We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Here's Why Investors Should Retain Yum China (YUMC) Stock
Read MoreHide Full Article
Yum China Holdings, Inc. (YUMC - Free Report) is likely to benefit from menu innovation efforts, marketing campaigns and digital initiatives. Also, the focus on unit expansion efforts bodes well. However, uncertain macroeconomic conditions and wage inflation are a concern.
Let us discuss the factors highlighting why investors should retain the stock for now.
Catalysts
YUM China's strategy for capturing sales growth revolves around providing good food and exceptional value. Noteworthy food innovations, such as the Juicy Whole Chicken and Beef Burger at KFC, showcased the company's ability to build significant categories and boost sales. Sales in these two categories alone exceeded 6% of KFC's sales mix in the third quarter, surpassing the Original Recipe Chicken. To continue this growth momentum, YUM China is expanding these categories with new flavors, collaborations like the Ultraman-themed Ultra Cheese 2.0 Beef Burger and strategic marketing campaigns.
Yum China is focused on the relentless unit growth of restaurants to drive incremental sales. During the third quarter of 2023, Yum China opened 500 net new restaurants. The company reported a payback period for the new stores of two years (for KFC) and three years (for Pizza Hut). The company is optimistic about reaching the 20,000 stores milestone by 2026. Attributes of flexible store formats and healthy new store payback periods are likely to add to the positives.
YUM China is leveraging the advantages of technology by increasingly shifting towards digital and content marketing to broaden its customer base. The company adopted a high-grade delivery strategy, collaborating with aggregators to source traffic and fulfill orders through its KFC riders. The company integrates cutting-edge technologies like in-store Internet of Things (IoT), automation and artificial intelligence (AI) to optimize operational efficiency.
Regarding loyalty membership, YUM Brands established a robust loyalty program with more than 460 million members cumulatively. The company's digital ecosystem plays a crucial role in attracting new members, driving engagement, and maximizing sales performance. In the third quarter of 2023, member sales constituted nearly 65% of system sales.
YUM China is optimistic about growth potential in China, emphasizing its strategic framework, RGM 2.0, as the key to sustainable growth amid evolving consumer preferences. The company's robust supply chain and innovative digital ecosystem position it to swiftly adapt to changing market conditions, ultimately creating long-term value for shareholders.
Concerns
Image Source: Zacks Investment Research
Yum China’s shares have declined 29.1% in the past three months against the industry’s increase of 10.9%. The downside was mainly caused by commodity and wage inflation.
Yum China is facing the structurally high cost of labor and rentals. Apart from wage inflation, the company bears additional expenses from promotion, packaging upgrades, menu innovation and technological novelty. In third-quarter 2023, total costs and expenses amounted to $2,591 million, up 9.4% from the $2,369 million reported in the prior-year quarter.
YUMC is apprehensive about uncertain macroeconomic conditions, wage inflation in the next few quarters, overlapping the temporary relief from the previous year and the potential elimination of VAT deductions. For fourth-quarter 2023, the company anticipates wage inflation in the mid-single digits.
Zacks Rank & Key Picks
Yum China currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector are:
Arcos Dorados Holdings Inc. (ARCO - Free Report) sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 28.3% on average. Shares of ARCO have surged 38.3% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for ARCO’s 2024 sales and earnings per share (EPS) indicates 10.6% and 15.5% growth, respectively, from the year-ago period’s levels.
Shake Shack Inc. (SHAK - Free Report) sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 80.8%, on average. The stock has gained 14% in the past year.
The Zacks Consensus Estimate for SHAK’s 2024 sales and EPS suggests rises of 15.2% and 39%, respectively, from the year-ago period’s levels.
Brinker International, Inc. (EAT - Free Report) carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 223.6%, on average. Shares of EAT have increased 2.5% in the past year.
The Zacks Consensus Estimate for EAT’s 2024 sales and EPS indicates 5% and 26.2% growth, respectively, from the year-ago period’s levels.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Here's Why Investors Should Retain Yum China (YUMC) Stock
Yum China Holdings, Inc. (YUMC - Free Report) is likely to benefit from menu innovation efforts, marketing campaigns and digital initiatives. Also, the focus on unit expansion efforts bodes well. However, uncertain macroeconomic conditions and wage inflation are a concern.
Let us discuss the factors highlighting why investors should retain the stock for now.
Catalysts
YUM China's strategy for capturing sales growth revolves around providing good food and exceptional value. Noteworthy food innovations, such as the Juicy Whole Chicken and Beef Burger at KFC, showcased the company's ability to build significant categories and boost sales. Sales in these two categories alone exceeded 6% of KFC's sales mix in the third quarter, surpassing the Original Recipe Chicken. To continue this growth momentum, YUM China is expanding these categories with new flavors, collaborations like the Ultraman-themed Ultra Cheese 2.0 Beef Burger and strategic marketing campaigns.
Yum China is focused on the relentless unit growth of restaurants to drive incremental sales. During the third quarter of 2023, Yum China opened 500 net new restaurants. The company reported a payback period for the new stores of two years (for KFC) and three years (for Pizza Hut). The company is optimistic about reaching the 20,000 stores milestone by 2026. Attributes of flexible store formats and healthy new store payback periods are likely to add to the positives.
YUM China is leveraging the advantages of technology by increasingly shifting towards digital and content marketing to broaden its customer base. The company adopted a high-grade delivery strategy, collaborating with aggregators to source traffic and fulfill orders through its KFC riders. The company integrates cutting-edge technologies like in-store Internet of Things (IoT), automation and artificial intelligence (AI) to optimize operational efficiency.
Regarding loyalty membership, YUM Brands established a robust loyalty program with more than 460 million members cumulatively. The company's digital ecosystem plays a crucial role in attracting new members, driving engagement, and maximizing sales performance. In the third quarter of 2023, member sales constituted nearly 65% of system sales.
YUM China is optimistic about growth potential in China, emphasizing its strategic framework, RGM 2.0, as the key to sustainable growth amid evolving consumer preferences. The company's robust supply chain and innovative digital ecosystem position it to swiftly adapt to changing market conditions, ultimately creating long-term value for shareholders.
Concerns
Image Source: Zacks Investment Research
Yum China’s shares have declined 29.1% in the past three months against the industry’s increase of 10.9%. The downside was mainly caused by commodity and wage inflation.
Yum China is facing the structurally high cost of labor and rentals. Apart from wage inflation, the company bears additional expenses from promotion, packaging upgrades, menu innovation and technological novelty. In third-quarter 2023, total costs and expenses amounted to $2,591 million, up 9.4% from the $2,369 million reported in the prior-year quarter.
YUMC is apprehensive about uncertain macroeconomic conditions, wage inflation in the next few quarters, overlapping the temporary relief from the previous year and the potential elimination of VAT deductions. For fourth-quarter 2023, the company anticipates wage inflation in the mid-single digits.
Zacks Rank & Key Picks
Yum China currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector are:
Arcos Dorados Holdings Inc. (ARCO - Free Report) sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 28.3% on average. Shares of ARCO have surged 38.3% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for ARCO’s 2024 sales and earnings per share (EPS) indicates 10.6% and 15.5% growth, respectively, from the year-ago period’s levels.
Shake Shack Inc. (SHAK - Free Report) sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 80.8%, on average. The stock has gained 14% in the past year.
The Zacks Consensus Estimate for SHAK’s 2024 sales and EPS suggests rises of 15.2% and 39%, respectively, from the year-ago period’s levels.
Brinker International, Inc. (EAT - Free Report) carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 223.6%, on average. Shares of EAT have increased 2.5% in the past year.
The Zacks Consensus Estimate for EAT’s 2024 sales and EPS indicates 5% and 26.2% growth, respectively, from the year-ago period’s levels.