Why Yum China (YUMC) Stock Is Trading Up Today
What Happened:
Shares of fast-food company Yum China (NYSE:YUMC) jumped 18.8% in the morning session after the company reported fourth-quarter results with revenue outperforming Wall Street's estimates, driven by better-than-expected same-store sales and a higher number of locations. Profitability was solid, leading to an EPS beat. Looking ahead, the company reiterated that from 2024 to 2026, system sales and profit profit will grow at high-single-to-double-digit CAGRs, leading to a double-digit CAGR for EPS. Zooming out, this was a fantastic quarter that should have shareholders cheering.
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What is the market telling us:
Yum China's shares are not very volatile than the market average and over the last year have had only 4 moves greater than 5%. Moves this big are very rare for Yum China and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 3 months ago, when the stock dropped 11.5% on the news that the company reported third quarter results with revenue, gross margin, and EPS all falling below Wall Street's estimates. These misses were driven by its lower-than-expected same-store sales growth, which is usually higher margin revenue than sales from new restaurants. Investors are likely concerned about the decelerating same-store sales because of the company's rapid restaurant expansion strategy - typically, higher same-store sales are what justify new locations. In addition, the company highlighted foreign exchange headwinds, which had a negative impact of approximately 6% in the quarter.
Looking ahead, management provided weak guidance for the fourth quarter. It highlighted softening demand observed since late September, which is expected to affect sales and, consequently, margins. Overall, this was a weaker quarter for Yum China.
Yum China is down 4.3% since the beginning of the year, and at $40.73 per share it is trading 36.7% below its 52-week high of $64.36 from April 2023. Investors who bought $1,000 worth of Yum China's shares 5 years ago would now be looking at an investment worth $975.28.
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