For what seems like the better part of a year (it has only been a few months), Yum! Brands (YUM) will finally hold the biggest conference perhaps in its existence. Interestingly, since the company announced that it would unwind the brilliant work of long-time CEO David Novak (now chairman) on Oct. 20, shares have traded with a downward bias.
If we have learned anything in this activist investor-fueled world, it's that when a company chops itself into itty bitty pieces, it's usually rewarded with a higher valuation on the announcement alone. Not the case with Yum! Brands, which I think is telling as to the serious unknown on Wall Street on the company's precise plans to reinvigorate growth for mature concepts. Details have been scant, promises high.
Now, company execs must put all their powers of persuasion to good use and sell Wall Street hard, because here is the reality: To attract investors to what will be Yum! Brands (U.S., rest of the world) and Yum! China, it will have to be a better investment opportunity than several areas outlined below.
One is McDonald's (MCD), which, as crazy as it seems, appears to be gaining a wee bit of momentum with its sales. Coupled with a deep restructuring plan designed to corral costs, McDonald's right now looks like a more opportunistic investment than Yum! Brands U.S./rest of the world.
As I mentioned on Wednesday, shares of the next generation of restaurants have plunged since their IPOs this year. The declines in Wingstop (WING), Shake Shack (SHAK) and Fogo De Chao (FOGO) have been jaw dropping, and arrive despite very impressive sales gains for the group. I caught up with Wingstop's CEO Charlie Morrison for TheStreet on Wednesday (big fan), and he wasn't too sure why the market has sold off in this manner. Sometime in early 2016 these beaten-up, high-growth restaurant names will get a second look, and Yum! Brands will have to compete for investor dollars.
By the same token, let's not forget what Yum! Brands is: it's a restaurant that should do reasonably OK when unemployment is on the decline and jobs on the rise (as they are currently). Retailers should also do well in this backdrop, and I suspect there will be consolidation in the sector in early 2016 following mixed holiday seasons for apparel makers. Once more, Yum! Brands will have competition for dollars that want to get long global consumer plays.
I will be all over this story today for TheStreet like stink on a dog, and have a special interview planned for this evening (so watch my Twitter feed @BrianSozzi). Here is what I will be on the lookout for as the Yum! Brands news starts to unfold.
- Specific ¿ and impressive -- plans on how to revive Pizza Hut: the pizza chain has been a disappointment this year in light of the stellar sales growth rates put up by rivals Domino's Pizza (DPZ) and Papa John's (PZZA). A host of upstart better for you pizza chains, such as LeBron James-backed Blaze Pizza, has also chipped into Pizza Hut's share. The innovation for Pizza Hut, the hallmark of the brand, has certainly been solid in 2015; it's just that the marketing hasn't driven enough online clicks and visits to the locations. Pizza Hut has also been behind its competitors in adopting mobile ordering. To get confidence in putting money to work in Yum! Brands U.S./rest of the world, the plans for Pizza Hut have to be super detailed and impressive. I want to come away with a sense the company is about to hit the ground running with improved marketing plans in 2016 and has solid plans in place to drive share consistently...because I don't think Domino's or Papa John's are poised to stumble.
- How will Taco Bell maintain its rate of success: this year has been a strong one for Taco Bell, with same-restaurant sales outpacing the quick-service industry on the back of breakfast and evening menu innovation. Now, with the Mexican fast-food chain set to be the key growth business for the new Yum! Brands, it's imperative execs stay focused on what has brought the business success: clever marketing and innovation that has out-flanked McDonald's. Similar to Pizza Hut, it's vital that Taco Bell's growth plans sizzle, seeing as McDonald's is showing signs of life, which changes the dynamic that has been in place this year. According to a new study by research firm NPD Group, McDonald's all-day breakfast program is proving successful in attracting new or lapsed buyers and increasing lunch visits. Orders of breakfast foods throughout the day increased from 39% prior to the all-day breakfast launch to 47% post-launch, according to NPD.
- What are the sales trends right now in China. Things have finally started to turn the corner for KFC China after a challenging 2014 and first half of 2015. Unfortunately, Pizza Hut continues to struggle in the country due to the rise of people ordering pizza via upstart delivery companies. I would like to come away with a sense that KFC China is fully back after a summer menu revitalization, and there are plans in place to revive Pizza Hut China. Because here is the truth: Yum! Brands China will be the largest franchisee of Yum! Brands. So if Yum! Brands China could earn more money, it will only help the bottom line of the parent company, and likely the stock price.