Yum China Holdings, Inc. YUMC is poised to benefit from its digital initiatives, loyalty program and unit expansions. This and the emphasis on menu simplifications have been a driving factor for sales in the last few quarters.
So far this year, shares of Yum China have moved up 1.4% against the industry’s 17% fall. The price performance was backed by solid earnings surprise history. Yum China’s earnings surpassed the Zacks Consensus Estimate in eight of the trailing 12 quarters. Earnings estimates for 2022 have moved up 2.2% in the past 30 days. This positive trend signifies bullish analysts’ sentiments and justifies the company’s Zacks Rank #1 (Strong Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors Driving Growth
Yum China invests in technology to drive growth. During the second quarter of 2022, the company upgraded its mobile ordering manual (in pizza Hut) with more flexible buy more save more combos and customized product displays. It also upgraded its KFC super app with a friendly interface option (less promotion information), pickup forms and streamlined ordering functions. Moreover, it stated to have progressed in digital capabilities (like restaurant sales forecasting system and pocket manager) and delivery 3.0 version to streamline restaurant efficiency. The company anticipates the initiatives and supply chain infrastructure to drive growth in the upcoming periods.
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The company is gaining from a robust loyalty program. Regarding loyalty membership, Yum Brands created a robust loyalty program with more than 385 million loyalty members cumulatively. Pizza Hut’s membership increased by 100 million members. In the second quarter, member sales accounted for nearly 60% of system sales.
Yum China focuses on simplifying its menu to streamline operations and drive growth. During the second quarter of 2022, the company benefited from its new menu offerings. In KFC, the company unveiled innovative food comprising Wagyu and Angus beef burgers as well as a new chicken bucket (featuring chicken feet, chicken wings, tips, neck and other parts) in select cities. Going forward, the company intends to focus on simplified menu items with reduced complexity of operations to drive growth.
Yum China focuses on relentless unit growth to drive incremental sales. In 2018, the company opened 819 restaurants and remodeled 931 stores. This exceeded the company’s prior target of opening 600-650 stores in 2018. In 2019 and 2020, the company opened 1,006 and 1,165 new restaurants, respectively. During the fourth quarter of 2021, Yum China opened 563 gross new restaurants, owing to the development of the KFC and Pizza Hut brands. During second-quarter 2022, Yum China opened 246 gross new restaurants, driven by the development of the KFC and Pizza Hut brands. As of Jun 30, the company's total restaurant count was 12,170, up 1,147 stores year over year.
Other Key Picks
Some other top-ranked stocks in the Zacks Retail-Wholesale sector are Wingstop Inc. WING, Sprouts Farmers Market, Inc. SFM and The Wendy's Company WEN.
Wingstop carries a Zacks Rank #2 (Buy). Wingstop has a long-term earnings growth of 11%. Shares of the company have increased 5% in the past three months.
The Zacks Consensus Estimate for Wingstop’s 2022 sales and earnings per share (EPS) suggests growth of 24.5% and 16.3%, respectively, from the year-ago period’s levels.
Sprouts Farmers Market carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 15.6%, on average. Shares of the company have increased 22% in the past year.
The Zacks Consensus Estimate for Sprouts Farmers Market’s 2023 sales and EPS suggests growth of 5.9% and 7.9%, respectively, from the year-ago period’s levels.
Wendy's carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 3.9%, on average. Shares of the company have declined 12.1% in the past year.
The Zacks Consensus Estimate for Wendy's 2022 sales and EPS suggests growth of 10.4% and 3.7%, respectively, from the year-ago period’s levels.
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