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Yum! Brands, Inc. (YUM - Free Report) has been benefiting from robust same-store sales, menu innovation, unit growth and the strong performance of Taco Bell. Consequently, the company’s shares have gained 9.8%, against the industry’s decline of 6.3%. However, high costs and debt remain a concern.
Growth Catalysts
Despite the pandemic-induced challenging environment, the company impressed investors with robust same-store sales growth in fourth-quarter 2021. The company delivered 5% same-store sales growth. At KFC International, Pizza Hut and Taco Bell, same-store sales rose 5%, 3% and 8%, respectively, during the quarter. The company has been gaining from recovery in emerging markets. At KFC U.S., same-store sales increased 4% in the quarter under review.
The company is benefiting from its expansion efforts. During the first, second, third and fourth quarters of 2020, the company opened 515, 328, 556 and 1,024 gross new restaurants, respectively. During 2021, the company opened 3,057 net new units in 2021. During fourth-quarter 2020, the company opened restaurants in China, Russia, Thailand and Eastern Europe. Master franchise agreements in Brazil (Taco Bell), Spain (Taco Bell), and Russia (Pizza Hut), and the international growth alliance with Telepizza to accelerate the development of Pizza Hut in key European markets and consolidate franchisees in Latin America and the Caribbean are likely to drive growth.
The Zacks Rank #3 (Hold) company continues to innovate core menus to attract customers. During fourth-quarter 2021, Habit restaurants added two new items, namely, Crispy Chicken Sandwich and Chicken Bites. KFC continues to focus on menu innovation through rebundling, repackaging and reconceptualizing core menu items.
Taco Bell continues to impress investors with robust same-store sales. The company’s comps climbed 21%, 5% and 9% during the second, third and fourth-quarter 2021, respectively. Taco Bell recorded 195 gross new restaurant openings in fourth-quarter 2021. In an effort to drive long-term growth, Taco Bell has been expanding into several category entry points, which include the re-launch of breakfast in August and the fried chicken category with the Crispy Chicken Sandwich Taco.
Concerns
Maintaining liquidity has become a herculean task amid the coronavirus pandemic for most of the companies. At the end of Dec 31, 2021, the company’s long-term debt stood at $11.2 billion, almost flat sequentially. However, Yum! Brands ended fourth-quarter 2021 with cash and cash equivalent of $486 million, down from the prior quarter’s $1,001 million.
An increase in the cost of employee wages, benefits and insurance, and other operating costs such as rent and energy costs put significant pressure on the company’s margins. A competitive retail environment weighed on the restaurants’ costs. The company is susceptible to profit margin pressure due to relentless expansion. In third-quarter 2021, its net costs and expenses amounted to $1,388 million from $1,261 million in the prior-year quarter. Costs associated with brand positioning in all key markets and ongoing investments in initiatives are likely to weigh on margins in the near term.
Key Picks
Some better-ranked stocks in the Zacks Retail-Wholesale sector include BBQ Holdings, Inc. , Arcos Dorados Holdings Inc. (ARCO - Free Report) and Tapestry, Inc. (TPR - Free Report) .
The Zacks Consensus Estimate for BBQ Holdings’ 2022 sales and EPS suggests growth of 40.9% and 66.2%, respectively, from the year-ago period’s levels.
Arcos Dorados sports a Zacks Rank #1. ARCO has a long-term earnings growth of 31.3%. Shares of the company have surged 60.4% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2022 sales and EPS suggests growth of 10.3% and 62.5%, respectively, from the year-ago period’s levels.
Tapestry carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 28.2%, on average. Shares of the company have declined 9.4% in the past year.
The Zacks Consensus Estimate for Tapestry’s 2022 sales and EPS suggests growth of 17.5% and 22.9%, respectively, from the year-ago period’s levels.
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Yum! Brands (YUM) Bets on Solid Same-Store Sales Amid Cost Woes
Yum! Brands, Inc. (YUM - Free Report) has been benefiting from robust same-store sales, menu innovation, unit growth and the strong performance of Taco Bell. Consequently, the company’s shares have gained 9.8%, against the industry’s decline of 6.3%. However, high costs and debt remain a concern.
Growth Catalysts
Despite the pandemic-induced challenging environment, the company impressed investors with robust same-store sales growth in fourth-quarter 2021. The company delivered 5% same-store sales growth. At KFC International, Pizza Hut and Taco Bell, same-store sales rose 5%, 3% and 8%, respectively, during the quarter. The company has been gaining from recovery in emerging markets. At KFC U.S., same-store sales increased 4% in the quarter under review.
The company is benefiting from its expansion efforts. During the first, second, third and fourth quarters of 2020, the company opened 515, 328, 556 and 1,024 gross new restaurants, respectively. During 2021, the company opened 3,057 net new units in 2021. During fourth-quarter 2020, the company opened restaurants in China, Russia, Thailand and Eastern Europe. Master franchise agreements in Brazil (Taco Bell), Spain (Taco Bell), and Russia (Pizza Hut), and the international growth alliance with Telepizza to accelerate the development of Pizza Hut in key European markets and consolidate franchisees in Latin America and the Caribbean are likely to drive growth.
The Zacks Rank #3 (Hold) company continues to innovate core menus to attract customers. During fourth-quarter 2021, Habit restaurants added two new items, namely, Crispy Chicken Sandwich and Chicken Bites. KFC continues to focus on menu innovation through rebundling, repackaging and reconceptualizing core menu items.
Taco Bell continues to impress investors with robust same-store sales. The company’s comps climbed 21%, 5% and 9% during the second, third and fourth-quarter 2021, respectively. Taco Bell recorded 195 gross new restaurant openings in fourth-quarter 2021. In an effort to drive long-term growth, Taco Bell has been expanding into several category entry points, which include the re-launch of breakfast in August and the fried chicken category with the Crispy Chicken Sandwich Taco.
Concerns
Maintaining liquidity has become a herculean task amid the coronavirus pandemic for most of the companies. At the end of Dec 31, 2021, the company’s long-term debt stood at $11.2 billion, almost flat sequentially. However, Yum! Brands ended fourth-quarter 2021 with cash and cash equivalent of $486 million, down from the prior quarter’s $1,001 million.
An increase in the cost of employee wages, benefits and insurance, and other operating costs such as rent and energy costs put significant pressure on the company’s margins. A competitive retail environment weighed on the restaurants’ costs. The company is susceptible to profit margin pressure due to relentless expansion. In third-quarter 2021, its net costs and expenses amounted to $1,388 million from $1,261 million in the prior-year quarter. Costs associated with brand positioning in all key markets and ongoing investments in initiatives are likely to weigh on margins in the near term.
Key Picks
Some better-ranked stocks in the Zacks Retail-Wholesale sector include BBQ Holdings, Inc. , Arcos Dorados Holdings Inc. (ARCO - Free Report) and Tapestry, Inc. (TPR - Free Report) .
BBQ Holdings sports a Zacks Rank #1 (Strong Buy). BBQ has a long-term earnings growth of 14%. Shares of the company have soared 90.9% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for BBQ Holdings’ 2022 sales and EPS suggests growth of 40.9% and 66.2%, respectively, from the year-ago period’s levels.
Arcos Dorados sports a Zacks Rank #1. ARCO has a long-term earnings growth of 31.3%. Shares of the company have surged 60.4% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2022 sales and EPS suggests growth of 10.3% and 62.5%, respectively, from the year-ago period’s levels.
Tapestry carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 28.2%, on average. Shares of the company have declined 9.4% in the past year.
The Zacks Consensus Estimate for Tapestry’s 2022 sales and EPS suggests growth of 17.5% and 22.9%, respectively, from the year-ago period’s levels.