Yum! Brands’ post-4Q15 updates by brand
China is a critical division for Yum! Brands (YUM) and investors. Therefore, in an attempt to update investors on progress in the China division, the company began reporting same-store sales growth data on a monthly basis, beginning in 4Q15. The company also reports the same-store sales growth by brands, which is what we’ll discuss below.
KFC becomes more critical to Yum! Brands than ever
In China, Yum! Brands’ KFC (Kentucky Fried Chicken) division has a more pronounced impact on the division’s same-store sales growth. The company’s same-store sales growth for KFC’s October, November, and December months came in at 10%, -1%, and 5%, respectively. This overall positive same-store sales growth in KFC’s segment over the past three months shows that the division is beginning to emerge out of an adverse meat supplier issue that sparked the fall in the company’s China division in the first place.
Yum! Brands’ Pizza Hut division continues to be an overhang for Yum’s subdued China division performance. But it does not have as much impact on the company’s same-store sales growth, as you can see in the chart above.
You can get exposure to Yum! Brands without investing directly in the company’s stock through the Consumer Discretionary Select Sector SPDR ETF (XLY). McDonald’s Corporation (MCD), Starbucks Corporation (SBUX), and Chipotle Mexican Grill (CMG) make up about 8% of XLY’s portfolio.
Yum! Brands’ and KFC’s ongoing issues
According to Yum! Brands’ management, in 3Q15, KFC was negatively affected by online aggregators, which often offer heavy discounts initially to gain market acceptance or to develop online ordering habits. The weakness in Pizza Hut’s sales, on the other hand, was due to customers cutting down on dinner orders and parties in China according to the management. These factors may very well continue to impact both brands in the short-run.
So how does all of this impact the estimates and guidance? Continue to the next part of this series to find out.