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Here's Why You Should Retain YUM! Brands (YUM) Stock Now
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Yum! Brands, Inc. (YUM - Free Report) is likely to benefit from digital efforts, strong Taco Bell performance and menu innovation. Also, the focus on expansion initiatives bodes well. However, dismal comps, the Middle East conflict and high costs are a concern.
Let us discuss the factors that highlight why investors should retain the stock for now.
Factors Driving Growth
Yum! Brands implemented various digital features in mobile and online platforms across all brand segments to enhance the guest experience. The company is accelerating its delivery services with positive results. In first-quarter 2024, digital sales totaled approximately $8 billion, up 11% year over year. Attributes of ongoing kiosk deployment, greater adoption of click-and-collect and stable third-party aggregator sales contributed to the upside. Given the brand’s strong market presence, the company is optimistic and anticipates the momentum to continue in the upcoming periods.
During the first quarter, the company accelerated the deployment of proprietary digital and AI-powered platforms across its brands and markets to drive growth. This included the Poseidon POS system, the Yum! e-commerce platform and the AIM inventory management platform. For Pizza Hut, the company deployed Dragontail to thousands of restaurants globally. Going forward, YUM emphasizes the national rollout of Dragontail’s kitchen display system and Poseidon to KFC U.S. restaurants.
Yum! Brands is benefiting from increased contributions from Taco Bell. During the first quarter, Taco Bell's revenues were $598 million, up 5% from the year-ago quarter's levels. The upside was primarily backed by same-store sales growth (1%) and unit growth. Also, the emphasis on commercial strategies, including building brand buzz, unparalleled value, mass occasions and digital initiatives, bodes well.
During the quarter, it reported solid demand patterns for the new cravings value menu and the Chicken Cantina menu. The company stated nearly one-third of transactions include an item from the cravings value menu. During purchase, 80% of these transactions include at least one additional item, resulting in nearly a 10% increase in check value compared with non-cravings value menu purchases. The company focuses on adding new menu items to support the momentum in the upcoming periods.
Increased focus on strategic acquisitions bodes well. During first-quarter 2024, the company completed the acquisition of 218 KFC stores in the UK and Ireland. These stores have average unit volumes exceeding $2 million and healthy store-level cash margins. The addition of these units is expected to provide approximately $40 million of incremental EBITDA in the 12 months following the acquisition.
Image Source: Zacks Investment Research
In the past three months, the company’s shares have inched up 1.5% against the industry’s 4.4% decline.
Concerns
Dismal comps are negatively impacting the company’s performance. During the fiscal first quarter, comps at YUM dropped 3% year over year against growth of 8% reported in the prior-year quarter. The downside was caused by difficult comparisons to the previous year's performance, the return to a more typical inflationary environment and discrete consumer demand pressures. Also, the Middle East conflict added to the downside. During the quarter, markets in the Middle East, Indonesia and Malaysia collectively created a low single-digit headwind to YUM's overall same-store sales growth.
The company has been persistently shouldering increased expenses, which have been detrimental to margins. During the first quarter, General and administrative expenses came in at $89 million compared with $84 million reported in the prior-year quarter. The upside was mainly driven by costs associated with the resource optimization program, partially offset by lapping costs related to the prior year's ransomware attack.
Costs associated with brand positioning in all key markets and ongoing investment initiatives are likely to weigh on margins in the near term. The company is cautious about the uncertain macro environment.
Zacks Rank & Key Picks
Yum! Brands currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector include:
The Zacks Consensus Estimate for WING’s 2024 sales and earnings per share (EPS) suggests a rise of 27.5% and 36.7%, respectively, from the year-ago levels.
Brinker International, Inc. (EAT - Free Report) carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 213.4%, on average. EAT’s shares have risen 84.6% in the past year.
The Zacks Consensus Estimate for EAT’s 2024 sales and EPS indicates 5% and 40.3% growth, respectively, from the year-earlier actuals.
El Pollo Loco Holdings, Inc. (LOCO - Free Report) carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 19.4%, on average. LOCO’s shares have risen 11.7% in the past year.
The Zacks Consensus Estimate for LOCO’s 2025 sales and EPS indicates 3.8% and 9.9% growth, respectively, from the prior-year figures.
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Here's Why You Should Retain YUM! Brands (YUM) Stock Now
Yum! Brands, Inc. (YUM - Free Report) is likely to benefit from digital efforts, strong Taco Bell performance and menu innovation. Also, the focus on expansion initiatives bodes well. However, dismal comps, the Middle East conflict and high costs are a concern.
Let us discuss the factors that highlight why investors should retain the stock for now.
Factors Driving Growth
Yum! Brands implemented various digital features in mobile and online platforms across all brand segments to enhance the guest experience. The company is accelerating its delivery services with positive results. In first-quarter 2024, digital sales totaled approximately $8 billion, up 11% year over year. Attributes of ongoing kiosk deployment, greater adoption of click-and-collect and stable third-party aggregator sales contributed to the upside. Given the brand’s strong market presence, the company is optimistic and anticipates the momentum to continue in the upcoming periods.
During the first quarter, the company accelerated the deployment of proprietary digital and AI-powered platforms across its brands and markets to drive growth. This included the Poseidon POS system, the Yum! e-commerce platform and the AIM inventory management platform. For Pizza Hut, the company deployed Dragontail to thousands of restaurants globally. Going forward, YUM emphasizes the national rollout of Dragontail’s kitchen display system and Poseidon to KFC U.S. restaurants.
Yum! Brands is benefiting from increased contributions from Taco Bell. During the first quarter, Taco Bell's revenues were $598 million, up 5% from the year-ago quarter's levels. The upside was primarily backed by same-store sales growth (1%) and unit growth. Also, the emphasis on commercial strategies, including building brand buzz, unparalleled value, mass occasions and digital initiatives, bodes well.
During the quarter, it reported solid demand patterns for the new cravings value menu and the Chicken Cantina menu. The company stated nearly one-third of transactions include an item from the cravings value menu. During purchase, 80% of these transactions include at least one additional item, resulting in nearly a 10% increase in check value compared with non-cravings value menu purchases. The company focuses on adding new menu items to support the momentum in the upcoming periods.
Increased focus on strategic acquisitions bodes well. During first-quarter 2024, the company completed the acquisition of 218 KFC stores in the UK and Ireland. These stores have average unit volumes exceeding $2 million and healthy store-level cash margins. The addition of these units is expected to provide approximately $40 million of incremental EBITDA in the 12 months following the acquisition.
Image Source: Zacks Investment Research
In the past three months, the company’s shares have inched up 1.5% against the industry’s 4.4% decline.
Concerns
Dismal comps are negatively impacting the company’s performance. During the fiscal first quarter, comps at YUM dropped 3% year over year against growth of 8% reported in the prior-year quarter. The downside was caused by difficult comparisons to the previous year's performance, the return to a more typical inflationary environment and discrete consumer demand pressures. Also, the Middle East conflict added to the downside. During the quarter, markets in the Middle East, Indonesia and Malaysia collectively created a low single-digit headwind to YUM's overall same-store sales growth.
The company has been persistently shouldering increased expenses, which have been detrimental to margins. During the first quarter, General and administrative expenses came in at $89 million compared with $84 million reported in the prior-year quarter. The upside was mainly driven by costs associated with the resource optimization program, partially offset by lapping costs related to the prior year's ransomware attack.
Costs associated with brand positioning in all key markets and ongoing investment initiatives are likely to weigh on margins in the near term. The company is cautious about the uncertain macro environment.
Zacks Rank & Key Picks
Yum! Brands currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector include:
Wingstop Inc. (WING - Free Report) sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter negative earnings surprise of 21.4%, on average. The stock has surged 90.7% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for WING’s 2024 sales and earnings per share (EPS) suggests a rise of 27.5% and 36.7%, respectively, from the year-ago levels.
Brinker International, Inc. (EAT - Free Report) carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 213.4%, on average. EAT’s shares have risen 84.6% in the past year.
The Zacks Consensus Estimate for EAT’s 2024 sales and EPS indicates 5% and 40.3% growth, respectively, from the year-earlier actuals.
El Pollo Loco Holdings, Inc. (LOCO - Free Report) carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 19.4%, on average. LOCO’s shares have risen 11.7% in the past year.
The Zacks Consensus Estimate for LOCO’s 2025 sales and EPS indicates 3.8% and 9.9% growth, respectively, from the prior-year figures.