YUM Opens 4,000th KFC in China

Zacks

Kentucky-based Yum! Brands Inc. (YUM) recently announced the opening of its 4,000th outlet in China under its KFC brand in Dalian City. The inauguration of the store is in line with the company’s long-term goal of opening 700 units in 2012.

KFC is the most extensive of Yum! Brands, which has around 17,000 outlets across the world. The brand first set its foot in China in 1987. Currently, KFC enjoys the honor of being the top quick-service restaurant brand in China.

Dalian is a major city and seaport in the south of Liaoning province of northeastern part of China. The city is among the popular tourists destinations of the country. The places of historical importance and the famous beaches are the major attractions in Dalian. One of the peers of Yum! Brands, McDonald's Corp. (MCD), has a strong presence in the city.

Yum! Brands has huge exposure in China with around 49% of its overall revenues coming from the country. In the second quarter of 2012, Yum! Brands experienced the sixth consecutive overall same-store-sales growth of 10% in China division, with KFC posting an increase of 9%.

We are encouraged by the decision of Yum! Brands to open the new outlet in the midst of ongoing slowdown in the Chinese economy. The company is currently on a continuous expansion spree as on an average, it opens its doors to more than one KFC restaurant every day in China. The company has so far opened around 300 KFC outlets across the country this year.  

Consequently, the company is relatively better placed than most of its peers to withstand the challenging  macroeconomic environment. This factor has, in turn, enabled Yum! Brands to pay steady dividends to its shareholders.

Recently, the company announced its decision to hike its quarterly dividend by 18% to 33.6 cents from 28.5 cents paid earlier. This equated to an annual payout of $1.34 per share, affirming a dividend yield of 1.98% as of October 1, 2012.The move marked the eighth successive annual increase in dividend by Yum! Brands since its inception in 2004.

The company is expected to release its third-quarter 2012 results on October 9, 2012. The Zacks Consensus Estimate for the third quarter is currently pegged at 97 cents per share.

We currently have a long-term Neutral recommendation on the stock. However, it carries a short-term Zacks #4 Rank (Sell).

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