YUM! Brand's China Sales Tumble Again - Analyst Blog
April 11 2013 - 1:30PM
Zacks
It seems that the Chinese division of Yum! Brands
Inc. (YUM), which is also the largest contributor to its
revenue stream, is going through a bad phase. In a recent SEC
filing, Yum! Brands stated that its China division’s same-store
sales (comparable sales) have suffered a 13% decline in March with
a 16% fall in same-store sales for KFC. Increasing fear from the
recent outbreak of H7N9 Avian flu affected KFC’s performance in
China.
Moreover, same-store sales for Pizza Hut Casual Dining
registered a 4% growth in March, but the sales were well below the
February comparable sales (comps) growth of 13%.
Yum! Brands has declared that it has and always will take the
necessary precautions to ensure the safety of its products.
Previously in Dec 2012, Yum! Brands faced an allegation
regarding the quality of chicken supplied to its KFC unit in China.
Although food safety regulators in Shanghai cleared Yum! Brands,
the incident shattered consumer confidence about the quality of
food offered by this U.S. restaurateur leading to a steep fall in
the company’s sales during the last two weeks of Dec, 2012.
Management rolled out a new brand quality campaign and aggressive
marketing initiatives to counter the bad publicity.
Comps in the China division plunged 20% in the first quarter of
2013 (first quarter results of Yum!’s China division always include
the financial performances of just two months, January and
February) with KFC same-store sales falling 24% and Pizza Hut
Casual Dining sales dipping 2%. This was however better than
management’s expectation of a 25% decline.
However, China witnessed a surprising 2% rise in comps in
February despite the fact that KFC registered flat comps. The shift
in the timing of the week-long Chinese New Year celebrations from
January to February this year helped drive sales in the month.
In concurrence with its fourth-quarter earnings, Yum! Brands
earlier said that its KFC division is not expected to record
positive same-store sales before the fourth quarter of 2013 due to
tough year-over-year comparisons and a sluggish retail environment
in China, which in turn may be detrimental to the company’s overall
business going forward.
Although Yum! Brands is trying to recover its position in China,
the recent bird flu concern in the region may further hurt KFC’s
demand in the coming quarters and affect Yum!’s growth
momentum.
Following the news of bird flu in China, McDonald's
Corp. (MCD) has reduced the price of its chicken nuggets
in order to prevent any slowdown in its demand.
Yum! Brands currently carries a Zacks Rank #2 (Buy). Some
restaurateurs that are worth a look at this point include
Red Robin Gourmet Burgers Inc. (RRGB) and
Cracker Barrel Old Country Store Inc. (CBRL), both
carrying a Zacks Rank #1 (Strong Buy).
CRACKER BARREL (CBRL): Free Stock Analysis Report
MCDONALDS CORP (MCD): Free Stock Analysis Report
RED ROBIN GOURM (RRGB): Free Stock Analysis Report
YUM! BRANDS INC (YUM): Free Stock Analysis Report
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