By Lisa Baertlein
Aug 12 KFC parent Yum Brands Inc on
Monday reported a steeper-than-expected 13 percent drop in July
sales at established restaurants in China after back-to-back
blows from a food safety scare and a bird flu outbreak in its
most important market.
The Chinese sales fall was something of a setback for
Louisville, Kentucky-based Yum, which in recent months had seen
same-restaurant sales declines ease.
Shares in Yum fell $2.86, or 3.8 percent, to $71.61 in
Analysts, on average, had expected a 7.1 percent decline in
China's July same-restaurant sales, according to Consensus
Yum generates more than half of its overall operating profit
in China, where it is the biggest Western restaurant operator
with roughly 6,000 mostly KFC restaurants.
Yum executives repeatedly have said that the company has
successfully dealt with crises in China before.
In a regulatory filing on Monday, they repeated their
forecast for same-restaurant sales in the world's
fastest-growing major economy to turn around in the fourth
Yum's China sales swoon started at the end of 2012, when the
discovery of excessive levels of antibiotics in chicken from two
of Yum's suppliers prompted government food safety agencies to
probe the company's supply chain.
Yum was not fined by food safety authorities, but it
suffered a widespread backlash in the mainstream media and on
social media sites.
The July same-restaurant sales result included a 16 percent
sales drop at established KFC restaurants, which the company on
Monday attributed to "residual effects" of negative publicity
surrounding that December poultry supply incident.
Investment Technology Group analyst Steve West said he
expects Yum's China recovery to be uneven and that some
investors and analysts got "a little ahead of the curve."
Worries about a new bird flu gripped China this spring,
battering chicken sales - including at KFC.
The World Health Organization on July 20 said it had been
informed of 134 laboratory-confirmed cases, including 43 deaths,
of the novel H7N9 bird flu virus in China. While the number of
reported cases has fallen sharply, WHO has cautioned against
calling the oubreak over because the flu virus does not
circulate as easily in warm weather.
There is concern that China's cooling growth could keep a
lid on demand for fried chicken and other fast food.
Once boasting double-digit growth, China is now expanding at
a more modest 7.5 percent rate and there are concerns that its
credit markets are overheated and its housing market is in
Yum is not the only company struggling with softness in
China. McDonald's Corp last week reported that its China
same-restaurant sales declined in July.