The clouds over
Yum! Brands Inc.
) owing to its chicken supply issues in KFC China seem to be
dispersing as the Kentucky-based company recently reported a
surprising 2% rise in February same-store sales (comps) in China.
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KFC registered flat February comps while Pizza Hut Casual Dining
registered 13% growth in comps. The shift in the timing of the
week-long Chinese New Year celebrations from January to February
this year helped drive sales in the month. The shift had a
positive mid-teen impact on February comps growth for both KFC
and Pizza Hut Casual Dining, overshadowing an equivalent loss to
Notably, in Dec 2012, Yum! Brands faced an allegation regarding
the quality of chicken supplied to its KFC unit in China.
Although food safety regulators in Shanghai cleared Yum!, the
incident shattered consumer confidence about the quality of food
offered by this U.S. restaurateur leading to a steep fall in the
company's sales during the last two weeks of December. Management
rolled out a new brand quality campaign and aggressive marketing
initiatives to counter the bad publicity.
Comps in China plunged 20% in the first two months of 2013 with
KFC same-store sales falling 24% and Pizza Hut Casual Dining
sales dipping 2%. This was however better than management's
expectation of a 25% decline.
In concurrence with its fourth-quarter earnings, Yum! Brands said
that its KFC division is not expected to record positive same
store sales before the fourth quarter of 2013. Further, to add to
the woes, a tough year-over-year comparison and a sluggish retail
environment in China due to overall economic slowdown are likely
to affect growth momentum.
Yum! Brands currently carries a Zacks Rank #5 (Strong Sell). Some
restaurateurs that are worth a look at the current level include
Chuy's Holdings Inc.
Cracker Barrel Old Country Store Inc.
Burger King Worldwide Inc.
), all with a Zacks Rank #2 (Buy).