Fast-food company Yum! Brands (NYSE:YUM) missed analysts' expectations in Q3 FY2023, with revenue up 4.15% year on year to $1.71 billion. Turning to EPS, Yum! Brands made a non-GAAP profit of $1.44 per share, improving from its profit of $1.09 per share in the same quarter last year.

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Spun off as an independent company from PepsiCo, Yum! Brands (NYSE:YUM) is a multinational corporation that owns KFC, Pizza Hut, Taco Bell, and The Habit Burger Grill.

Traditional Fast Food

Traditional fast-food restaurants are renowned for their speed and convenience, boasting menus filled with familiar and budget-friendly items. Their reputations for on-the-go consumption make them favored destinations for individuals and families needing a quick meal. This class of restaurants, however, is fighting the perception that their meals are unhealthy and made with inferior ingredients, a battle that's especially relevant today given the consumers increasing focus on health and wellness.

Sales Growth

Yum! Brands is one of the most widely recognized restaurant chains in the world and benefits from brand equity, giving it customer loyalty and more influence over purchasing decisions.

As you can see below, the company's annualized revenue growth rate of 6.63% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was mediocre, but to its credit, it opened new restaurants and grew sales at existing, established dining locations.

This quarter, Yum! Brands's revenue grew 4.15% year on year to $1.71 billion, falling short of Wall Street's estimates. Looking ahead, the analysts covering the company expect sales to grow 7.95% over the next 12 months.

The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

Number of Stores

When a chain like Yum! Brands is opening new restaurants, it usually means it's investing for growth because there's healthy demand for its meals and there are markets where the concept has few or no locations. Yum! Brands's restaurant count increased by 3,252, or 6.06%, over the last 12 months to 56,905 locations in the most recently reported quarter.

Taking a step back, Yum! Brands has rapidly opened new restaurants over the last eight quarters, averaging 4.76% annual increases in new locations. This growth is much higher than other restaurant businesses. Analyzing a restaurant's location growth is important because expansion means Yum! Brands has more opportunities to feed customers and generate sales.

Same-Store Sales

Yum! Brands's demand within its existing restaurants has generally risen over the last two years but lagged behind the broader sector. On average, the company's same-store sales have grown by 5.38% year on year. With positive same-store sales growth amid an increasing number of restaurants, Yum! Brands is reaching more diners and growing sales.

In the latest quarter, Yum! Brands's same-store sales rose 6% year on year. This growth was an acceleration from the 5% year-on-year increase it posted 12 months ago, which is always an encouraging sign.

Key Takeaways from Yum! Brands's Q3 Results

With a market capitalization of $33.9 billion, a $656 million cash balance, and positive free cash flow over the last 12 months, we're confident that Yum! Brands has the resources needed to pursue a high-growth business strategy.

It was good to see Yum! Brands beat analysts' EPS expectations this quarter. That really stood out as a positive in these results. On the other hand, its revenue unfortunately missed analysts' expectations and its gross margin missed Wall Street's estimates. Overall, this was a mediocre quarter for Yum! Brands. The company is down 1.45% on the results and currently trades at $119 per share.

Yum! Brands may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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The author has no position in any of the stocks mentioned in this report.