UPDATE 1-Yum estimates China same-store sales fell 13 pct due to food safety scare

Wed Sep 3, 2014 6:26pm EDT

(Adds details, background; updates shares)

Sept 3 (Reuters) - Yum Brands Inc estimated same-store sales in China fell about 13 percent in the third quarter and continue to decline, hurt by a food safety scare in late July when a former supplier was said to have used expired meat.

The company's shares fell nearly 4 percent in trading after the bell on Wednesday.

"Since July 21st, Yum Brands' China division has experienced a significant, negative impact to sales at both KFC and Pizza Hut following adverse publicity regarding improper food handling practices by former supplier, Shanghai Husi," Yum said in a regulatory filing.

"While sales are beginning to rebound, they continue to be negative."

Yum, which gets more than half of its overall sales from China, said it would provide an updated full-year earnings forecast when it reported results for the third quarter ended Aug. 31.

A few days after food scare Yum had warned that a sustained impact on sales would "have a material effect on full-year earnings per share".

Yum's sales at established restaurants in China increased 15 percent in the second quarter and the country accounted for about 61 percent of its total sales in the period.

The food safety scare in China was triggered by a TV report on July 20 that showed staff at the Shanghai Husi Food facility using meat that had expired and had been lying on the floor.

Yum, which has nearly 6,400 restaurants in China, has since cut its global ties with U.S. meat supplier OSI Group LLC , the parent of Shanghai Husi.

Yum plans to "vigorously" pursue legal action against OSI and Husi to recover damages from the incident, the company said on Wednesday.

Yum, McDonald's Corp and coffee chain Starbucks Corp are among the global brands that had pulled products from their outlets in the country.

Yum's shares were at $68.73 in extended trading after closing at $71.48 on Wednesday. Up to the close, the stock has fallen 7.7 percent since the TV report. (Reporting by Shailaja Sharma in Bangalore; Editing by Savio D'Souza)

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