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Yum Brands Rebounds From Chicken Antibiotic China Scare

Yum! Brands Inc. (YUM), owner of the KFC restaurant chain, said first-quarter same-store sales fell 20 percent in China, less than analysts estimated, as its reputation rebounded from a probe of a former chicken supplier.

Analysts projected a drop of 25 percent, the average of 20 estimates compiled by Consensus Metrix. In February, same-store sales were unchanged at KFC and rose 13 percent at Pizza Hut, compared with January declines of 41 percent and 15 percent, respectively, the Louisville, Kentucky-based company said yesterday in a filing with the U.S. Securities and Exchange Commission.

Yum is trying to revive sales in China after former chicken supplier Liuhe Group was found to have supplied meat with too much antibiotics. Last month, Yum, which has more than 5,200 restaurants in China, pledged to ramp up safety and tighten requirements for its suppliers in the Asian nation to help win back consumers.

“It appears trends are getting better,” Jack Russo, a St. Louis-based analyst at Edward Jones & Co. who advises holding the shares, said in an interview. “They clearly are doing a lot in terms of marketing and advertising and trying to convince consumers that it’s safe to go out to eat there.”

Yum rose 1.3 percent to $68.73 at the close in New York. The shares have gained 3.5 percent this year, while the Standard & Poor’s 500 Index has advanced 8.9 percent.

Ad Campaign

Last month, Yum announced it would begin an advertising campaign in China to help coax consumers back into its eateries. It is planning to open 700 new stores there this year.

The fast-food chain, which also owns Taco Bell, generated 51 percent of 2012 revenue from stores in China. The Chinese government said on Dec. 20 that tests conducted by a third-party agency from 2010 to 2011 found eight batches of chicken supplied to Yum by Liuhe had antibiotics levels that didn’t meet prescribed standards. Yum stopped buying from Liuhe in August, the restaurant chain said in its microblog.

Sales at KFC stores open at least 12 months fell 24 percent during the quarter while those at Pizza Hut dropped 2 percent, Yum said in the statement. China’s first quarter consists of January and February.

Comparable, or same-store, sales are an indicator of a company’s growth because they include only older restaurants.

Yum is scheduled to report March same-store sales for its China division on April 10 and first-quarter earnings results on April 23.

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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