Yum Brands warns China sales fell more than expected

Mon Jan 7, 2013 6:49pm EST
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By Lisa Baertlein

(Reuters) - KFC parent Yum Brands Inc (YUM.N: Quote) on Monday warned that sales in its top market of China shrank more than expected in the fourth quarter, citing bad publicity from a government review of that country's chicken supply.

Yum said in a regulatory filing on Monday that China sales fell 6 percent in the quarter, compared to its earlier forecast of a 4 percent decline. It said the media coverage associated with the government's review had a "significant impact" on KFC sales in China in the last two weeks of December.

Yum has more than 5,100 restaurants in China, which contribute more than half of its overall revenue and operating profits. In addition to the negative headlines around its chicken supply, KFC is also facing tougher competition and a pickier customer base in the country.

The company, which also owns the Taco Bell and Pizza Hut fast-food chains, repeated a full-year earnings forecast that was below Wall Street's expectations and its shares fell more than 5 percent in after-hours trading.

"It's not overly surprising," Morningstar analyst RJ Hottovy said of Yum's China sales warning, which followed a December 21 securities filing alerting investors that "recent publicity (over the government's review) has resulted in moderate sales impact the past few days."

At its analyst day in December, Yum forecast mid-single-digit percentage same-restaurant sales growth in China for 2013.

Chief Executive David Novak told investors at that meeting that he was "very confident" that the company would turn in "very solid" sales growth next year at established restaurants in China.

Hottovy said he's expecting Yum's China same-restaurant sales to be "modestly" down in the first half of this year before recovering in the second half.   Continued...