November 30, 2012 / 12:45 AM / in 5 years

UPDATE 3-Yum warns of China Q4 sales drop as macro-economy bites

By Lisa Baertlein

Nov 29 (Reuters) - Yum Brands Inc said on Thursday that it expects a decline in fourth-quarter sales at established restaurants in China, where a cooling economy is making it difficult to exceed the 21 percent gain it had there a year earlier.

Yum, which saw more than half its total revenue and operating profit for the third quarter of 2012 come from China, said fourth-quarter same-restaurant sales there are expected to fall 4 percent.

China’s slowdown was also affecting Yum’s rivals including McDonald’s Corp, Ajisen (China) Holdings, and Hop Hing Group Holdings Ltd, said Phoebe Tse, a Hong Kong-based analyst with Barclays.

Ajisen is a Japanese-style noodle chain, while Hop Hing’s fast food unit has the franchise licenses for the Yoshinoya beef bowl and Dairy Queen icecream chains in northern China.

“Poor macro sentiment is having an impact and the base comparison is not low, and therefore we have been seeing slowing SSS (same-store-sales) growth trends throughout the year,” Tse said.

“The slowing growth this year has been quite apparent in some first-tier cities,” she added, referring to major cities such as Shanghai, Beijing and Guangzhou.

Yum, the parent of the KFC, Taco Bell and Pizza Hut chains is expecting same-restaurant sales to rise 4 percent at Yum Restaurants International and 3 percent in the United States.

Same-restaurant sales are a main gauge of performance for restaurant companies.

Yum shares fell 7 percent to $69.25 in extended trading. Stock in Yum is widely viewed as a way for U.S. investors to bet on what is still the world’s fastest-growing major economy.

The last time Yum reported a decline in same-restaurant sales for China appears to have been in the fourth quarter of 2009, when those sales fell 3 percent in mainland China, according to Yum’s financial reports.

Representatives for Yum did not immediately respond to requests for comment.

“For the fourth quarter, stronger-than-expected operating performance from Yum Restaurants International and our U.S. division is offsetting softer sales in China,” Yum Chairman and Chief Executive David Novak said in a statement.

Yum, which is based in Louisville, Kentucky, is the biggest Western restaurant operator in China, with more than 4,000 KFC shops and almost 740 Pizza Hut restaurants.

“Next year will be another strong year for our China division,” Novak said. “We are extremely confident Yum China remains the best growth story in the restaurant industry.”

There were signs of weakening during the third quarter of this year, when Yum’s same-restaurant sales were up 6 percent in China and a sales boost from menu price increases more than offset the impact of a 1 percent decline in customer visits.

On Thursday, Yum forecast 2013 earnings per share growth of at least 10 percent. It also repeated its call for 2012 earnings per share growth of at least 13 percent, or $3.24 per share, excluding special items.

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