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Yum China same-store sales rise slightly in November

Yum China same-store sales rise slightly in November

A KFC value promotion aided the result, which was the first same-store sales increase for the division since February 2013.

Yum! Brands Inc. reported a 1-percent increase in same-store sales in its struggling China division for the month of November, aided largely by an aggressive value promotion at KFC.

Securities analysts characterized the company’s underlying comparable-sales trends in the crucial China segment as sluggish heading into December and the new year, yet Yum nonetheless predicted a “bounce back” in its earnings growth guidance for fiscal 2014 ahead of its annual Investor Day event, which is scheduled for Dec. 4.

The Louisville, Ky.-based operator or franchisor of KFC, Pizza Hut and Taco Bell said its 1-percent gain in same-store sales in China — the first increase since February 2013, when a calendar shift for Chinese New Year obscured plummeting sales at KFC — included flat sales at KFC and a 7-percent increase at Pizza Hut Casual Dining.

The company noted that a “Half Priced Bucket” promotion at KFC that ran through Nov. 10 drove a 16-percent increase in same-store sales in China through the first 10 days of the month, before comparable sales decreased 8 percent for the rest of November.

In a statement, Yum chief executive David Novak said the company expects to recover in 2014 from a “year that is clearly below our high expectations,” which resulted chiefly from sales falling precipitously at KFC amid nationwide fears of avian flu and of a contaminated poultry supply.

“In China, we have an aggressive plan to reignite sales at KFC, and we expect continued strong performance at Pizza Hut Casual Dining,” Novak said. “In addition, our international new-unit development pipeline remains extremely robust. We expect to open at least 1,850 new restaurants outside the U.S., further strengthening our leadership position in emerging markets.”

He added that Yum also expects development momentum in the United States, mostly from Taco Bell and that chain’s impending nationwide rollout of breakfast. He also touted the company’s recent decision to combine the United States and former Yum Restaurants International segments to form global reporting divisions for each of its three individual brands, excluding separate companies for China and India.

For 2014, Yum expects to grow earnings per share of at least 20 percent, excluding special items, and the company is forecasting the China division to increase its operating profit at least 40 percent from its historically low result in 2013. Yum projects that it will open 1,850 new restaurants worldwide next year, including 700 new locations in China, 150 in India, and at least 600 new KFCs and 400 new Pizza Huts worldwide.

A mixed outlook

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Securities analysts wrote in research notes that Yum’s forecast of 20-percent growth in earnings per share implies that the company needs same-store sales growth in China in the mid-single digits in 2014.

Several of them expressed skepticism that Yum could reach that level of recovery in China, based on lackluster sales trends in that country last month and this month — which have relatively easy year-earlier comparisons due to the start of Yum’s year of controversy in China.

“We believe the November volatility will raise investor concerns about the timing of a return to historical levels of comparable sales, store margins and operating income growth in China,” Bryan Elliott of Raymond James & Associates wrote.

Andy Barish of Jefferies Equity Research noted that Pizza Hut Casual Dining likely would benefit from the launch of breakfast in 2014, but the much larger KFC system in China likely would have fewer levers to pull to reignite traffic and sales.

“KFC consumers appear more value-conscious than ever, and our time spent in China revealed lingering discomfort around quality,” Barish wrote. “We worry about competition and the efficacy of recent menu innovation [around] beef and wings and do not anticipate any blockbuster product news in the near term.”

He also acknowledged that Yum was trying to be proactive in its marketing with a campaign called “I Commit,” which launched at the end of November, but questioned its effectiveness.

“Without a pressing call to action — the ads make an emotional and brand-building appeal — we think the comp decline could carry through mid-December,” Barish wrote.

Yum operates or franchises more than 40,000 restaurants in more than 130 countries, including nearly 4,500 KFC units and nearly 1,000 Pizza Hut Casual Dining locations in China.

Contact Mark Brandau at [email protected].
Follow him on Twitter: @Mark_from_NRN

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