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Yum China (YUMC) Declines 38% in a Year: Is the Worst Over?

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Shares of Yum China Holdings, Inc. (YUMC - Free Report) has declined 37.8% in the past year against the industry’s growth of 4.3%.

Despite the fall, the stock is likely to take a U-turn due robust growth plan. This Zacks Rank #2 (Buy) company’s earnings in 2024 and 2025 are estimated to witness growth of 9.5% and 16.3%, respectively.

Growth Drivers

YUMC remains steadfast in its focus on long-term growth, continuously aligning its strategies with a forward-looking vision. On Sep 14, 2023, management unveiled 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).

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 2024-2026 period, management projects 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.

On the other hand, Yum China created a robust loyalty program with more than 470 million loyalty members cumulatively. Its digital ecosystem plays a pivotal role in attracting new members, fostering engagement and optimizing sales performance. In the fourth quarter of 2023, member sales contributed nearly 65% to total system sales.

YUMC is also focusing on upgrading its products. In 2023, it introduced more than 500 new or upgraded products, averaging a new offering each week.

In 2024,  Yum China it intends to introduce a variety of menu offerings and promotional deals for the Chinese New Year festivities. Pizza Hut is highlighting the inclusion of Wagyu beef pizza, priced competitively at RMB69. Additionally, it expressed confidence in the appeal of KFC's fried egg in spicy sauce chicken burger and Golden Bucket.

The company is also benefiting from robust digital sales. In 2023, digital sales totaled more than $9.2 billion, with approximately one-third originating from the company’s proprietary Super APP, another third from various programs and the remaining from aggregators. Sales through Super APP experienced a significant 35% increase year over year. Given the brand’s strong market presence, it is optimistic and anticipates the momentum to continue in the upcoming periods.

Zacks Investment Research
Image Source: Zacks Investment Research

Other Key Picks

Some other top-ranked stocks in the Zacks Retail-Wholesale sector are discussed below.

Brinker International, Inc. (EAT - Free Report) sports a Zacks Rank #1 (Strong Buy), at present. It has a trailing four-quarter earnings surprise of 212.7% on average. Shares of EAT have jumped 32.2% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for EAT’s 2024 sales and EPS indicates 4.9% and 30.4% growth, respectively, from the year-ago levels.

Texas Roadhouse, Inc. (TXRH - Free Report) currently carries a Zacks Rank of 2. It has a trailing four-quarter negative earnings surprise of 3.9%, on average. The stock has risen 41.6% in the past year.

The Zacks Consensus Estimate for TXRH’s 2024 sales and EPS suggests a rise of 14.1% and 25.8%, respectively, from the year-ago levels.

CAVA Group, Inc. (CAVA - Free Report) currently carries a Zacks Rank of 2. It has a trailing three-quarter earnings surprise of 533.3%, on average.

The Zacks Consensus Estimate for CAVA’s 2024 sales and EPS indicates 19.8% and 14.3% growth, respectively, from the year-ago levels.

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