Yum’s Sales Miss Projections After Slump Persists in China

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A KFC restaurant, operated by Yum! Brands Inc., in the pedestrianized Dongmen area of Shenzhen, China, on Aug. 4, 2014.

A KFC restaurant, operated by Yum! Brands Inc., in the pedestrianized Dongmen area of Shenzhen, China, on Aug. 4, 2014.

Photographer: Brent Lewin/Bloomberg

Yum! Brands Inc., the fast-food company that owns KFC, Pizza Hut and Taco Bell, posted second-quarter sales that missed analysts’ estimates after its beleaguered China segment remained mired in a slump.

Revenue fell 3.1 percent to $3.11 billion in the period, the Louisville, Kentucky-based company said in a statement on Tuesday. Analysts estimated $3.19 billion on average for the quarter, which ended June 13.

Yum, which gets more than half of its revenue from China, is still reeling from a food-safety scare in the country and an avian-flu outbreak. It’s also seeing more competition from local restaurant brands. Same-store sales fell 10 percent in China, compared with a 12 percent decline in the previous quarter. Analysts projected an 8.4 percent drop, according to Consensus Metrix.

“Recovery is a slow process,” said Sara Senatore, an analyst at Sanford C. Bernstein & Co. in New York.

The shares fell 3.4 percent to $88.88 at the close in New York. Before the drop, Yum had gained 26 percent this year, a sign investors saw the company getting back on track.

Yum reiterated a forecast for fiscal 2015 earnings to increase by at least 10 percent.

Supplier Scandal

Yum has been trying to convince Chinese consumers that its food is safe to eat after a scandal involving a supplier accused of using outdated meat. The company also has attempted to attract customers with new foods. Pizza Hut recently introduced fajitas, as well as breakfast fare such as oatmeal, omelets and French toast. KFC, meanwhile, aims to appeal to health-conscious diners with herbal tea and seafood.

It will take time for KFC to recover from the disruptions in China, Senatore said.

“The supply-chain scandal was less than a year ago,” she said.

In the U.S., Taco Bell has been driving sales with its breakfast foods, a bacon-club chalupa and $1 drink specials. And the chain started offering delivery this month in California and Dallas. Taco Bell same-store sales rose 6 percent in the quarter, marking a bright spot for the company.

Pizza Hut and KFC also are trying to reignite domestic sales growth with new foods and advertising. Earlier this year, KFC brought back back Colonel Sanders to help revamp its image. Comparable-store sales were little changed at Pizza Hut, and they climbed 3 percent at KFC.

Same-store sales declined 11 percent in Yum’s India division. The company has more than 41,000 restaurants globally, including about 6,500 KFC and Pizza Hut locations in China.

“We have the two strongest brands in China,” Chief Executive Officer Greg Creed said on a conference call. “But frankly, the recovery is taking longer than we would like.”

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