(Adds details on Yum's India business, context on India market)
By Lisa Baertlein and Nandita Bose
July 17 Yum Brands Inc on Wednesday said
its KFC business bounced back in China, its No. 1 market, but
its stock fell more than 2 percent in extended-hours trading on
disappointing quarterly results from its India, Taco Bell and
Pizza Hut divisions.
Yum's sales at established restaurants in China increased 15
percent in the second quarter, including a 21 percent jump at
KFC and flat results at Pizza Hut Casual Dining.
Analysts polled by Consensus Metrix had forecast that Yum's
China sales would climb 11.4 percent.
An avian flu outbreak and a food-safety scare last year
battered Yum's restaurant results in China, which contributes
more than half of the company's overall sales. Yum's China
division same-restaurant sales tumbled 20 percent in the second
quarter last year.
Yum recently revamped its KFC China product lineup to
attract more diners.
Yum's China Division, which had 6,387 mostly KFC restaurants
at the end of the second quarter, contributed 35 percent of the
company's total operating profit last year.
The India division's same-restaurant sales fell 2 percent,
versus the 1.6 percent gain that analysts expected.
Yum is not alone. Jubilant Foodworks Ltd, which
operates Domino's Pizza Inc restaurants in India, saw
same-store sales growth slow sharply to 1.6 percent in the
fiscal year that ended March 31 from 16.2 percent a year ago.
Jubilant blamed the slowdown on the "overall strenuous
macro-economic situation" and a drop in discretionary spending.
The company has yet to report its June-quarter earnings, but
analysts say growth in the fast food sector as a whole is
unlikely to pick up before at least another nine months as
India's newly elected government tries to kick start an economy
that is battling the longest spell of below 5 percent growth in
quarter of a century.
"Consumer sentiment has not shown any signs of improvement,"
said Saloni Nangia, president at retail consultancy Technopak.
"The expectations were that post-elections it will improve
but that hasn't happened," she added. Prime Minister Narendra
Modi won May elections with a pledge to revive Asia's
Fast food in India is largely a middle-class luxury. Both
Yum and Jubliant are rapidly expanding their store network,
anticipating an increase in the number of more affluent Indians
in the next few years. The fast food restaurant market is set to
triple in 2018 from $1 billion last year, Technopak said.
Yum has been in India for more than a decade. It had 714
total units in the country at the end of the second quarter,
including KFC, Pizza Hut and Taco Bell restaurants.
India is a competitive environment and Yum is "investing
aggressively" in that market, spokesman Jonathan Blum told
Same-restaurant sales were up 2 percent for Taco Bell and
down 3 percent for Pizza Hut. Analysts polled by Consensus
Metrix expected a 3.6 percent gain for Taco Bell and a 0.1
percent rise for Pizza Hut.
Chief Executive Officer David Novak said the company was
pleased with initial results from Taco Bell's breakfast launch
in the United States, adding that it was working to improve
results at Pizza Hut.
"We are taking significant actions in our U.S. (Pizza Hut)
business to reignite sales and expect to make substantial
progress" for the rest of the year, Novak said in a statement.
Louisville, Kentucky-based Yum also reported net income of
$334 million, or 73 cents per share, for the second quarter that
ended June 14, compared with $281 million, or 61 cents per
share, a year earlier.
The company, which will hold a conference call with
financial analysts on Thursday morning, said it is on its way to
hitting its forecast of full-year earnings-per-share growth of
at least 20 percent.
Yum's stock fell 2.3 percent to $80.81 in after-hours
trading on Wednesday, but it remains near its 52-week high.
(Reporting by Lisa Baertlein in Los Angeles and Nandita Bose in
MUMBAI; Editing by Jan Paschal and Miral Fahmy)