher-teens relative to what you have been running considering the growth trajectory?

Well, clearly, the mix is a benefit, and that is one of the things we have been highlighting for quite a while to your point.

The one mitigating piece I touch briefly in my speeches, we've gotten -- if you add up ForEx tax repurchases, et cetera, we have had pretty large impacts of certain years on those combined.

And as you look forward versus if you looked at the average over the last 10 years, I would expect the impacts of those to be less.

So what we said going forward in our model, and we even gave a model for 2020, we expect a couple points from financial strategies going forward whereas in the past they have averaged higher than that.

Okay, but other than that, it wouldn't seem like there would be any impediment or you wouldn't have any issue with letting more flow-through if the mix moves the way you are expecting?

Yes, we are not holding back from our shareholders.

So if it flows, it flows.

But our model has been pretty surprising when you think about how much we change.

Our model has been pretty consistent as we have looked at it, because the mix changes have offset what we talked about on the financial side.

And so, therefore, our operating profit growth is generally higher than it was before and we expect that to probably continue, but the EPS impact has been about the same when you add it all up.

Absolutely.

Thank you.

Greg Badishkanian, Citigroup.

Two quick ones.

First, what do you think the weather impact was in the US?

And then, also, obviously the Dorito Taco Locos had really good momentum.

And is based on some of the test markets that they have been in how long would you expect that momentum to continue?

Do you think through the rest of the year and into next year or what do you think about that?

Yes, I think it is a hard one to call.

The good news is from our standpoint that the launch went even better than the test market.

And I think part of that is the team did a really good job on the social media side, and if anything, we brought forward consumers.

So it is hard to say therefore what the lasting impact of that will be.

I think I will let David comment some more.

On the weather side -- and this is almost a religious thing with us, unless it is extreme we don't talk about it internally or externally.

Right.

What I would say is that the industry was pretty strong in the first quarter.

And that some of that may have been weather related and some of that could just be the economy was looking better overall.

So the industry did improve in the first quarter versus what it was in the quarter before that, so that could be an indication.

I think that Taco Bell has been focused very much on a sustainable growth plan for the future.

I think as we look at Taco Bell we take a lot of heart in the fact that our operating capability continues to get better and better.

We score in the top tier in our industry on speed of service and accuracy, so that foundation is there and improving.

Marketing concept, brand building, we just launched a new advertising campaign to really capture the charismatic appeal we have with the youth target audience with the [Live Moss] campaign, which has been very well received, very well tested.

We think that will get better and better as we go forward.

From a product perspective, when we look at the core, this reinvention of the taco with Frito-Lay, we think we are at the beginning stages with.

Nacho cheese is the first flavor.

Obviously Taco Bell -- or Nacho Doritos has a number of other flavors.

We think we can generate innovation on that taco platform, which, frankly, we really hadn't had for 50 years.

The taco has been basically the same the last 50 years until we just made this innovation.

So now on our core product we have a platform that is proprietary and one that we can innovate off into the future.

So that is exciting.

The other thing we're doing is we're focused on broadening the appeal of the brand.

We are currently testing Cantina Bell, which is a line of products that was developed by Lorena Garcia.

We think this is going to extend the breadth of the appeal of the brand -- make us more mainstream with both male and female target audiences.

So we think that is very important.

And then we are leveraging the asset with breakfast.

We were in 800 stores on the West Coast.

We are going to add 200 more stores in the second half of the year.

We expect breakfast to grow.

So that -- literally, those are significant platforms that we are working on to grow our business on a sustainable basis.

Our goal internally, and I have talked a little bit about this, is to add that extra $150,000, $200,000 of sales to Taco Bell and get to 8,000 stores.

We think we can be a significant new unit developer in the United States as we improve our unit economics.

So that is the goal.

This year we obviously have a lot of ammo that we are firing, and we expect to have an excellent year this year.

The real key for us is to build off these platforms that we are developing so we get sustainable growth in the future and get to that where we can really get the new unit pipeline going again.

Keith Siegner, Credit Suisse.

Rick, I have a question about the US margins.

Clearly this was a good number.

And I know you said it was largely driven by the same-store sales growth.

But thinking about the refranchising and the fact that some of these Taco Bells have not been up to system average, like if you could quantify a little bit more for us maybe what the benefit was from refranchising on the margins year-over-year in this quarter?

And then it is really helpful to hear the fully adjusted numbers for YRI, ex UK.

If you were to try to give us something similar for the US -- if you hit 16% Company-owned for Taco Bell and 5% for Pizza Hut and KFC, what might your Company restaurant margins look like at the end of that program?

Yes, well, first of all, in terms of the impact of refranchising for this quarter's margins is about 1 point on a year-over-year basis.

So a lot of the impact from refranchising has already occurred through -- because we are largely done with Pizza Hut.

We are mostly done with KFC so it is now Taco Bell.

And the Taco Bell stuff we are refranchising versus the average margins for our system is a bit lower but not a lot.

So I don't expect a lot more impact going forward from refranchising on margins.

We will get a little bit of benefit, just as we complete the program but not a huge amount on a go forward basis.

Thanks.

Joe Buckley, Bank of America.

Could you talk about the KFC China same-store sales performance.

You have 13% versus Pizza Hut, but it is [up 18%].

And whether those check and transaction numbers you gave us are similar across both brands?

I guess the question is why do you think Pizza Hut was so much stronger than KFC?

I think it just comes down to what David talked about Pizza Hut.

Pizza Hut to me in China, and we don't talk as much about it, but it jas just had a phenomenal run the last couple of years.

It has added the variety.

It has added value.

It is just clicking on all cylinders right now.

So I would just say it is really almost extra special performance of Pizza Hut dine-in as opposed to its fundamental differences somehow between categories -- or so forth.

Obviously, they play in different categories but I think it is probably just Pizza Hut performing at an unbelievable level.

I think you got one that is A1, another one that is A2, but they're both A's.

Right.

And then just a question on the pricing.

The 5% check increase in the first quarter, can we assume that is mostly price -- actually it sounds like some of it is mix based on what you said already?

And I didn't understand completely what you were saying about the staging or zoning strategies.

Is that going to differ some of the pricing plans in China?

The pricing that we would have carried into -- or would have had for Q1 would have been the approximately 4 that we took last fall, and then half of the 3 from last year, so basically about 5.5 points of price in Q1.

And just in terms of what I would call the phase-in pricing I think there is two elements to it.

One is that there is more differentiation between trade zones.

So we are going to increase the number of options that we have by trade zone.

And the other is instead of taking one increase everywhere we are going to take roughly a number of stages maybe up to in the 5 to 8 range across the country.

And we just think that is just better from being able to read the consumer standpoint, PR perspective, et cetera.

So we think that is just a better way to do it.

Rick, when you say the 5 to 8 range, is that the number of zones or the pricing?

Sorry, that is the stages that it will take us to cover the whole country basically.

Okay, do you think you will still price in the single-digit for the balance of the year?

Well, it depends on what happens on the inflation side, et cetera.

So as I said at the beginning, we need a few points to get to the margin numbers we talked about.

Okay, thank you.

Mitch Speiser, Buckingham Research.

Thanks very much.

And many, many of my questions have already been asked and answered, so I will dig a little deeper and touch on some other things.

First, on the share repurchase, you did about 78 million in the first quarter.

I believe $800 million is the target.

Is that still the number to target for 2012?

Yes.

Okay, good.

Next, on Africa, you talked about it a lot at the analyst day.

Obviously, it is a big market.

Can you give us a sense just ex South Africa is there any competition whatsoever?

And when you think about Africa versus when you went into China a long time ago is it less of a competitive set at that stage of development?

When we first went into China there was also very little competition.

So I guess similar, but no one is even talking about Africa besides us right now that I have seen.

So to your point, I think the competitive situation is quite open.

It is more challenging, because you have multiple countries.

But clearly we think that if we can get the political stability and economic growth that seems to be materializing, it is a great opportunity for us.

But as we have said before, don't count -- outside of South Africa, don't build that into your growth model the next few years.

This is something for our 2020 vision that we talked about.

Great.

And lastly on Pizza Hut in the US, another strong quarter, was it driven by the continuation of the dinner boxes?

Do you see the category growing as quickly as you are growing?

Any context on the renewed Pizza Hut momentum would be great.

We think we outperformed the category by about 1 point or so I think in the first quarter.

And I don't think there is anything major different than what we have been doing in the past year or so to drive it.

The team, I think, has done a very good job of staying relevant with the consumer.

Great, thanks very much.

We have time for one more question please, Roshay.

Bryan Elliott, Raymond James.

Just real quick, food and labor inflation in the US Q1?

Well, for the full year we said we would have commodity inflation of 2% in the US.

It ran a little bit higher than that in the first quarter, but we don't think we're going to have much of a difference in the full-year number at this stage.

Inflation is low-single-digit.

But the food inflation is -- definitely will be the highest in Q1 and tail off from that.

And labor, seen any changes yet with the economic conditions firming a bit?

No, not really.

Great, thanks.

Okay, well, I want to thank everybody for being on the call.

Let me wrap it up by just saying that while we recognize the year is definitely young, we are definitely pleased with the great start that we have in all of our businesses.

Special kudos to the China team and Taco Bell team.

We are really encouraged by the positive momentum we have going forward, and we are confident in raising our full-year EPS growth forecast to at least 12%.

And as you know, we are very focused on a track record of consistency, and we are very focused on making this another year where we put another notch up there for us.

So thank you for calling in, I appreciate it.

And this concludes today's conference call.

You may now disconnect.