KFC parent Yum warns of delay in China sales recovery

Tue Oct 8, 2013 7:27pm EDT
 
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By Lisa Baertlein

(Reuters) - KFC parent Yum Brands Inc (YUM.N: Quote) on Tuesday warned that it will take longer than expected for its China restaurant sales to rebound, delaying a recovery in the market that accounts for more than half of the company's overall operating profit.

Shares fell 7.5 percent as investors digested the news, which came after months of Yum executives reassuring investors that China restaurant sales would return to growth in the fourth quarter.

Yum's sales at established restaurants in China have taken a beating since last December when a social-media fueled food safety scare over chemical residues in chicken from some of its suppliers pummeled sales. That was followed by a bird flu outbreak that destroyed many diners' appetite for poultry.

The Louisville, Kentucky-based company operates more restaurants in China than any other U.S. brand and said it remains confident in its business in the world's fastest-growing major economy.

"KFC is unquestionably the category leader in China and we remain confident sales will fully recover," Chief Executive David Novak said in a statement.

MIDDLE CLASS AUSTERITY?

Yum attributed its China woes to the December scare, but some analysts suggest that its problems are of a different nature. They say China's middle-income diners - who flock to KFC - have cut their spending due to government austerity measures.

KFC also faces stronger competition from local eateries and the company may have opened too many fried chicken restaurants in China, those analysts said.   Continued...