Yum Falls After China Sales Slide as Diners Shun Chicken

Yum! Brands Inc., owner of the KFC and Pizza Hut chains, fell after posting July same-store sales in China that declined 13 percent, more than in June, as diners remained reluctant to eat chicken amid an outbreak of avian flu.

The shares slid 2 percent to $72.97 at the close in New York, the most since June 20. Yum has advanced 9.9 percent this year, while the Standard & Poor’s 500 Restaurants Index has gained 17 percent.

Analysts estimated sales last month fell 7.1 percent, the average of four projections compiled by Consensus Metrix. Sales at stores open at least 12 months fell 16 percent at KFC and rose 3 percent at Pizza Hut in the Asian nation, the Louisville, Kentucky-based company said yesterday in a filing.

Yum gets about 50 percent of its revenue from China, where it has about 5,980 KFC and Pizza Hut stores, and is facing consumer backlash amid a slowing economy there. The company is struggling to attract diners after an outbreak of H7N9 bird flu scared KFC diners away from poultry and one of its former suppliers was investigated for selling food with too much antibiotics. China same-store sales decreased 10 percent in June and 19 percent in May.

“Trends worsened in July,” Andy Barish, a San Francisco-based analyst at Jefferies & Co. with a hold rating on the shares, said in a research note yesterday. “We worry that the miss confirms a tougher competitive environment and more cautious consumer spending.”

Chinese Economy

China’s economy expanded 7.5 percent in the second quarter from a year earlier, the second straight deceleration, according to the National Bureau of Statistics of China. The nation’s consumer prices during July rose less than the government’s 2013 target of 3.5 percent for the seventh straight month.

Sales at KFC were hurt by “residual effects of adverse publicity surrounding the December poultry supply incident,” Yum said in the filing. The company projects China comparable-store sales will be positive in the fourth quarter.

The company said earlier this year that it’s improving safety and tightening standards for suppliers in China to help win back consumers after a probe into a former poultry provider hurt sales. It has also been airing television commercials there about the quality of its food and the safety of its supply chain and is advertising chicken alternatives, such as shrimp and mushroom rolls.

Avian Flu

KFC “is continuing to recover from both avian flu and the poultry supply incident,” Chief Executive Officer David Novak said during a conference call on July 11.

The bird flu virus, which emerged in March, has sickened 131 people in China and killed 39, the official Xinhua news agency reported on June 9.

Yum also may be facing more competition from local, lower-priced eateries in China such as Dicos and Hua Lai Shi, which both are expanding. Last month, the KFC owner said same-store sales in China declined 20 percent in the second quarter.

Same-store sales are considered an indicator of growth because they include only older, established locations.

Yum has more than 39,000 restaurants worldwide and also owns Taco Bell.

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