Yum China Holdings, Inc. (YUMC Quick QuoteYUMC - Free Report) is gaining from menu innovation, the expansion of its number of outlets and investments in digitalization efforts. It is gradually shifting toward digital and content marketing to expand its customer base.

Shares of this Zacks Rank #2 (Buy) company have gained 6% in the past year compared with the industry’s growth of 8.4%. Although, shares of YUMC have underperformed the industry in the past year, it is likely to perform better in the near term. It has an impressive long-term earnings growth rate of 20.6%.

Let’s delve deeper.

Growth Drivers

The captivating avenue for Yum China's growth lies in its ongoing menu innovation, aimed at driving revenue growth. KFC's remarkable success can be attributed to increased sales of items such as crayfish burger, stuffed chicken wing and spicy chicken burger.

During the second quarter of 2023, the company reported solid performance of Juicy Whole Chicken, roasted chicken fried burger and K-Coffee. During the quarter, it launched K-zza (a creative twist on pizza with thin crust and popcorn chicken) and fried chicken tacos. Given the solid feedback for the limited-time offering, management remains optimistic and anticipates launching more K-zza variations in the upcoming periods.

Yum China focuses on relentless unit growth of restaurants to drive incremental sales. In 2018, the company opened 819 restaurants and remodeled 931 stores. In 2019, 2020 2021 and 2022, it opened 1,006, 1,165, 1,806 and 1,159 stores, respectively. In second-quarter 2023, it opened 422 net new stores.

In 2023, Yum China intends to open 1,100-1,300 new stores across its brands.

Moreover, Yum China commands a leading role in the Chinese restaurant industry, particularly in areas of delivery, mobile ordering and payment and loyalty programs. The firm is progressively moving toward leveraging digital and content-focused marketing approaches to extend its clientele. It has implemented a top-tier delivery approach, partnering with aggregators to attract customers and fulfilling orders through its dedicated KFC delivery personnel.

Further, YUMC has been enhancing its membership initiative within the Super App, aiming to actively involve members and enhance customer service standards.

Yum China created a robust loyalty program with more than 445 million loyalty members cumulatively. The company's digital ecosystem is essential for attracting new members, driving engagement and maximizing sales performance. In the second quarter of 2023, member sales accounted for nearly 66% of system sales.

Other Key Picks

Below we present some other top-ranked stocks in the Zacks Retail-Wholesale sector.

BJ's Restaurants, Inc. (BJRI Quick QuoteBJRI - Free Report) currently sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter earnings surprise of 121.2%, on average. Shares of BJRI have gained 15.7% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for BJRI’s 2023 sales and EPS indicates 5.6% and 423.5% growth, respectively, from the year-ago period’s levels.

Arcos Dorados Holdings Inc. (ARCO Quick QuoteARCO - Free Report) currently carries a Zacks Rank #2. ARCO has a long-term earnings growth rate of 9.5%. The stock has gained 30.4% in the past year.

The Zacks Consensus Estimate for Arcos Dorados’ 2023 sales and EPS suggests rises of 19% and 11.6%, respectively, from the year-ago period’s levels.

Chuy's Holdings, Inc. (CHUY Quick QuoteCHUY - Free Report) presently has a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 26.6%, on average. Shares of CHUY have surged 68.9% in the past year.

The Zacks Consensus Estimate for CHUY’s 2023 sales and EPS implies increases of 9.5% and 32.9%, respectively, from the year-ago period’s levels.