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Yum China (YUMC) Down 38% in the Past Year: What's Hurting it?

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Hopes of a revival in Yum China Holdings, Inc. YUMC shares were dashed further after the company reported first-quarter 2022 results. Quarterly earnings missed the Zacks Consensus Estimate. The company stated that the Omicron variant continues to have a severe impact in the second quarter. In the past year, the company’s shares have declined 38.1% compared with the industry’s fall of 18%.

During first-quarter 2022, the company reported adjusted earnings of 24 cents. The figure lagged the Zacks Consensus Estimate of 29 cents. The bottom line declined 56% from 54 cents reported in the year-ago quarter. In 2022, the consensus estimate for 2022 earnings is pegged at 77 cents, down 36.4% year over year.

What’s Hurting the Stock?

Restaurant industry traffic has been impacted by the coronavirus pandemic. During the quarter under discussion, the company's operations were affected by the Omicron variant. The company noted that the Omicron variant continues to have a severe impact in the second quarter. Economically important regions like Shanghai, Tianjin, Jilin, Suzhou, Shenzhen and Guangzhou have been severely impacted by the Omicron variant.

The Zacks Rank #5 (Strong Sell) company said that hundreds of millions of people in China are under restrictions due to the pandemic. Situation China is very complex compared to 2020 and the company is finding it difficult to open stores and get employees to work. The ever-changing restrictions have hurt store operations as well as delivery and supply chain.

Same-stores sales declined sharply in first-quarter 2022 due to the pandemic. Same-store sales dropped 8% year over year, primarily due to a decline of 9% at KFC and 5% at Pizza Hut. In March, same-store sales fell by more than 20% year over year. The dismal performance continued in April (preliminary) as same-store sales decreased more than 20% year over year.

Dismal margin is hurting the company. Restaurant margin in the first quarter of 2022 was 13.8%, down 490 basis points from the year-ago quarter's levels. The downside was primarily due to sales deleveraging, higher inflation in commodity, wage and utility costs, and a rise in rider cost related to rising delivery volume.

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Zacks Investment Research


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Zacks Rank & Key Picks

Some better-ranked stocks in the same space are BBQ Holdings, Inc. BBQ, Jack in the Box Inc. JACK and Arcos Dorados Holdings Inc. ARCO.

BBQ Holdings sports a Zacks Rank #2 (Buy). BBQ Holdings has a long-term earnings growth of 14%. Shares of the company have increased 12.3% in the past year. You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for BBQ Holdings' 2022 sales and EPS suggests growth of 40.9% and 66.2%, respectively, from the year-ago period's levels.

Jack in the Box carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 11.8%, on average. Shares of the company have declined 33% in the past year.

The Zacks Consensus Estimate for JACK’s current-year sales growth of 5%, from the year-ago period's levels.

Arcos Dorados carries a Zacks Rank #1 (Strong Buy). Arcos Dorados has a long-term earnings growth of 31.3%. Shares of the company have surged 12.3% in the past year.

The Zacks Consensus Estimate for Arcos Dorados' 2022 sales and EPS suggests growth of 16.6% and 66.7%, respectively, from the year-ago period's levels.


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