![]() ![]() Overall, I am encouraged by YUMC stock's performance this quarter and expect to see continued improvement moving forward. Despite rising commodity and labor costs, the company is committed to its three core competencies-food innovation, supply chain management, and ongoing labor efficiency initiatives-as a means of weathering the storm. Given the macro environment, I believe the momentum in SSS recovery is very encouraging, which combined with management comments for FY23, makes it even more positive. Enhanced traffic and labor efficiencies contributed to higher profits alongside the reduced cost of food and other value promotions (as per 1Q23 earnings call ). I expect the continuous enhancement of new store economics and store portfolio optimization (I have previously talked about this) to continue driving the strong margin profile going forward. ![]() What is more positive is that SSS is still below pre-covid levels, suggesting there is still further room for margin to expand purely on a normalized SSS basis. YUMC's 1Q23 results showed another strong improvement in margin (net margin improved to 10.58% from 5.16% in 1Q22), and it's worth noting that restaurant margins have now risen above the pre-covid level and are very close to setting a record high. I continue to think that Yum China ( NYSE: YUMC) deserves a buy rating.
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