Yum Reports Big Same-Store Sales Misses, But Chinese Sales Anticipated To Rise

Despite Yum! Brands, Inc. YUM reporting weaker-than-expected results, the stock traded up in the after-market session Wednesday.

CLSA’s Jeremy Scott maintains an Underperform rating on the company, with a price target of $82.

Disappointing Results

“The appetite to own Yum ahead of the spin is unambiguously strong,” Scott mentioned.

The company reported its EBIT for the quarter below the estimate, while reporting decelerating comp trends and lower margins across all of its segments, including Taco Bell and Pizza Hut International.

Scott noted that the stock traded up on the commentary that Pizza Hut China turned positive in the first two weeks of July.

Related Link: Yum's Q2 In Line With Expectations, But Barclays Sees Chinese Headwinds

“After comping down 12 percent in 1H16, a turn positive in July is a remarkably quick reversal that deserves ample clarity,” the analyst stated.

As expected, China comps decelerated from the 1Q16 levels, although comparable company AUVs were marginally stronger than the estimate despite declining about 1.5 percent.

Expectations Of Acceleration In China

Given that Pizza Hut showed no significant sequential improvement on a two-year basis, Scott pointed out that the company’s commentary regarding the improvement in the first two weeks of July was “more surprising.”

In fact, Scott noted that comps “decelerated across the board, driving restaurant deleverage that wasn’t entirely offset by tighter G&A control.”

In addition, given that New Yum segment EBIT margins expanded at a slower pace in 2Q16, as compared to 1Q16, Scott believes the company increasing its 2016 core operating income growth guidance was mainly based on expectations of acceleration in China.

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