Yum China Holdings, Inc (YUMC – Free Report) recently announced the launch of an enhanced RGM 2.0 strategy with financial growth targets from 2024 to 2026.
The initiative focuses on rapid network expansion (by leveraging flexible store formats and strategic partnerships with franchisees), sales growth (through menu innovation), and profitability (through proactive cost management).
Following this announcement, the company’s shares rose 5.5% during trading hours on September 14.
For 2023, the company has increased its target net new stores to 1,400-1,600, compared to its previous target of 1,100-1,300. The attributes of flexible store formats, new healthy store recovery periods and a strong store pipeline will likely add to the positives.
By 2026, the company expects to reach its footprint of 20,000 stores and achieve a high single- to double-digit compound annual growth rate for system sales and operating profits. For the period 2024 to 2026, the company expects a double-digit CAGR for EPS compared to 2023 levels (in constant currency). It also plans to return approximately $3 billion to shareholders through quarterly dividends and stock buybacks. This reflects a double-digit increase in shareholder returns over the past three years.
In terms of brands, the company intends to open more than 1,200 new KFC locations, of which it is expected that 15-20% will be franchise outlets. The company announced opportunities related to 1,100 underpenetrated cities and untapped strategic locations such as highway service centres, hospitals and university campuses.
For Pizza Hut, the company expects to open 400 to 500 new stores annually in the next three years, including a flexible store format (such as an affiliate store format). Regarding Lavazza, the company emphasized the implementation of a four-pillar strategy that included investing in building the brand, fine-tuning its menu, growing its digital presence, and improving delivery options, store design and experience. The company plans to expand its presence to 1,000 stores in the next three to five years.
More focus on digitalisation
Digital transformation has been a driving factor in the company’s expansion plans. The initiative supports streamlined workflow, empowered store management and increased flexibility thanks to its digital operational tools and automated technology solutions.
Going forward, the company is expanding the use of AI technology to significantly enhance customer experience, store operations and human resource management. There is a great deal of optimism about the company’s internal digital capabilities to drive innovation in future AI-enabled applications.
In the past year, the company’s shares rose 12.6% compared to the industry’s growth of 7.1%.
Zacks Rank and other key picks
Yum China currently carries a Zacks Rank #2 (Buy).
Some other top-rated stocks in the retail and wholesale sector include:
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Choi Holding Company (Choi – Free Report) has a Zacks Rank of #2. It delivered a fourth-quarter earnings surprise of 26.6% on average. CHUY shares are up 60.1% in the past year.
The Zacks Consensus Estimate for CHUY’s 2023 sales and EPS indicate increases of 9.5% and 32.9%, respectively, from the year-ago period levels.
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