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Yum! Brands (YUM) Rides on Comps & Unit Growth, Cost Woes Stay

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Yum! Brands, Inc. (YUM - Free Report) is gaining from expansion efforts, strong comparable sales and Taco Bell growth. The company is also benefiting from the acceleration of its delivery services. However, high debt and costs are hurting the company.

Growth Drivers

Robust same-store sales growth is aiding the company. During the second quarter, the company reported consolidated same-store sales (excluding China) growth of 6%. During the quarter, same-store sales at Taco Bell rose 8% year over year. The company has been benefiting from a recovery in emerging markets. Same-store sales for emerging markets (excluding China) were up 22% year over year. Given the emphasis on consumer value proposition, expanded digital access and franchise partners, the company anticipates the momentum to continue in the upcoming periods.

The company, which shares the space with Cracker Barrel Old Country Store, Inc. (CBRL - Free Report) , Darden Restaurants, Inc. (DRI - Free Report) and Dave & Buster's Entertainment, Inc. (PLAY - Free Report) , is focusing on expansion initiatives. During the second quarter of 2022, the company reported a solid year-to-date development pace, owing to contributions from emerging markets.

The company opened more than 40 gross new units across China, India and the Middle East. It also opened 781 gross new units, including nearly 300 gross new units at Pizza Hut and 400 gross new units at KFC. Given the unit economics and a healthy development pipeline, the company anticipates achieving long-term growth of 4-5% in the upcoming periods.

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 quarters of 2021, respectively. In the first quarter of 2022, comps increased 5% year over year. The momentum continued in the second quarter of 2022, with Taco Bell comps increasing 8% year over year. Taco Bell recorded 46 gross new restaurant openings in second-quarter 2022. The company announced that it is focused on building momentum in different markets like the United Kingdom, Spain and India.


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 second-quarter 2022, its net costs and expenses amounted to $1,082 million from $1,035 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.

Maintaining liquidity has become an arduous task amid the coronavirus outbreak for most companies. At the end of Jun 30, 2022, the company’s long-term debt stood at $11,540 million compared with $11,332 million at the end of Mar 31, 2022. It ended second-quarter 2022 with cash and cash equivalent of $412 million compared with $365 million reported in the previous quarter.

A Brief Review of the Other Stocks

Cracker Barrel: The company has been benefiting from menu innovation, marketing strategies, seasonal promotions and cost-cutting efforts. Increased focus on the off-premise business model also bodes well. For fiscal 2022, the company plans to drive off-premise sales through awareness building, advertising and partnerships with third-party delivery companies. Further, it expects to attract new customers and drive sustained growth in its off-premise business through its virtual brand, Chicken and Biscuits.

Darden: The company is gaining from business model enhancements and menu simplifications. This and a focus on technological enhancements in online ordering, the introduction of To Go capacity management, and the Curbside I'm Here notification bode well. Even though capacity restrictions continue to ease, off-premise sales remained strong during first-quarter fiscal 2023. In first-quarter fiscal 2023, off-premise sales contributed more than 24% to total sales at Olive Garden, 14% at LongHorn and 13% at Cheddar's Scratch Kitchen.

Dave & Buster's: The company is benefiting from a higher mix of amusements and a leaner operating model. It expects the momentum to continue on the back of its strategic initiatives, including a new menu, optimized marketing and technology investments.

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