Macquarie downgrades Yum China to sell on 'bumpy' sales recovery

Macquarie analyst Linda Huang downgraded Yum China to Underperform from Neutral with a price target of $52.90, down from $56. The stock is down 7% to $57.09 in morning trading. The company this morning indicated a mid-teens same-store-sales year-over-year decline in August due to Covid, or a 20% decline as compared to August 2019, and estimated its Q3 adjusted operating profit would decline by 50%-60% year-over-year to operating deleverage and inflation of commodity and labor costs, Huang tells investors in a research note. The analyst expects Yum China's sales recovery "will remain bumpy" given the recent Covid outbreak in Fujian and potentially tighter restrictions during the upcoming national vacation. Investors should take profits since the restaurant impact from Covid will likely be more structural than expected, says Huang.