Recent Posts

YUM: Updating Our Forecasts to Reflect Omicron’s Rise in China

Earlier today, master franchisee Yum China (YUMC; Not Rated) provided a business update in which it said that while its same-store sales were down by about -4% over January/February, they had “decreased approximately -20% year-over-year for the first two weeks of March” and were “still trending down in recent days.”

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1:13 PM

YUM (Post-Call): Q3 Adjusted EPS Helped by Investment Income

Earlier today, Yum Brands reported adjusted Q3 EPS of $1.22, ahead of our $1.10 forecast and sell-side consensus (according to Consensus Metrix) of $1.09. However, we calculate that: (1) pre-tax investment income of $52 million (“related to the change in fair value of our approximate 5% investment in Devyani International Limited, an entity that operates KFC and Pizza Hut franchised units in India that executed an initial public offering during the quarter”) added about +16 cents’ worth of EPS help, and (2) by our calculations, the Q3 adjusted tax rate of 18.9% added about +4 cents of EPS help (relative to our 21.5% forecast and consensus of 21.4%).

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9:22 AM

YUM (Post-Call): Taco Bell Achieves Double-Digit Two-Year Same-Store Sales

Earlier today, Yum Brands reported adjusted Q2 EPS of $1.16, surpassing our $0.97 forecast and sell-side consensus (according to Consensus Metrix) of $0.96. We attribute the EPS beat primarily to: (1) better-than-expected same-store sales at Taco Bell and KFC U.S., (2) leverage achieved due to sales strength, and (3) a better-than-anticipated adjusted tax rate of 20.0% (versus our 21.5% projection and consensus of 21.5%).

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8:50 PM

YUM: Updating Our Same-Store Sales and EPS Estimates

With this report, we boost our Q2E same-store sales forecasts as follows: (1) for Taco Bell, up by +2 percentage points to +17% (according to Consensus Metrix, sell-side consensus is at +15.7%, although be aware that Yum Brands does not report its same-store sales out past the decimal point), and (2) for KFC U.S., up by +1 percentage point to +3% (consensus is at +2.5%).

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4:42 PM

YUM: Can KFC Get to ~75,000 Units Worldwide in the Long Run?

Earlier today, Yum Brands hosted a virtual Analyst Meeting, focused on its KFC business. Management says that in terms of worldwide units, KFC is only about a third of the way to its potential; “we’ll be growing the brand for years.” As of the end of 2020, KFC had 25,000 units, so this statement implies a (very) long-term goal of roughly 75,000 KFC restaurants worldwide.

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12:26 PM

YUM: Updating Our Same-Store Sales and EPS Estimates

With this report, we boost our Q1E same-store sales forecasts as follows: (1) for Taco Bell, up by +1 percentage point to +7% (according to Consensus Metrix, sell-side consensus is at +5.7%, although be aware that Yum Brands does not report its samestore sales out past the decimal point), and (2) for KFC U.S., up by +1 percentage point to +13% (consensus is at +11.6%).

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4:50 PM

YUM: What Concept Could Yum Acquire Next?

On January 6, 2020, Yum Brands announced its plan to acquire The Habit Burger Grill, which as of full-year 2019 was the 17th-largest burger concept in the U.S. (in terms of domestic systemwide sales, at $450+ million), and in the top 100 overall. The Habit Burger Grill is meaningfully smaller than Yum’s core brands of KFC, Taco Bell, and Pizza Hut. As such, the acquisition of Habit (which closed on March 18, 2020) suggests that: (1) Yum Brands may be generally acquisitive in the future (incidentally, in keeping with current general industry trends), and (2) it isn’t hesitant to make an acquisition that it believes will create shareholder value in the long term, even if the size of that acquisition isn’t all that large relative to its core brands today.

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4:55 PM

YUM (Post-Call): U.S. Same-Store Sales Off to Double-Digit Start in Early 2021

Earlier today, Yum Brands reported Q4 2020 adjusted EPS of $1.15, above our $1.01 forecast and sell-side consensus (according to Consensus Metrix) of $1.01. We calculate that the Q4 adjusted tax rate was approximately 8.5%, much more favorable than our 21.0% estimate and consensus of 20.8%. We further calculate that relative to our tax-rate projection, the actual adjusted Q4 tax rate added about +15 cents to Q4 adjusted EPS. Excluding this factor, Q4 adjusted EPS would have been closer to $1.00.

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3:00 PM

Updating our Q4E Kalinowski Quick-Service Other Same-Store Sales Index

With this report, we update our data-driven Kalinowski Quick-Service Other Index for Q4E to +2.3%. This figure is based on our latest proprietary checks/data as regards same-store sales performance for this segment during October, November, and December. We believe that October same-store sales were likely the best month of the quarter, while November was likely the worst month of the quarter. (As a reminder, we define “quick-service other” as all quick-service, excluding burger, pizza, and sandwich concepts.)

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12:00 AM

Updating our Q4E Kalinowski Quick-Service Pizza Same-Store Sales Index

With this report, we update our data-driven Kalinowski Quick-Service Pizza Index for Q4E to +12.1%. This figure is based on our latest proprietary checks/data as regards same-store sales performance for this segment during October, November, and December. We believe that December same-store sales were likely the best month of the quarter, while October was helped by arguably the busiest Halloween ever for pizza delivery/carryout.

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12:00 AM

YUM (Post-Call) G&A Expenses Could Weigh on Q4 EPS

Earlier today, Yum Brands reported adjusted Q3 EPS of $1.01, ahead of our $0.83 forecast and sell-side consensus (according to Consensus Metrix) of $0.81. Third-quarter company-owned restaurant margins came to 17.9%, better than our 17.3% estimate and consensus of 16.1%. Taco Bell in particular generated very good restaurant-level margins (27.5% in Q3), although on today’s conference call management commented that over time margins should become more normalized as larger orders may become less of the overall sales mix.

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12:00 AM

YUM (Post-Call) All Three Larger U.S. Brands Posting Positive Comps in July

Earlier today, Yum Brands (YUM; Neutral, $91.46) reported that its adjusted Q2 EPS came to $0.82, well ahead of our $0.55 forecast and sell-side consensus (according to Consensus Metrix) of $0.57. The $0.82 figure included a +21 cent benefit related to Yum’s investment in Grubhub (GRUB; Not Rated). Adjusted EPS would have been about $0.61 excluding the mark-to-market for this investment.

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12:00 AM

YUM Updating Forecasts Following Business Update

Earlier today, Yum Brands (YUM; Neutral, $94.25) filed an 8-K which included a business update. As a result, we raise our Q2E EPS estimate by +5 cents, to $0.55. Our full-year 2020E EPS forecast goes up by +10 cents, to $3.00. And, given this higher anticipated base of earnings coming off of this year, we raise our 2021E EPS projection by +5 cents, to $3.80.

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12:00 AM

YUM (Post-Call) Sales Trends Improving in Mid-to-Late April

Yum Brands (YUM; Neutral, $88.27) reported adjusted Q1 EPS of $0.64 — ahead of our $0.50 forecast, and a little short of sell-side consensus (according to Consensus Metrix) of $0.66. Yum notes that its investment in Grubhub (GRUB; Not Rated) cost it -6 cents of EPS in Q1.

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12:00 AM

YUM Updating Our Rating on Yum Brands

With this report, we change our rating on Yum Brands (YUM; $85.61) to Neutral (from Buy). This change largely reflects the following factors: (1) currencies that may work against Yum’s earnings over the remainder of 2020, (2) other costs that may creep up in Q2, (3) the possibility of store closures hurting Q2 by more than the Street anticipates, (4) possible same-store sales issues at Taco Bell, and (5) YUM shares’ +55% rise off of its 52-week low, which has allowed it to come within less than 50 cents of our $86 target price (which we now move to “NA” with this report. We note the following:

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12:00 AM

YUM Updating Same-Store Sales and EPS Estimates for 2020E & 2021E

We lower our worldwide aggregate same-store sales estimates for Yum Brands (YUM; Buy) as follows:
Q1E 2020: down by -8 percentage points to -8%
Q2E 2020: down by -23 percentage points to -23%
Q3E 2020: down by -15 percentage points to -13%
Q4E 2020: down by -7 percentage points to -5%
Full-year 2020E: down by -14 percentage points to -13%
Full-year 2021E: up by +5 percentage points to +7%

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12:00 AM

YUM (Post-Call) Lowering EPS Estimates Based om Virus, Pizza Hut Risks

Earlier today, Yum Brands (YUM; Buy) reported adjusted Q4 EPS of $1.00 — which included a -$0.05 hit related to the mark-to-market adjustment for Yum’s investment in Grubhub (GRUB; Not Rated). Excluding this GRUB-related adjustment, adjusted EPS would have been $1.05 — still short of our $1.14 forecast and $1.13 sell-side consensus (according to Consensus Metrix).

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12:00 AM

YUM Sometimes Delivery Ain’t What It’s Cracked Up to Be

Earlier today, Yum Brands (YUM; Buy) reported adjusted Q3 EPS of $0.80 — which included a -$0.15 hit related to the mark-to-market adjustment for Yum’s investment in Grubhub (GRUB; Not Rated). Excluding this GRUB-related adjustment, EPS would have been $0.95, matching our $0.95 forecast, although a penny shy of the sell-side consensus (according to Consensus Metrix) of 0.96.

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12:00 AM

YUM (Post-Call) Nacho Average Quarter

Earlier today, Yum Brands (YUM; Buy) reported Q2 adjusted EPS of $0.93, topping our $0.89 forecast and sell-side consensus of $0.87. Yum’s updating of its fair value of its investment in Grubhub (GRUB; Not Rated) added $0.06 to Q2 EPS, but we’d also note that the Q2 adjusted tax rate of 23.7% hampered EPS by $0.03 according to our math relative to our 20.6% projection (and consensus of 20.6%). Second-quarter restaurant-level margins for company-owned stores matched our forecast.

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12:00 AM

YUM Updating Our Forecasts Ahead of Yum Brands 8.1 Earnings Release

Ahead of Yum Brands’ (YUM; Buy) second-quarter earnings release scheduled for before the market open on Thursday, August 1st, we raise our Q2 EPS estimate by $0.01 to $0.89, placing us two cents above sell-side consensus according to Consensus Metrix. Our EPS estimate increase is driven by (1) an update to our Q2E Taco Bell same-store sales projection to +5% (which places us as tied for the high on the sell-side in this respect), from our prior +4%, and versus consensus of +3.7% (please keep in mind that Yum Brands does not report its same-store sales out past the decimal point), and (2) taking up our worldwide Q2E KFC same-store sales estimate to +4% (from +3%).

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12:00 AM

YUM 2019 Franchise Disclosure Document Review for Taco Bell

Not too long ago, the Taco Bell concept owned by Yum Brands (YUM; Buy) filed its 500+ page Franchise Disclosure Document (FDD) for 2019. In this report, we cite some of the highlights from that document following our review of it, including our review of it in comparison to last year’s Franchise Disclosure Document. For example, based on data provided, our best guess is that during 2018 U.S. companyowned traditional Taco Bells generated average sales of $1,810,474 and median sales of $1,578,925. And, our best guess is that during 2018, U.S. (single-brand) franchised traditional Taco Bells generated average sales of $1,572,481 and median sales of $1,513,671. We maintain our Buy rating on YUM and note the following:

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12:00 AM

Correlating Grubhub Data and U.S. Restaurant Sectors Same-Store Sales Trends

With third-party delivery aggregators continuing to grow, providing additional convenience to the consumer, we decided to look at various quarterly data provided by Grubhub (GRUB; Not Rated), correlating these data sets with various sectors’ same-store sales (for U.S. chain restaurants). To do this, we used six different Kalinowski Restaurant Industry Index sector indices, which are sorted by brand type and based on the weighted-average components from 48 different publiclytraded restaurant concepts. (The weightings are based on each concept’s 2018 U.S. systemwide sales, as measured by Technomic.)

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12:00 AM

YUM Some Potential Acquisition Candidates for Yum Brands

In April, Restaurant Business reported that “Yum [Brands], the parent company of Taco Bell, KFC and Pizza Hut, will ‘absolutely’ acquire another brand one day, [CEO Greg] Creed said. ‘In the future, other brands will want to become part of the Yum family,’ he said. ‘We’ll do it because these brands want to join us more than I want to pay some huge multiple.’”

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12:00 AM

April Burger-Sector Sales Trends Compared to March…

In our April 8th report “Tidbits re: Burger-Sector Same-Store Sales Trends, and SBUX,” we noted that “With March 2019 now in the rear-view mirror, we are pleasantly surprised that this month appears to have turned out very well for burger-sector same-store sales. In fact, based on our proprietary, data-driven checks, the midsingle digit number put up by U.S. quick-service burger chains for March 2019 looks like the best month in this regard since February 2016, for which some concepts (depending on their accounting methodologies) were helped by that month’s extra Leap Day.”

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12:00 AM

YUM (Post-Call) Favorable Tax Rate Helps Q1 Adjusted EPS

Earlier today, Yum Brands (YUM; Buy) reported Q1 adjusted EPS of $0.82, surpassing our $0.72 forecast (which had incorporated an anticipated -$0.09 hit from markto-market of Yum’s investment in GrubHub [GRUB; Not Rated]) and the $0.81 consensus number (likely not apples-to-apples with our forecast). Yum notes that “We reflected the change in fair value of our investment in Grubhub by recording $20 million of pre-tax investment expense, resulting in a negative ($0.05) impact in EPS.”

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12:00 AM

YUM Weighing the Positives & Risks Ahead of Yum’s Q1 Earnings Release

Ahead of Yum Brands’ (YUM; Buy) first-quarter earnings release — scheduled for before the market open on Wednesday, May 1st — we look at a key positive and a key risk surrounding YUM. Most importantly on the positive side of the ledger, based on our data-driven checks, we raise our Q1 same-store sales forecast for Taco Bell by one percentage point, to +5%, as we believe that brand’s momentum, innovation, and differentiation continue to pay off. Promotions during various parts of the first quarter included Steak Rattlesnake Fries, the Steak Rattlesnake Burrito, the return of the Naked Chicken Chalupa, and the return of Nacho Fries. Our Q2E same-store sales forecast is also boosted by one percentage point, to +4%, and that is not a bestcase scenario if the second quarter trends well. We’ll see…

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12:00 AM
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