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.
SBUX or YUM: Which Stock is Better-Placed at the Moment?
Read MoreHide Full Article
The restaurant industry is gradually getting back on track, courtesy of pent-up demand for dine-in experience and robust off-premise sales. However, dismal dine-in visitations and increases in the cost of employee wages, benefits and insurance, and other operating costs such as rent continue to hurt the company. Although traffic has been increasing, it is still below the pre-pandemic level.
Restaurant operators' focus on digital innovation, sales-building initiatives and cost savings efforts has been acting as a catalyst. With the growing influence of the Internet, digital innovation has become the need of the hour. Restaurant operators are constantly partnering with delivery channels and digital platforms to drive incremental sales. Partnerships with delivery channels like DoorDash, Grubhub, Postmates and Uber Eats and the rollout of self-service kiosks and loyalty programs continue to drive growth.
The industry has been gaining from an increase in off-premise sales, which primarily includes delivery, takeout, drive-thru, catering, meal kits, and off-site options such as kiosks and food trucks due to the coronavirus pandemic.
However, the restaurant industry has been facing declining traffic for quite some time now. The pandemic has aggravated the scenario. The rapid increase in menu prices and the coronavirus pandemic are the primary reasons behind traffic erosion. The restaurant operators are grappling with the high cost of operations.
In line with the industry's growth, leading restaurant companies — Starbucks Corporation (SBUX - Free Report) and Yum! Brands, Inc. (YUM - Free Report) — are trying out different strategies to generate profits. With both the companies carrying a Zacks Rank #3 (Hold), let's analyze and find out which is poised better with respect to different parameters.
Price Performance and Valuation
Shares of Starbucks have declined 27.1% in the past year, while Yum! Brands stock has risen 4.1%.
On the basis of the forward 12-month P/E ratio, which is a commonly used multiple for valuing restaurant stocks, the industry is currently trading at 23.5X compared with the S&P 500's 19.52X. Starbucks has an edge with a lower forward 12-month P/E ratio of 22.4 compared with Yum! Brands figure of 23.82X.
Image Source: Zacks Investment Research
Estimated Earnings & Revenues
Arguably, earnings growth is of utmost importance in determining a stock's potential as surging profit levels indicate strong prospects (and stock price gains).
For the current year, Starbucks' earnings per share are expected to improve 3.1% year over year. Year-over-year sales growth for the current year is expected at 12.8%. Yum! Brands' current-year earnings are likely to increase 7.9% year over year, while sales are likely to improve 7.2% year over year. Hence, this round goes to Yum! Brands.
Fundamentals
Starbucks has been benefiting from robust expansion efforts. Despite the pandemic, it inaugurated 1,400 new stores in fiscal 2020. In fiscal 2021, Starbucks opened 1,173 net new stores worldwide. In first-quarter fiscal 2022, the company opened 484 net new stores worldwide, bringing the total store count to 34,317. It anticipates opening approximately 2,000 net new stores globally in fiscal 2022, up from 1,173 store openings reported in fiscal 2021.
During first-quarter fiscal 2022, operations in Starbucks China were affected by pandemic-induced restrictions. However, it is very optimistic about long-term growth opportunities. In China, the company continues to increase its store count and surpassed 5,500 stores in first-quarter 2022. In the quarter under review, the company's 90-day active Starbucks Rewards members in China touched nearly 18 million, up 2.6 million compared to the prior year. Emphasis on member engagement and exclusive offerings benefited the company. The frequency of purchases by Gold members remained at pre-pandemic levels.
Starbucks' U.S. comps have impressed investors for the fourth straight quarter. U.S. and North America comps rose 18% in the fiscal first quarter, owing to an increase of 12% in comparable transactions and an improvement of 6% in average ticket. Global comparable store sales increased 13% year over year. The upside was primarily driven by a 10% rise in comparable transactions and a 6% increase in average tickets. For fiscal 2022, the company anticipates global comparable sales to reach high-single digits.
Meanwhile, Yum! Brands implemented various digital features in mobile and online platforms across all brand segments to enhance the guest experience. The company has been working toward accelerating its delivery services, and the results have been positive so far. At the end of fourth-quarter 2021, the company had more than 45,000 (up 25% year over year) restaurants offering delivery globally. In 2020 and 2021, it reported digital sales of $17 billion and $22 billion, respectively. Recently, the company acquired Dragontail Systems, which will not only help it to tap the powers of artificial intelligence to streamline the end-to-end food preparation process but also improve its delivery capabilities.
Despite the pandemic-induced challenging environment, the company impressed investors with robust same-store sales growth in fourth-quarter 2021. It delivered 5% same-store sales growth. At KFC International, Pizza Hut and Taco Bell, same-store sales rose 5%, 3% and 8%, respectively, in the quarter under discussion. The company has been benefiting from a recovery in emerging markets. At KFC U.S., same-store sales increased 4% in the quarter under review.
Taco Bell continues to impress investors with robust same-store sales. The company's comps climbed 21%, 5% and 9% during 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.
Our Take
The fundamentals of both companies are solid. However, earnings growth and share price performance provide Yum! Brands a slight edge over Starbucks.
Arcos Dorados sports a Zacks Rank #1 (Strong Buy). ARCO has a long-term earnings growth of 31.3%. Shares of the company have appreciated 61% in the past year. You can see the complete list of today's Zacks #1 Rank stocks here.
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 25.6% 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.
Unique Zacks Analysis of Your Chosen Ticker
Pick one free report - opportunity may be withdrawn at any time
Image: Bigstock
SBUX or YUM: Which Stock is Better-Placed at the Moment?
The restaurant industry is gradually getting back on track, courtesy of pent-up demand for dine-in experience and robust off-premise sales. However, dismal dine-in visitations and increases in the cost of employee wages, benefits and insurance, and other operating costs such as rent continue to hurt the company. Although traffic has been increasing, it is still below the pre-pandemic level.
Restaurant operators' focus on digital innovation, sales-building initiatives and cost savings efforts has been acting as a catalyst. With the growing influence of the Internet, digital innovation has become the need of the hour. Restaurant operators are constantly partnering with delivery channels and digital platforms to drive incremental sales. Partnerships with delivery channels like DoorDash, Grubhub, Postmates and Uber Eats and the rollout of self-service kiosks and loyalty programs continue to drive growth.
The industry has been gaining from an increase in off-premise sales, which primarily includes delivery, takeout, drive-thru, catering, meal kits, and off-site options such as kiosks and food trucks due to the coronavirus pandemic.
However, the restaurant industry has been facing declining traffic for quite some time now. The pandemic has aggravated the scenario. The rapid increase in menu prices and the coronavirus pandemic are the primary reasons behind traffic erosion. The restaurant operators are grappling with the high cost of operations.
In line with the industry's growth, leading restaurant companies — Starbucks Corporation (SBUX - Free Report) and Yum! Brands, Inc. (YUM - Free Report) — are trying out different strategies to generate profits. With both the companies carrying a Zacks Rank #3 (Hold), let's analyze and find out which is poised better with respect to different parameters.
Price Performance and Valuation
Shares of Starbucks have declined 27.1% in the past year, while Yum! Brands stock has risen 4.1%.
On the basis of the forward 12-month P/E ratio, which is a commonly used multiple for valuing restaurant stocks, the industry is currently trading at 23.5X compared with the S&P 500's 19.52X. Starbucks has an edge with a lower forward 12-month P/E ratio of 22.4 compared with Yum! Brands figure of 23.82X.
Image Source: Zacks Investment Research
Estimated Earnings & Revenues
Arguably, earnings growth is of utmost importance in determining a stock's potential as surging profit levels indicate strong prospects (and stock price gains).
For the current year, Starbucks' earnings per share are expected to improve 3.1% year over year. Year-over-year sales growth for the current year is expected at 12.8%. Yum! Brands' current-year earnings are likely to increase 7.9% year over year, while sales are likely to improve 7.2% year over year. Hence, this round goes to Yum! Brands.
Fundamentals
Starbucks has been benefiting from robust expansion efforts. Despite the pandemic, it inaugurated 1,400 new stores in fiscal 2020. In fiscal 2021, Starbucks opened 1,173 net new stores worldwide. In first-quarter fiscal 2022, the company opened 484 net new stores worldwide, bringing the total store count to 34,317. It anticipates opening approximately 2,000 net new stores globally in fiscal 2022, up from 1,173 store openings reported in fiscal 2021.
During first-quarter fiscal 2022, operations in Starbucks China were affected by pandemic-induced restrictions. However, it is very optimistic about long-term growth opportunities. In China, the company continues to increase its store count and surpassed 5,500 stores in first-quarter 2022. In the quarter under review, the company's 90-day active Starbucks Rewards members in China touched nearly 18 million, up 2.6 million compared to the prior year. Emphasis on member engagement and exclusive offerings benefited the company. The frequency of purchases by Gold members remained at pre-pandemic levels.
Starbucks' U.S. comps have impressed investors for the fourth straight quarter. U.S. and North America comps rose 18% in the fiscal first quarter, owing to an increase of 12% in comparable transactions and an improvement of 6% in average ticket. Global comparable store sales increased 13% year over year. The upside was primarily driven by a 10% rise in comparable transactions and a 6% increase in average tickets. For fiscal 2022, the company anticipates global comparable sales to reach high-single digits.
Meanwhile, Yum! Brands implemented various digital features in mobile and online platforms across all brand segments to enhance the guest experience. The company has been working toward accelerating its delivery services, and the results have been positive so far. At the end of fourth-quarter 2021, the company had more than 45,000 (up 25% year over year) restaurants offering delivery globally. In 2020 and 2021, it reported digital sales of $17 billion and $22 billion, respectively. Recently, the company acquired Dragontail Systems, which will not only help it to tap the powers of artificial intelligence to streamline the end-to-end food preparation process but also improve its delivery capabilities.
Despite the pandemic-induced challenging environment, the company impressed investors with robust same-store sales growth in fourth-quarter 2021. It delivered 5% same-store sales growth. At KFC International, Pizza Hut and Taco Bell, same-store sales rose 5%, 3% and 8%, respectively, in the quarter under discussion. The company has been benefiting from a recovery in emerging markets. At KFC U.S., same-store sales increased 4% in the quarter under review.
Taco Bell continues to impress investors with robust same-store sales. The company's comps climbed 21%, 5% and 9% during 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.
Our Take
The fundamentals of both companies are solid. However, earnings growth and share price performance provide Yum! Brands a slight edge over Starbucks.
Key Picks
Some better-ranked stocks in the Zacks Retail-Wholesale sector include Arcos Dorados Holdings Inc. (ARCO - Free Report) and Tapestry, Inc. (TPR - Free Report) .
Arcos Dorados sports a Zacks Rank #1 (Strong Buy). ARCO has a long-term earnings growth of 31.3%. Shares of the company have appreciated 61% in the past year. You can see the complete list of today's Zacks #1 Rank stocks here.
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 25.6% 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.