Bloomberg News

Yum’s China Store Sales Drop Slows as Avian Flu Abates

June 11, 2013

Yum! Brands Inc (YUM)., which gets more than 50 percent of its revenue from China, said same-store sales in the Asian nation last month fell more slowly than in April as cases of avian flu subsided.

Sales at stores open at least a year dropped 19 percent in May, the Louisville, Kentucky-based company said in a filing with the U.S. Securities and Exchange Commission yesterday. That followed a 29 percent decline in April and matched analysts’ estimates for a 19 percent decline, the average of eight projections compiled by Consensus Metrix.

Chief Executive Officer David Novak has been trying to reassure Chinese consumers that the company’s chicken is safe to eat after a deadly outbreak of bird flu and a former supplier was probed for selling chicken with too much antibiotics. The 25 percent drop for KFC stores is an improvement from April’s decline of 36 percent.

“We did see some moderation in the decline from April to May, which is good,” Jack Russo, a St. Louis-based analyst at Edward Jones & Co., said in an interview. News about avian flu “seems to be slowing down a little bit,” said Russo, who advises holding Yum shares.

Yum, which has more than 5,400 KFC and Pizza Hut stores in China, fell 1.3 percent to $70.80 at 4:49 p.m. yesterday in New York. The shares gained 8.1 percent this year through the close of regular trading, while the Standard & Poor’s 500 Index advanced 14 percent.

Second Quarter

Second-quarter sales at units open at least 12 months in China may decline 20 percent, including a drop of about 26 percent at KFC, the company said in the filing. The fried-chicken chain’s comparable-store sales in China will be positive in the fourth quarter, it said.

Yum will report second-quarter earnings, as well as June same-stores sales for China, on July 10. Same-store sales are an indicator of a company’s growth because they include only older, established locations.

The fast-food chain earlier this year forecast a “mid-single digit” decline for 2013 profit excluding certain items. Yum, which is planning to open 700 new locations in China this year, has said that the negative sales affect from avian flu will be short-lived.

“We do expect a strong bounce-back in 2014,” Chief Financial Officer Patrick Grismer said during an investor conference on June 3.

McDonald’s Corp (MCD)., the world’s largest restaurant chain, on June 10 said May same-store sales fell in China. The Oak Brook, Illinois-based chain cited avian flu as the reason for the decline.

Yum, which also owns Taco Bell, has more than 39,000 restaurants globally.

To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net


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