What is in this article?:
- Yum China‚Äôs August same-store sales below expectations
- A shaky recovery
The August result included a 12-percent same-store sales decrease for the KFC brand.
Another slight step backward in same-store sales for Yum! Brands Inc.’s China division has several securities analysts casting new doubts that the company can hit the recovery to positive comparable sales in China that it has repeatedly projected for the fourth quarter.
In a filing with the Securities and Exchange Commission Friday, Louisville, Ky.-based Yum disclosed that same-store sales in its Chinese division of nearly 6,000 restaurants decreased 10 percent for the month of August, an improvement from the division’s 13-percent decline for July but slightly worse than analysts’ expectations.
The August result included a 12-percent decrease for its KFC brand, offset by a 5-percent increase for Pizza Hut Casual Dining. In the prior month, same-store sales had fallen 16 percent at KFC and had grown 3 percent at Pizza Hut.
Yum also disclosed that for the third quarter, its China division recorded a same-store sales decline of 11 percent, comprising a 14-percent decrease at KFC and a 4-percent gain at Pizza Hut Casual Dining. Same-store sales fell 20 percent in both the first and second quarters of 2013 in China, Yum previously reported.
David Tarantino of Robert W. Baird & Co. wrote in a research note that Yum faces a relatively easy comparison with last year’s fourth quarter, when the start of a poultry supply controversy caused the China division’s same-store sales to decrease 6 percent. However, factors outside Yum’s control, like greater pressure on Chinese consumers, could throw Yum’s recovery timetable in doubt as much as lingering effects of the supply issue, he added.
“While Yum continues to expect China comps to be positive in the fourth quarter amid easier comparisons and planned initiatives,” he wrote, “we think visibility to the near-term outlook remains somewhat low following the choppy demand pattern and mixed macroeconomic indicators seen in recent months.”
In a separate note, Bryan Elliott of Raymond James & Associates wrote that it might prove too difficult to achieve the sequential same-store sales improvement investors expect in order to hit Yum’s projected increase for the fourth quarter. The consensus view, he noted, was that Yum’s China division would achieve flat same-store sales by October and increases in the mid-single digits and mid-teens by November and December, respectively.
“Investors have been willing to give the company ‘a pass’ on soft monthly comps and share management’s confidence that China comps will turn positive in the fourth quarter and recover strongly in 2014,” Elliott wrote. “Said ‘pass’ is approaching its expiration date as the company laps progressively easier year-over-year comparisons through the fourth quarter. We continue to believe the consensus bull case for a full recovery in 2014, with strong double-digit comps in the first half, could prove optimistic.”