Why Yum China Holdings Stock Jumped This Week

What happened

Shares of Yum China Holdings (YUMC 1.15%) beat a falling market this week. The fast-food stock gained 14% through Thursday trading compared to a 4.6% slump in the S&P 500. That spike was enough to put shares well above the market's return so far in 2022, according to data provided by S&P Global Market Intelligence. Yum China's stock is down just 5%, in fact, compared to the market's 22% slump this year.

The rally came as Wall Street continued to digest this week's earnings report and management's updated restructuring plans.

So what

Shares jumped in response to the company's fiscal third-quarter results, which were published on Tuesday. That report showed that while pandemic-related lockdowns and restrictions continued to pressure the business, Yum China managed to grow sales by 5% for the selling period that ended in late September.

The increase translated into market share gains for the company and reflected wins in the takeaway and delivery channels. These successes came despite major pressures from temporary store closures tied to COVID-19 outbreaks around China.

Now what

Investors can expect more demand pressures ahead. Pandemic-related closures increased in the current quarter, executives said. And consumers are spending and traveling less overall due to slowing economic growth.

Still, Yum China seems positioned to continue boosting its sales even in a slow-growth environment. And the chain's market share gains imply that it has durable competitive advantages, including scale. Management is planning to press those advantages this year, in part by launching as many as 1,200 new locations around the country in 2022.

The restaurant industry is famously sensitive to economic swings, and Yum China's international focus adds another layer of risk for investors that isn't as high with a company like McDonald's, which recently reported spiking global sales. However, the success of Yum China in winning more business, especially in the takeout and delivery niches, hints at solid investor returns over the long term.