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Yum China Stock Up 27% in 6 Months: Will the Rally Continue?
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Yum China Holdings, Inc. (YUMC - Free Report) continues to benefit from constant menu innovation, digitalization efforts and unit expansion. With digital orders increasing sharply, it is gradually shifting toward digital and content marketing to expand customer base. In the past six months, the company’s shares have surged 26.5%, compared with the industry’s rally of 9.6%. However, high costs and dismal traffic owing to the pandemic remain a concern. Let’s delve deeper.
Key Catalysts
Yum China is committed to continuous unit growth of restaurants in order to drive incremental sales. In 2018, the company opened 819 restaurants and re-modeled 931 stores. This exceeds the company’s prior target of opening 600-650 stores in 2018. In 2019, the company opened 1,006 stores, bringing the total store count to 9,200 in more than 1,300 cities. Notably, the company remodeled 972 stores in 2019. In second-quarter 2020, the company opened 169 new restaurants and remodeled 310. Despite the coronavirus pandemic, the company expects to open 800-850 stores in 2020.
The company has been focused on strengthening its delivery program to drive growth. In second-quarter 2020, delivery contributed nearly 27% and 35% to KFC's and Pizza Hut's company sales, up from approximately 18% and 24% from the prior-year period, respectively. Digital orders in the second quarter accounted for 86% of sales at KFC (up 24 percentage points year over year) and 61% of sales in Pizza Hut (up 32 percentage points year over year).
Coming to loyalty membership, Yum Brands created a robust loyalty program that has more than 265 million loyalty members, combining both brands. Backed by delivery and digital sales, the company’s loyalty membership rose at a high-double digit year over year for both brands in 2018. As of Jun 30, 2020, both KFC and Pizza Hut loyalty programs comprised more than 265 million members. In the second quarter, KFC member sales accounted for nearly 65% of KFC's system sales, while Pizza Hut member sales contributed approximately 53% to Pizza Hut's system sales.
Concerns
Restaurant industry traffic has been impacted by the coronavirus pandemic. Although situation in China is under control and the company has opened its restaurants, traffic is still below pre-outbreak levels. The pace of recovery is uneven as people continue to avoid going out and practice social distancing. Dismal traffic is likely to hurt the company same-store sales.
Yum China is facing the structural high cost of labor and rentals. Apart from wage inflation, the company is also bearing additional costs stemming from promotion, menu innovation and technological novelty. In order to curb labor cost, the company is increasingly focusing on delivery channels, which is again expected to curb margins in the near term. Also, costs related to transactions and franchises are expected to rise in the near future.
Some better-ranked stocks in the same space include Papa John's International, Inc. (PZZA - Free Report) , Jack in the Box Inc. (JACK - Free Report) and El Pollo Loco Holdings, Inc. (LOCO - Free Report) . Papa John's sports a Zacks Rank #1, while Jack in the Box and El Pollo Loco carry a Zacks Rank #2 (Buy).
Papa John's has a three-five year earnings per share growth rate of 8%.
Jack in the Box’s 2021 earnings are expected to increase 17.7%.
El Pollo Loco has a trailing four-quarter earnings surprise of 94.1%, on average.
These Stocks Are Poised to Soar Past the Pandemic
The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.
Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.
Image: Bigstock
Yum China Stock Up 27% in 6 Months: Will the Rally Continue?
Yum China Holdings, Inc. (YUMC - Free Report) continues to benefit from constant menu innovation, digitalization efforts and unit expansion. With digital orders increasing sharply, it is gradually shifting toward digital and content marketing to expand customer base. In the past six months, the company’s shares have surged 26.5%, compared with the industry’s rally of 9.6%. However, high costs and dismal traffic owing to the pandemic remain a concern. Let’s delve deeper.
Key Catalysts
Yum China is committed to continuous unit growth of restaurants in order to drive incremental sales. In 2018, the company opened 819 restaurants and re-modeled 931 stores. This exceeds the company’s prior target of opening 600-650 stores in 2018. In 2019, the company opened 1,006 stores, bringing the total store count to 9,200 in more than 1,300 cities. Notably, the company remodeled 972 stores in 2019. In second-quarter 2020, the company opened 169 new restaurants and remodeled 310. Despite the coronavirus pandemic, the company expects to open 800-850 stores in 2020.
The company has been focused on strengthening its delivery program to drive growth. In second-quarter 2020, delivery contributed nearly 27% and 35% to KFC's and Pizza Hut's company sales, up from approximately 18% and 24% from the prior-year period, respectively. Digital orders in the second quarter accounted for 86% of sales at KFC (up 24 percentage points year over year) and 61% of sales in Pizza Hut (up 32 percentage points year over year).
Coming to loyalty membership, Yum Brands created a robust loyalty program that has more than 265 million loyalty members, combining both brands. Backed by delivery and digital sales, the company’s loyalty membership rose at a high-double digit year over year for both brands in 2018. As of Jun 30, 2020, both KFC and Pizza Hut loyalty programs comprised more than 265 million members. In the second quarter, KFC member sales accounted for nearly 65% of KFC's system sales, while Pizza Hut member sales contributed approximately 53% to Pizza Hut's system sales.
Concerns
Restaurant industry traffic has been impacted by the coronavirus pandemic. Although situation in China is under control and the company has opened its restaurants, traffic is still below pre-outbreak levels. The pace of recovery is uneven as people continue to avoid going out and practice social distancing. Dismal traffic is likely to hurt the company same-store sales.
Yum China is facing the structural high cost of labor and rentals. Apart from wage inflation, the company is also bearing additional costs stemming from promotion, menu innovation and technological novelty. In order to curb labor cost, the company is increasingly focusing on delivery channels, which is again expected to curb margins in the near term. Also, costs related to transactions and franchises are expected to rise in the near future.
Zacks Rank & key Picks
Yum China currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the same space include Papa John's International, Inc. (PZZA - Free Report) , Jack in the Box Inc. (JACK - Free Report) and El Pollo Loco Holdings, Inc. (LOCO - Free Report) . Papa John's sports a Zacks Rank #1, while Jack in the Box and El Pollo Loco carry a Zacks Rank #2 (Buy).
Papa John's has a three-five year earnings per share growth rate of 8%.
Jack in the Box’s 2021 earnings are expected to increase 17.7%.
El Pollo Loco has a trailing four-quarter earnings surprise of 94.1%, on average.
These Stocks Are Poised to Soar Past the Pandemic
The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.
Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.
See the 5 high-tech stocks now>>