Yum Brands Profits Hurt By Declining Sales In China
Oct 9, 2013
Yum Brands, the owner of fast food chains KFC and Pizza Hut, has posted a 68% drop in quarterly profits after food scares in China hit sales. It made a net profit of $152m in the three months to 7 September, with sales in China, one of its biggest markets, falling 11% from a year ago.
Yum’s Chinese revenues took a hit after a food safety scare in December 2012. That was followed by a bird flu outbreak which further damaged the firm.
“China division third-quarter sales and profits were impacted by adverse publicity surrounding the December poultry supply incident and subsequent news of Avian flu,” the company said in a statement.
The business also warned it was unlikely that sales at its KFC stores in China would turn positive in the fourth quarter. Yum shares fell more than 7% in after-hours trading in the US.
Betting on China
Yum, which is based in the US, makes about three quarters of its revenue from its China operations. It is the largest foreign restaurant chain operator in China – the world’s second-biggest economy.
David Novak, chief executive of Yum, said that despite the recent challenges it had faced there, China continued to remain a key growth market for the company.
“As evidence of this, we expect to open at least 700 new units in China this year, as we capitalize on the world’s fastest growing consuming class,” he said.
The company opened 132 new stores in its third quarter in China, bringing the total number of new stores this year to 458. Yum said that it expected to see its profits to bounce back in 2014.