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YUM! Brands (YUM) Banks on Expansion Efforts, High Costs Ail
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Yum! Brands, Inc. (YUM - Free Report) is likely to benefit from unit expansion, the strong performance of Taco Bell and digital initiatives. Also, the emphasis on the Dragontail platform bodes well. However, inflationary pressures and supply chain challenges are a concern.
Let us discuss the factors highlighting why investors should retain the stock for the time being.
Factors Driving Growth
YUM! Brands continues to focus on expansion efforts to drive growth. Considering its existing footprint of more than 50,000 restaurants worldwide, YUM! Brands believes it can nearly triple its current global presence over the long term. During the third quarter of 2022, the company opened 979 gross units. The company reported solid developments in the KFC and Pizza Hut International divisions, with gross unit openings of 485 and 392, respectively. The company reported solid developmental contributions from each brand in China, India, the Middle East, Thailand and Turkey. The company anticipates achieving a long-term unit growth of 4% to 5% in the upcoming periods.
Taco Bell continues to impress investors with robust same-store sales. The company’s comps increased 5% and 8% during the first and the second quarter of 2022, respectively. The momentum continued in third-quarter 2022, with Taco Bell’s comps increasing 6% year over year. Taco Bell recorded 98 gross new restaurant openings in third-quarter 2022. The company announced that it is focused on building momentum in markets like the U.K., Spain and India.
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. During third-quarter 2022, the company reported digital sales of approximately $6 billion (with the digital mix exceeding 40%). The company has been benefitting from the acquisition of Dragontail Systems. The initiative allows the company to tap the powers of artificial intelligence to streamline the end-to-end food preparation process and improve its delivery capabilities. During the third quarter of 2022, the company initiated the rollout of Dragontail’s Smart kitchen management and driver tracking system. Backed by positive results in certain markets, the company intends to expand this cutting-edge platform across its franchisees in the United States.
In the past three months, shares of the company have gained 21.6% compared with the industry’s 13.6% growth.
Image Source: Zacks Investment Research
Concerns
The company has been continuously shouldering increased expenses, which have been detrimental to margins. Year to date (through the third quarter of 2022), the company’s restaurant margin came in at 23.9%, down 60 basis points from 24.5% reported in the prior-year quarter. The downside was primarily caused by commodity and wage inflation and partially offset by same-store sales growth. Net costs and expenses during the third quarter amounted to $1,094 million compared with $1,079 million reported in the prior-year quarter. We believe that costs associated with brand positioning in all key markets and ongoing investments in initiatives are likely to dent margins in the near term.
Moreover, supply chain challenges remains a headwind. Although most dining services are open, traffic is still low compared with pre-pandemic levels. The company intends to monitor the situation regularly to gauge the impacts of COVID-19.
Tecnoglass currently sports a Zacks Rank #1. Shares of the company have gained 13.8% in the past year.
The Zacks Consensus Estimate for TGLS’ 2023 sales and EPS suggests growth of 11.2% and 9%, respectively, from the year-ago period’s levels.
Wingstop carries a Zacks Rank #2 (Buy). WING has a long-term earnings growth rate of 12%. Shares of WING have decreased 19.6% in the past year.
The Zacks Consensus Estimate for Wingstop’s 2023 sales and EPS suggests growth of 18.4% and 16.1%, respectively, from the comparable year-ago period’s levels.
Chuy’s Holdings currently carries a Zacks Rank #2. CHUY has a trailing four-quarter earnings surprise of 18.6%, on average. Shares of CHUY have declined 7.1% in the past year.
The Zacks Consensus Estimate for Chuy’s Holdings 2023 sales and EPS suggests growth of 8.9% and 11.2%, respectively, from the corresponding year-ago period’s levels.
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YUM! Brands (YUM) Banks on Expansion Efforts, High Costs Ail
Yum! Brands, Inc. (YUM - Free Report) is likely to benefit from unit expansion, the strong performance of Taco Bell and digital initiatives. Also, the emphasis on the Dragontail platform bodes well. However, inflationary pressures and supply chain challenges are a concern.
Let us discuss the factors highlighting why investors should retain the stock for the time being.
Factors Driving Growth
YUM! Brands continues to focus on expansion efforts to drive growth. Considering its existing footprint of more than 50,000 restaurants worldwide, YUM! Brands believes it can nearly triple its current global presence over the long term. During the third quarter of 2022, the company opened 979 gross units. The company reported solid developments in the KFC and Pizza Hut International divisions, with gross unit openings of 485 and 392, respectively. The company reported solid developmental contributions from each brand in China, India, the Middle East, Thailand and Turkey. The company anticipates achieving a long-term unit growth of 4% to 5% in the upcoming periods.
Taco Bell continues to impress investors with robust same-store sales. The company’s comps increased 5% and 8% during the first and the second quarter of 2022, respectively. The momentum continued in third-quarter 2022, with Taco Bell’s comps increasing 6% year over year. Taco Bell recorded 98 gross new restaurant openings in third-quarter 2022. The company announced that it is focused on building momentum in markets like the U.K., Spain and India.
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. During third-quarter 2022, the company reported digital sales of approximately $6 billion (with the digital mix exceeding 40%). The company has been benefitting from the acquisition of Dragontail Systems. The initiative allows the company to tap the powers of artificial intelligence to streamline the end-to-end food preparation process and improve its delivery capabilities. During the third quarter of 2022, the company initiated the rollout of Dragontail’s Smart kitchen management and driver tracking system. Backed by positive results in certain markets, the company intends to expand this cutting-edge platform across its franchisees in the United States.
In the past three months, shares of the company have gained 21.6% compared with the industry’s 13.6% growth.
Image Source: Zacks Investment Research
Concerns
The company has been continuously shouldering increased expenses, which have been detrimental to margins. Year to date (through the third quarter of 2022), the company’s restaurant margin came in at 23.9%, down 60 basis points from 24.5% reported in the prior-year quarter. The downside was primarily caused by commodity and wage inflation and partially offset by same-store sales growth. Net costs and expenses during the third quarter amounted to $1,094 million compared with $1,079 million reported in the prior-year quarter. We believe that costs associated with brand positioning in all key markets and ongoing investments in initiatives are likely to dent margins in the near term.
Moreover, supply chain challenges remains a headwind. Although most dining services are open, traffic is still low compared with pre-pandemic levels. The company intends to monitor the situation regularly to gauge the impacts of COVID-19.
Zacks Rank & Key Picks
Yum! Brands 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 Zacks Retail-Wholesale sector are Tecnoglass Inc. (TGLS - Free Report) , Wingstop Inc. (WING - Free Report) and Chuy's Holdings, Inc. (CHUY - Free Report) .
Tecnoglass currently sports a Zacks Rank #1. Shares of the company have gained 13.8% in the past year.
The Zacks Consensus Estimate for TGLS’ 2023 sales and EPS suggests growth of 11.2% and 9%, respectively, from the year-ago period’s levels.
Wingstop carries a Zacks Rank #2 (Buy). WING has a long-term earnings growth rate of 12%. Shares of WING have decreased 19.6% in the past year.
The Zacks Consensus Estimate for Wingstop’s 2023 sales and EPS suggests growth of 18.4% and 16.1%, respectively, from the comparable year-ago period’s levels.
Chuy’s Holdings currently carries a Zacks Rank #2. CHUY has a trailing four-quarter earnings surprise of 18.6%, on average. Shares of CHUY have declined 7.1% in the past year.
The Zacks Consensus Estimate for Chuy’s Holdings 2023 sales and EPS suggests growth of 8.9% and 11.2%, respectively, from the corresponding year-ago period’s levels.