Back to top

Analyst Blog

Louisville, Kentucky-based famous restaurateur Yum! Brands Inc. (YUM - Analyst Report) yet again witnessed a decline in its China Division’s comparable sales (comps) for the month of October 2013. China’s comps have dropped 5% in October as a result of a 7% fall in the same at KFC brand. However, the rate of decline moderated from the 11% shortfall reported in September.

On the other hand, Yum!’s Pizza Hut Casual Dining registered 10% growth in China in October, better than the September comps growth of 6%.

In Dec 2012, Yum! Brands faced an allegation regarding the quality of chicken supplied to its KFC units in China. Although food safety regulators in Shanghai cleared Yum! Brands, the incident shattered consumer confidence about the quality of food offered by this U.S. restaurateur leading to a steep fall in its sales results in China. The outbreak of avian flu in China in April further added to the company’s woes and marred China Division sales performance.

China, which once played a pivotal role in Yum! Brands’ growth story over the past few years, began to witness lackluster sales performance since fourth-quarter 2012 due to the above setbacks.

The company posted an 11% decline in third-quarter comps, reported on Oct 8, 2013, for its China Division which was much lower than a 6% rise in comps in the year-ago quarter. Quarterly fall in comps was caused by a 14% drop in the same at KFC owing to the continued unfavorable impact of the poultry supply issue, partially offset by a 5% rise in comps at Pizza Hut Casual Dining.

Poor sales performance at KFC China in September compelled YUM! Brands to state that the China comps will continue to be down in the fourth quarter. However, management expects its business to improve from 2014 onwards driven by its new sales-driven initiatives.

Our Take

Even though the Zacks Rank #4 (Sell) company has undertaken quality assurance measures, marketing campaigns and various promotional offers, it will take some time to completely recover. Further, all these initiatives will likely result in incremental expenses that will weigh on the bottom line. A lower earnings outlook for 2013 remains an overhang.

Another restaurateur McDonald's Corp. (MCD - Analyst Report) recently reported soft comps for the month of October. Global comps were up 0.5% in October versus negative comps of 1.8% in the comparable year-ago period.

Some other players in the restaurant industry which look attractive at present include Cracker Barrel Old Country Store, Inc. (CBRL - Snapshot Report) and Bob Evans Farms, Inc. (BOBE - Snapshot Report). Both the companies hold a Zacks Rank #2 (Buy).

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
ERBA DIAGNO… ERB 3.00 +3.09%
SANCHEZ ENE… SN 34.18 +2.67%
THE PANTRY… PTRY 21.02 +2.09%
INTEL CP INTC 35.15 +1.88%
PIPER JAFFR… PJC 54.54 +1.70%