Yum Store Sales Drop in China on Increased Competition

Yum! Brands Inc., (YUM) owner of the KFC and Pizza Hut chains, posted August same-store sales in China that trailed analysts’ estimates as rival restaurants lured diners and a poultry quality issue kept customers away.

Sales at stores open at least 12 months fell 10 percent last month in China, an improvement from a 13 percent drop in July, the Louisville, Kentucky-based company said in a filing with the U.S. Securities and Exchange Commission. Analysts estimated a 7.7 percent drop, according to the average of eight projections from Consensus Metrix.

Yum, which gets about three-quarters of its revenue from outside the U.S., is seeing more competition from expanding local restaurants including Dicos and Hua Lai Shi in China. The company’s KFC stores also have faced a customer backlash in China after a former chicken supplier was investigated for selling food with too much antibiotics and an outbreak of avian flu scared diners away.

“It has gotten more competitive there, especially in some of the more popular first and second-tier cities,” Jack P. Russo, a St. Louis-based analyst at Edward Jones & Co. who advises holding the shares, said in an interview.

Also, there is still some negative “overhang” from the poultry supply issue, he said.

Yum has fallen 3.2 percent since the end of March, around the peak of the avian flu, compared with a 4.4 percent increase for the Standard & Poor’s 500 Restaurants Index.

Same-store sales fell 10 percent in June in the Asian nation, where the company has been advertising the quality of its chicken to attract customers.

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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