Yum Brands’ shares have doubled from their pandemic lows. That’s mainly because it continues to expand its popular online ordering platforms and home delivery services. The company also continues to open new outlets. Moreover, franchisees operate most of these stores, which cuts costs and lets the firm focus on improving its prospects with new menu items and marketing initiatives.
The stock trades at 23.7 times the company’s forward earnings forecast.
YUM BRANDS INC. (New York symbol YUM; www.yum.com) operates over 59,000 restaurants in more than 155 countries—65% of those outlets are outside of the U.S. Its main banners are KFC (fried chicken), Pizza Hut and Taco Bell (Mexican food). Franchisees operate 98% of those outlets.
Yum aims to fuel its growth by increasing the number of outlets by 4% to 5% a year. In the second quarter of 2024 ended June 30, 2024, it opened 894 gross new outlets (it did not report store closures). As a result, its revenue rose 4.5%, to $1.76 billion from $1.69 billion a year earlier. On a same-store basis, overall sales declined 1% (excluding currency rates). That decline is mainly due to the conflict in the Middle East, which is hurting sales at Yum’s international division.
By chain, same-store sales rose 5% at Taco Bell, but they fell 3% at KFC and 3% at Pizza Hut.
Higher taxes and other costs cut earnings before unusual items by 4.3%, to $1.35 a share from $1.41. Even so, that topped the consensus estimate of $1.33.
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Growth Stocks: A digital transformation success story in the making
Sales through Yum’s digital platforms have doubled since 2019 and now account for more than half of overall sales. In fact, Yum continues to upgrade its online ordering systems as part of its plan to get 100% of its sales through digital channels. That includes installing more self-serve ordering kiosks at its restaurants.
The company is also using artificial intelligence (AI) software to drive its sales and earnings growth.
For example, Yum paid an undisclosed sum in 2021 for Kvantum, which makes AI software to analyze customers’ ordering habits. The company then uses that data to create marketing promotions that encourage repeat visits and more spending per visit.
The company’s new stores should lift its earnings for all of 2024 by about 10% to $5.67 a share. The stock trades at 23.7 times that forecast, which is a reasonable p/e in light of Yum’s popular brands. The $2.68 dividend yields 2.0%.
Recommendation in Wall Street Stock Forecaster: Yum Brands Inc. is a buy.
