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Here's Why Investors Should Retain Yum China (YUMC) Stock
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Yum China Holdings, Inc. (YUMC - Free Report) is likely to benefit from its digital initiatives, unit expansion and menu innovation efforts. However, coronavirus-induced soft traffic and inflationary pressures are headwinds.
Let us discuss the factors highlighting why investors should retain the stock for the time being.
Catalysts
Yum China is capitalizing on the benefits of its technology. The company is increasingly shifting toward digital and content marketing to expand its customer base. It has adopted a high-grade delivery strategy that includes collaborations with aggregators to source traffic and fulfills orders by the company’s KFC riders. Digital orders during third-quarter 2022 contributed 91% to KFC and Pizza Hut's company sales. During the quarter, the company’s delivery contributed nearly 38% to KFC and Pizza Hut's company sales, up nearly four percentage points from the prior-year quarter’s levels. Coming to loyalty membership, Yum Brands created a robust loyalty program with more than 400 million members cumulatively. Pizza Hut’s membership increased by 100 million members. In the third quarter, member sales accounted for nearly 60% of system sales.
The company focuses on the digital R&D Center to drive operational excellence through consolidating and expanding dedicated resources to develop solutions and services. This involves using technologies in big data, artificial intelligence, middle office and digital SaaS to drive end-to-end digitalization. During the third quarter of 2022, the company emphasized on maximizing delivery coverage and flexibility using AI technology. To this end, the company launched Smart Delivery to adjust delivery coverage for each store. The initiative paved a path for better customer coverage and efficient service offerings. The company stated that it has set aside $1-1.5 billion for investment in the digital and technology space over the next five years.
Yum China is focused on the relentless unit growth of restaurants to drive incremental sales. During third-quarter 2022, Yum China opened 403 gross new restaurants driven by the development of the KFC and Pizza Hut brands. As of Jun 30, the company's total restaurant count was 12,409, up 994 stores year over year. In 2022, Yum China expects to open 1,000-1,200 new stores.
Yum China focuses on simplifying its menu to streamline operations and drive growth. During the third quarter of 2022, the company reported positive customer feedback with respect to its Italian products such as Kafa premium single-origin beans and tigelle. In terms of beverages, the company launched a coconut latte and an osmanthus latte. These new products have been well received by customers. Going forward, the company remains optimistic with respect to its broadened food and drink offerings and anticipates the initiative to boost awareness of its emerging brands.
Image Source: Zacks Investment Research
In the past year, shares of the company have gained 19.9% against the industry’s 2.2% fall.
Concerns
The coronavirus crisis has materially impacted the company’s operations during third-quarter 2022. During the quarter, COVID-related health measures remained in effect across China, thereby impacting travel and social activities. In October, approximately 1,400 stores were either temporarily closed or offered only takeaway and delivery services compared with 900 stores in the previous month. Although most dining services are open, traffic is still low compared with the pre-pandemic level. The company intends to monitor the situation regularly to gauge the impacts of COVID. It also remains cautious of consumer spending and inflationary pressures.
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Here's Why Investors Should Retain Yum China (YUMC) Stock
Yum China Holdings, Inc. (YUMC - Free Report) is likely to benefit from its digital initiatives, unit expansion and menu innovation efforts. However, coronavirus-induced soft traffic and inflationary pressures are headwinds.
Let us discuss the factors highlighting why investors should retain the stock for the time being.
Catalysts
Yum China is capitalizing on the benefits of its technology. The company is increasingly shifting toward digital and content marketing to expand its customer base. It has adopted a high-grade delivery strategy that includes collaborations with aggregators to source traffic and fulfills orders by the company’s KFC riders. Digital orders during third-quarter 2022 contributed 91% to KFC and Pizza Hut's company sales. During the quarter, the company’s delivery contributed nearly 38% to KFC and Pizza Hut's company sales, up nearly four percentage points from the prior-year quarter’s levels. Coming to loyalty membership, Yum Brands created a robust loyalty program with more than 400 million members cumulatively. Pizza Hut’s membership increased by 100 million members. In the third quarter, member sales accounted for nearly 60% of system sales.
The company focuses on the digital R&D Center to drive operational excellence through consolidating and expanding dedicated resources to develop solutions and services. This involves using technologies in big data, artificial intelligence, middle office and digital SaaS to drive end-to-end digitalization. During the third quarter of 2022, the company emphasized on maximizing delivery coverage and flexibility using AI technology. To this end, the company launched Smart Delivery to adjust delivery coverage for each store. The initiative paved a path for better customer coverage and efficient service offerings. The company stated that it has set aside $1-1.5 billion for investment in the digital and technology space over the next five years.
Yum China is focused on the relentless unit growth of restaurants to drive incremental sales. During third-quarter 2022, Yum China opened 403 gross new restaurants driven by the development of the KFC and Pizza Hut brands. As of Jun 30, the company's total restaurant count was 12,409, up 994 stores year over year. In 2022, Yum China expects to open 1,000-1,200 new stores.
Yum China focuses on simplifying its menu to streamline operations and drive growth. During the third quarter of 2022, the company reported positive customer feedback with respect to its Italian products such as Kafa premium single-origin beans and tigelle. In terms of beverages, the company launched a coconut latte and an osmanthus latte. These new products have been well received by customers. Going forward, the company remains optimistic with respect to its broadened food and drink offerings and anticipates the initiative to boost awareness of its emerging brands.
Image Source: Zacks Investment Research
In the past year, shares of the company have gained 19.9% against the industry’s 2.2% fall.
Concerns
The coronavirus crisis has materially impacted the company’s operations during third-quarter 2022. During the quarter, COVID-related health measures remained in effect across China, thereby impacting travel and social activities. In October, approximately 1,400 stores were either temporarily closed or offered only takeaway and delivery services compared with 900 stores in the previous month. Although most dining services are open, traffic is still low compared with the pre-pandemic level. The company intends to monitor the situation regularly to gauge the impacts of COVID. It also remains cautious of consumer spending and inflationary pressures.
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 Zacks Retail-Wholesale sector are Wingstop Inc. (WING - Free Report) , Tecnoglass Inc. (TGLS - Free Report) and Domino's Pizza, Inc. (DPZ - Free Report) .
Wingstop currently carries a Zacks Rank #2 (Buy). WING has a long-term earnings growth rate of 12%. Shares of WING have lost 14.2% in the past year.
The Zacks Consensus Estimate for Wingstop’s 2023 sales and earnings per share (EPS) suggests growth of 18.4% and 16.3%, respectively, from the year-ago period’s reported levels.
Tecnoglass currently carries a Zacks Rank of 2. TGLS has a trailing four-quarter earnings surprise of 26.9%, on average. Shares of the company have gained 34.8% 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 reported levels.
Domino's currently carries a Zacks Rank of 2. DPZ has a long-term earnings growth rate of 12.6%. Shares of DPZ have declined 31.9% in the past year.
The Zacks Consensus Estimate for Domino's 2023 sales and EPS suggests growth of 3.8% and 17.2%, respectively, from the year-ago period’s reported levels.