Yum China Holdings, Inc. ( YUMC Quick Quote YUMC - Free Report) recently announced the launch of an enhanced RGM 2.0 strategy with financial growth targets from 2024 to 2026. The initiative focuses on accelerated network expansion (by leveraging flexible store formats and strategically partnering with franchisees), sales growth (via menu innovation) and profitability (through proactive cost management). Following the announcement, shares of the company gained 5.5% during trading hours on Sep 14. Financial Targets
For 2023, the company has increased its net new stores target to 1,400-1,600, compared with its previous target of 1,100-1,300. Attributes of flexible store formats, healthy new store payback periods and a strong store pipeline are likely to add to the positives.
By 2026, the company anticipates its footprint to reach 20,000 stores and achieve high-single-to-double-digit CAGR for system sales and operating profit. For 2024 through 2026, the company projects a double-digit EPS CAGR compared with 2023 levels (in constant currency). It also plans to return approximately $3 billion to shareholders through quarterly dividends and share repurchases. This reflects a twofold increase in shareholder return over the previous three years. In terms of brands, the company is to open more than 1200 new KFC locations, 15-20% of which are anticipated to be franchise outlets. The company stated opportunities concerning 1,100 unpenetrated cities and untapped strategic locations such as highway service centers, hospitals and college campuses. For Pizza Hut, the company anticipates opening 400-500 net new stores annually in the next three years, including flexible store format (such as satellite store format). Regarding Lavazza, the company emphasized implementing a four-pillar strategy that included investing in brand building, fine-tuning its menu, growing its digital presence, improving delivery options, store design and experience. The company plans to expand its footprint to 1000 stores in the next three to five years. More Focus On Digitalization
Digitalization has been a driving factor in the company’s expansion plans. The initiative supports streamlined workflows, empowered store management and increased flexibility courtesy of its digitalized operational tools and automated technology solutions.
Moving ahead, the company is expanding the usage of AI technology to significantly enhance customer experience, store operations, and human resource management. Much optimism prevails on the company’s in-house digital capabilities to drive innovation in future AI-enabled applications. Image Source: Zacks Investment Research
In the past year, shares of the company have gained 12.6% compared with the
industry’s 7.1% growth. Zacks Rank & Other Key Picks
Yum China currently carries a Zacks Rank #2 (Buy).
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