* China price rises will offset food, labor inflation
* Price rises also planned for U.S., overseas markets
* Taco Bell saw no impact from U.S. salmonella outbreak
* Shares up nearly 2.5 percent
By Lisa Baertlein
Feb 7 KFC parent Yum Brands Inc
plans to raise prices in China in 2012 to help offset higher
food and labor costs and boost profitability in its most
important market, Chief Financial Officer Rick Carucci said on
The move would come on top of price increases in China in
2011. Those increases helped the company post an unexpectedly
strong 21 percent gain in same-restaurant sales in the fourth
Investors cheered the sales figure because it quelled fears
that slowing growth in China would hurt results in the market
that accounts for the lion's share of Yum's sales and profit.
Yum shares, which are trading near all-time highs, were up
nearly 2.5 percent at $64.75 in midday trading on the New York
Carucci expects same-restaurant sales to moderate from the
19 percent gain booked in 2011, in large part because the hurdle
for year-over-year gains will be higher.
As expected, cost pressures dragged fourth-quarter China
restaurant margins down to 15.8 percent from 18.2 percent a year
Yum wants to bring margins up to around 20 percent for all
of 2012 and plans to use higher prices to offset inflation in
food prices, labor costs and other items.
"We expect to make progress closing the gap between
inflation and our menu pricing, and to see positive
year-over-year restaurant margins in the second half of 2012,"
Yum also plans to bolster growth by adding another 600
restaurants in China, where its brands include KFC, Pizza Hut,
East Dawning and Little Sheep. The additions would bring Yum's
restaurant count to about 5,100.
The company's 2012 international expansion plans also call
for 800 new restaurants in its Yum Restaurants International
(YRI) division, which includes Europe and Africa, and another
100 in India.
Modest price increases also will be on the menu in the
United States and other international markets early next year,
While Yum's operations in China and other developing
countries have made it a top pick for international investors,
the company's U.S. division has underperformed.
The domestic division made some progress in the
fourth-quarter, when Yum's overall sales at U.S. restaurants
open at least one year rose 1 percent. Unexpectedly strong
results at Pizza Hut offset declines at Taco Bell and KFC.
Sales trends at Taco Bell, the leading U.S. Mexican
fast-food chain, turned positive late in the fourth quarter and
have continued upward, Yum Chief Executive David Novak told
A salmonella outbreak in late 2011 - Taco Bell's second in
two years - had no impact on sales or transactions, Novak said.
Taco Bell's link to the latest outbreak, which started in
October, was revealed just last week and many consumers were
unaware of the chain's link to the outbreak.
The 50-year-old Taco Bell chain has been working to revive
sales, which went stale in 2011 after a lawsuit challenged the
quality of its ground beef. That lawsuit was thrown out by the
court, but the damage to the company's reputation was done.
Novak said Taco Bell results should get a 2012 bump from the
phased roll-out of breakfast and the national debut of Doritos
Locos Tacos in March.
"We are very bullish that we are going to be able to have an
outstanding year, or at least a solid year this year. You pick
your adjective, but it is going to be a lot better than last
year," Novak said, referring to Taco Bell.