Must-know: Yum! Brands’ key valuation metric

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Must-know: Yum! Brands quarterly overview 2Q14 (Part 3 of 13)

(Continued from Part 2)

Key valuation metric—system wide sales

Global system wide sales grew by 6% in the second quarter ending in June, 2014, compared to 1% growth in the same quarter last year. In total, Yum! Brands opened 298 new restaurants globally. “System wide sales” is the sales, generated from both company-operated as well as franchised restaurants. Opening new restaurants often results in increased system wide sales. Yum! Brands (YUM) records only royalties and fees in its books of accounts, which it earns from the franchise revenues to arrive at its total sales. This isn’t the same as system wide sales.

China’s division

Comparable sales for China’s division grew by 15% in 2Q14, compared to a decline by 20% in 2Q13. System sales grew by 21% in the same quarter, which was down 12% a year ago. The total number of new restaurants grew by 7%. China’s market has been volatile for Yum! Brands. Continue reading this series to learn why china has been a bumpy ride for Yum! Brands. McDonald’s (MCD) and local brands competed aggressively in this segment.

U.S. and international division—KFC division

Comparable sales for the U.S. and international division, the Kentucky Fried Chicken (or KFC) division grew by 2% in 2Q14, which was same in 2Q13. System sales grew by 5% in the same quarter, which was down 12% a year ago. The total number of new restaurants grew by 1%. Competing with brands such as McDonald’s (MCD), Popeye’s (PLKI), and fast casual formats such as Chipotle Mexican Grill (or CMG), it’s a very tough and competitive landscape for KFC in the U.S.

Pizza Hut division

Comparable sales for the Pizza Hut division declined by 3% in 2Q14 compared to a flat same store sales in 2Q13. System sales declined by 1% in the same quarter, which grew by 2% a year ago. The total number of new restaurants grew by 2%. Disappointing Pizza Hut sales continue to put downward pressure on the company and its stock prices.

Taco Bell division 

Comparable sales for the Taco Bell division grew by 2% in 2Q14, which was same in 2Q13. System sales grew by 3% in the same quarter, which was the same in 2013. The total number of new restaurants grew by 1%. To fuel growth, Taco Bell introduced the breakfast menu in March, 2014. We’ll discuss the breakfast menu strategy in more detail later in this series.

India’s division

Comparable sales for India’s division declined by 2% in 2Q14 compared to an increase by 7% in 2Q13. System sales grew by 18% in the same quarter, which was up by 31% a year ago. The total number of new restaurants grew by 25%.

Investors who would like to gain exposure to the restaurant industry can invest in exchange-traded funds (or ETFs) like the PowerShares Dynamic Leisure and Entertainment ETF (PEJ) and the PowerShares Dynamic Food and Beverage ETF (PBJ).

Continue to Part 4

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