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Leading all of this was Taco Bell’s exceptionally strong performance, which offset significant weakness at Pizza Hut. Taco Bell same-store sales were up a whopping 8% and foot traffic was up 5%, which is extremely impressive for a mature brand in a stagnant industry like fast food. It’s also worth noting that Taco Bell is almost exclusively an American brand, as it has very little in the way of an overseas presence. So the bump can’t be attributed to a recovery overseas. This is very much a domestic American story.
So, even though older fast food brands have lost ground to higher-end “fast casual” chains like Chipotle (CMG) over the past decade, Taco Bell has managed an impressive comeback.
Yum – and particularly its Taco Bell brand – has really followed the lead of McDonald’s (MCD) in shaking up its menu, which had gotten a little stale. Just as McDonald’s introduced all-day breakfast and other assorted menu items, Taco Bell launched its Naked Chicken Chalupas in which the taco shell is actually made out of fried chicken.
While that sounds a little like Frankenstein’s monster, it’s been a major success, likely due to its novelty appeal.
Going forward, Taco Bell is looking to compete at the higher end with the likes of Chipotle while also continuing to offer cheap offerings for a dollar or two. It’s ambitious, but it seems to be working.
Taco Bell currently makes up about a third of Yum’s operating profits and has the best longer-term growth potential due to its smaller international footprint.
All of that is the good news. The bad news was Pizza Hut’s results. Same store sales were down 3%… and 7% in its US locations. That’s particularly sobering considering that Dominos Pizza and Papa John’s both had very decent quarters.
Sometimes, brands just get stale. Yum spend a lot of money refreshing KFC, and they’re attempting to do the same with Pizza Hut, pledging to spend $130 million helping its franchisees update their locations and improve their technology.
It’s needed badly. Dominoes mobile ordering is a fine-tuned machine, whereas Pizza Hut’s has been generating a lot of customer complaints.
Charles Lewis Sizemore, CFA is the principal of Sizemore Capital Management.
It’s Valentine’s Day, and love is in the air. I joined CNBC’s Pauline Chiou to chat about stocks to commemorate the occasion.
I’ll start with LVMH Moët Hennessy Louis Vuitton (LVMUY), the world’s largest fashion powerhouse… and also happens to be the maker of fine champagne. So if anything gets Valentine’s Day off to a proper start, it would be a nice bottle of Dom Perignon and a designer purse for that special lady in a guy’s life. On a more serious note, European stocks have mostly traded sideways for years, and LVMH is no exception. This stock is a play on a bounce in the euro, on European stocks in general and on an recovery in China, the world’s largest luxury consumer. This stock is not exactly cheap, trading at about 23 times earnings, but this is also a stock that has traditionally traded at a premium. You’re also getting a healthy 2% dividend while waiting for the recovery to happen.
Next up is L Brands (LB). So, you’ve had a romantic Valentine’s Day evening of wining and dining. What could be better than sexy lingerie to keep the night interesting? This brings us to L Brands, the parent company of Victoria’s Secret. Along with a lot of brick and mortar retailers, L Brands has struggled in recent years as consumers have shifted to cheaper and more convenient internet competition. But Victoria’s Secret is still very much the leader in this space, and the stock today is quite cheap. It trades at 2013 prices and sports a dividend yield over 4%. And unlike a lot of brick-and-mortar retailers, Victoria’s Secret has years of experience in direct-to-consumer catalogue sales. The company’s marketing has gotten somewhat stale, but revenues have grown at a solid clip since the 2008-2009 recession. At current prices, you’re getting paid handsomely to wait for a marketing reboot.
And finally, we get to Pfizer (PFE). You have champagne… you have lingerie… I suppose it’s only appropriate that Viagra comes next. All joking aside, Viagra’s maker, big pharma giant Pfizer, is interesting. The stock has traded sideways for the past three years due to stagnating revenue growth and, like all big pharma companies, faces political pressure to lower drug prices. But given that the stock trades for just 11 times forward earnings and yields 4%, a lot of bad news is already priced in.
Disclosures: As of this writing, I had no position in any stock mentioned in this article.
I joined CNBC for a quick chat Sunday night:
After a initial surge following the election, stocks have traded mostly sideways for the past month. But by most measures, including market breadth, this is a healthy bull market. Valuations are stretched, to be sure. And that will likely keep a lid on stock returns over the next 5 – 10 years. But for the time being, this is a healthy market and, frankly, with bond yields still extremely low by historical standards, there simply aren’t a lot of other places for money to go these days.
So while the initial market love affair with Donald Trump might be over, this bull market likely has higher to go.
Charles Sizemore is the Chief Investment Officer of Sizemore Capital Management, a registered investment advisor based in Dallas serving individual families and institutions. (Read More)
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