Yum Profit Falls 68% as Same-Store Sales Slump in China

Yum! Brands Inc., whose KFC fast-food chain is facing more competition in China, said third-quarter profit fell 68 percent and cut its 2013 earnings forecast as same-store sales dropped in the Asian nation.

Net income decreased to $152 million, or 33 cents a share, from $471 million, or $1, a year earlier, the Louisville, Kentucky-based company said yesterday in a statement. Excluding certain items, profit was 85 cents a share. Analysts projected 92 cents, the average of 23 estimates compiled by Bloomberg. A tax rate increase negatively affected per-share earnings by 10 percentage points, Yum said.

Yum, which gets about three-quarters of its revenue from outside the U.S., is facing more competition from expanding restaurant chains, such as Dicos and Hua Lai Shi in China. It’s also facing a backlash from consumers there after an outbreak of avian flu scared diners away from poultry and a former chicken supplier was investigated for selling food with too much antibiotics. Sales at Chinese stores open at least 12 months fell 11 percent at Yum eateries.

“It’s just taking a little longer than we expected” for China to recover, Jonathan Blum, a Yum spokesman, said in an interview. While consumer trust in KFC has improved in the Asian country, “it’s not exactly back to where it was,” he said.

The company in November will introduce a new KFC advertising campaign in China about quality assurance, Chief Executive Officer David Novak said on a conference call today. The ads will feature store employees and suppliers such as poultry farmers, he said.

Shares Fall

The shares fell 6.7 percent to $66.48 at the close in New York for the biggest decline since Nov. 30. They have gained 0.1 percent this year, compared with a 16 percent increase for the Standard & Poor’s 500 Index.

Yum lowered its forecast for 2013 earnings, citing “lower-than-expected China sales and a higher-than-expected full-year tax rate.” Full-year earnings excluding certain items will decline at a “high-single to low-double-digit” percentage rate from the prior year, the company said. Yum previously said earnings would decline at a “mid-single-digit” rate.

The fast-food company also cut its forecast for China, saying fourth-quarter same-store sales there will “unlikely” be positive. Yum last month forecast growth in comparable-store sales for the Asian nation.

“Sales have not yet fully recovered from the adverse publicity surrounding the December poultry supply incident,” the company said in yesterday’s statement.

Ad Campaign

Yum, which has more than 6,000 KFC, Pizza Hut and other stores in China, has been trying to attract customers there with an ad campaign telling people it’s safe to eat properly cooked chicken. The company, which is targeting young families with the advertisements, also is promoting other proteins in China such as shrimp and mushroom rolls.

Same-store sales were unchanged in the U.S. in the third quarter, while analysts estimated a 1.5 percent increase, according to Consensus Metrix, a researcher owned by Wayne, New Jersey-based Kaul Advisory Group. Same-store sales also were unchanged in India and advanced 1 percent at other international stores.

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