Chinese results leaving bad taste in Yum Brands’ mouth
Yum Brands said sales in China fell 4 per cent in the second quarter. Source: Supplied
China accounts for about half of Yum’s sales and is at the centre of the company’s expansion plans, but sales have been crippled by reports questioning the quality of its food.
In the June quarter, sales in China fell 4 per cent, with sales at stores open for at least a year declining 10 per cent.
Yum had already warned results would be worse than the year-ago period, which preceded the negative news reports on the sale of expired meat. The results, however, suggest a continued rebound. Yum reported a 16 per cent decline of sales at established stores in the fourth quarter and a 12 per cent decline in the first quarter.
To improve sales in China, Yum revamped its marketing and menus, including adding premium coffee and healthier alternatives like herbal tea and seafood at KFC restaurants.
And the company opened Atto Primo, a high-end Italian restaurant, in Shanghai’s Bund, the city’s historic waterfront. A Yum spokeswoman said Atto Primo “may serve as an innovation lab for Pizza Hut”.
Chief executive Greg Creed has dismissed speculation of selling its Chinese operations, saying that the company remains on track to open at least 700 restaurants there this year, just shy of the 737 units opened last year and accounting for about a third of the company’s planned 2100 restaurants abroad.
Rebounding sales in China have driven the company’s projected 10 per cent increase in share-based earnings before special items.
However, rumours of a spin-off — where a unit becomes a separate company — or spin-out — where the unit is sold to another company — persist, fuelled by the unit’s continued drag and low interest rates that could help finance a deal.
Overall, Yum reported profit of $US235 million ($314m), or US53c a share, down 30 per cent from $US334m, or US73c a share, a year earlier. Excluding special items, earnings fell to US69c a share from US73c a year earlier.
Revenue, which includes franchise and license fees, fell 3 per cent to $US3.11 billion. Currency-rate exchanges lowered revenue by $US22m, Yum said.
Analysts surveyed by Thomson Reuters projected US63c a share on $US3.19bn in revenue.
Worldwide sales rose 3 per cent, while restaurant margin remained at 15.5 per cent.
By brand, sales rose 9 per cent at Taco Bell, 6 per cent at KFC and 1 per cent at Pizza Hut.
Shares, which have outperformed the S&P 500 by nearly 24 percentage points this year, fell 1.2 per cent to $US90.80 in late trading.
Source: The Australian, Maria Armental, July 16th 2015
