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Yum China (YUMC) Gains From Expansion Efforts, Cost Woes Stay
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Yum China Holdings, Inc. (YUMC - Free Report) is benefiting from unit expansion, menu innovation and robust digitalization. The stock has gained 13.4% in the past year compared with the industry’s growth of 18.9%. However, high costs continue to hurt its performance.
Let’s delve deeper.
Growth Drivers
Yum China is focusing on unit expansion to drive growth. In 2019, 2020, 2021 and 2022, it opened 1,006, 1,165, 1,806 and 1,159 stores respectively. In first-quarter 2023, it opened 233 net new stores.
In 2023, YUMC intends to open 1,100-1,300 new stores across its brands. Meanwhile, it emphasizes expanding its supply-chain network to support store and portfolio growth, and enhance intelligent supply-chain operations.
Another riveting growth potential of Yum China resides in its continual menu innovation to encourage top-line growth. KFC’s extraordinary performance is attributable to greater sales of menu offerings like crayfish burger, stuffed chicken wing and spicy chicken burger.
Yum China is also serving coffee across its restaurants and expanding the dessert category. The company will increase investment to expand presence in the Coffee segment, as it believes that the beverage has a strong demand in China.
YUMC holds a leadership position in the Chinese restaurant space when it comes to delivery, mobile order and pay, and loyalty membership. It is increasingly shifting toward digital and content marketing to expand its customer base. Management has adopted a high-grade delivery strategy that includes collaborating with aggregators to source traffic and fulfills orders by the company’s KFC riders. YUMC has been strengthening its membership program in Super App to engage members and improve customer service.
Image Source: Zacks Investment Research
Concerns
The Zacks Rank #3 (Hold) company is facing structurally high costs of labor and rentals. Apart from wage inflation, YUMC is bearing additional costs stemming from promotion, packaging upgrades, menu innovation and technological novelty.
In first-quarter 2023, total costs and expenses amounted to $2,501 million, up 1% from $2,477 million reported in the prior-year quarter. The increase was mainly due to a rise in rider cost from higher delivery sales mix, low single-digit wage inflation and sales leveraging.
To curb labor costs, Yum China is increasingly focusing on delivery channels, which is expected to curb margins in the near term. Costs related to transactions and franchises are expected to increase in the near future.
Key Picks
Here we present some better-ranked stocks in the Retail-Wholesale sector.
The Zacks Consensus Estimate for Chuy’s Holdings’ 2023 sales and EPS suggests growth of 9.9% and 27%, respectively, from the year-ago period’s levels.
BJ's Restaurants, Inc. (BJRI - Free Report) flaunts a Zacks Rank #1. BJRI has a long-term earnings growth rate of 15%. The stock has improved 46.7% in the past year.
The Zacks Consensus Estimate for BJ's Restaurants’ 2023 sales and EPS indicates improvements of 5.5% and 311.8%, respectively, from the year-ago period’s levels.
Arcos Dorados Holdings Inc. (ARCO - Free Report) carries a Zacks Rank #2 (Buy). ARCO has a long-term earnings growth rate of 9.5%. The stock has gained 59% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2023 sales and EPS implies rises of 13.4% and 4.4%, respectively, from the year-ago period’s levels.
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Yum China (YUMC) Gains From Expansion Efforts, Cost Woes Stay
Yum China Holdings, Inc. (YUMC - Free Report) is benefiting from unit expansion, menu innovation and robust digitalization. The stock has gained 13.4% in the past year compared with the industry’s growth of 18.9%. However, high costs continue to hurt its performance.
Let’s delve deeper.
Growth Drivers
Yum China is focusing on unit expansion to drive growth. In 2019, 2020, 2021 and 2022, it opened 1,006, 1,165, 1,806 and 1,159 stores respectively. In first-quarter 2023, it opened 233 net new stores.
In 2023, YUMC intends to open 1,100-1,300 new stores across its brands. Meanwhile, it emphasizes expanding its supply-chain network to support store and portfolio growth, and enhance intelligent supply-chain operations.
Another riveting growth potential of Yum China resides in its continual menu innovation to encourage top-line growth. KFC’s extraordinary performance is attributable to greater sales of menu offerings like crayfish burger, stuffed chicken wing and spicy chicken burger.
Yum China is also serving coffee across its restaurants and expanding the dessert category. The company will increase investment to expand presence in the Coffee segment, as it believes that the beverage has a strong demand in China.
YUMC holds a leadership position in the Chinese restaurant space when it comes to delivery, mobile order and pay, and loyalty membership. It is increasingly shifting toward digital and content marketing to expand its customer base. Management has adopted a high-grade delivery strategy that includes collaborating with aggregators to source traffic and fulfills orders by the company’s KFC riders. YUMC has been strengthening its membership program in Super App to engage members and improve customer service.
Image Source: Zacks Investment Research
Concerns
The Zacks Rank #3 (Hold) company is facing structurally high costs of labor and rentals. Apart from wage inflation, YUMC is bearing additional costs stemming from promotion, packaging upgrades, menu innovation and technological novelty.
In first-quarter 2023, total costs and expenses amounted to $2,501 million, up 1% from $2,477 million reported in the prior-year quarter. The increase was mainly due to a rise in rider cost from higher delivery sales mix, low single-digit wage inflation and sales leveraging.
To curb labor costs, Yum China is increasingly focusing on delivery channels, which is expected to curb margins in the near term. Costs related to transactions and franchises are expected to increase in the near future.
Key Picks
Here we present some better-ranked stocks in the Retail-Wholesale sector.
Chuy's Holdings, Inc. (CHUY - Free Report) sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter earnings surprise of 23.4%, on average. Shares of CHUY have skyrocketed 93.2% in the past year. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Chuy’s Holdings’ 2023 sales and EPS suggests growth of 9.9% and 27%, respectively, from the year-ago period’s levels.
BJ's Restaurants, Inc. (BJRI - Free Report) flaunts a Zacks Rank #1. BJRI has a long-term earnings growth rate of 15%. The stock has improved 46.7% in the past year.
The Zacks Consensus Estimate for BJ's Restaurants’ 2023 sales and EPS indicates improvements of 5.5% and 311.8%, respectively, from the year-ago period’s levels.
Arcos Dorados Holdings Inc. (ARCO - Free Report) carries a Zacks Rank #2 (Buy). ARCO has a long-term earnings growth rate of 9.5%. The stock has gained 59% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2023 sales and EPS implies rises of 13.4% and 4.4%, respectively, from the year-ago period’s levels.