KFC, Taco Bell, Pizza Hut parent hits 3% despite some declines
Yum! Brands Inc, which has faced problems with its KFC China brand in the past year over food safety concerns, saw fourth-quarter growth in China after three consecutive quarters of sales declines.
The company - parent of KFC, Pizza Hut and Taco Bell - reported 3 percent growth, though same-store sales declined 4 percent, in-line with company projections earlier in the quarter. The China restaurant margin increased 0.4 percent and operating profit grew 5 percent.
Overall, the company reported last Monday a 9 percent decline in earnings per share (EPS) to $2.97, which was "driven by significant underperformance of our KFC business in China," said Pat Grismer, chief financial officer, in an earnings call.
The earnings report showed that annually, China sales declined 4 percent. Same-store sales declined 13 percent, compared to the 1 percent growth for Yum! Brand stores internationally. There was a 26 percent drop in operating profit; worldwide profit declined 10 percent.
CEO David Novak reassured investors that "continued progress" is being made and that the company is confident it will "deliver double-digit EPS growth in 2014 and the years ahead."
Novak emphasized that Yum! Brands had made "significant process" rebuilding customer trust in KFC China and made "substantial gains" in restaurant productivity across all brands, which includes opening 740 new restaurants across China.
The company suffered from lower sales all year due to concerns over excessive antibiotic use in its poultry and matters were made worse by an outbreak in avian flu in China. Yum! Brands implemented media campaigns in the latter part of the year to reassure customers of the brand's commitment to food safety, and Novak reassured investors during the earnings call that "key brand attribute scores are nearly back to where they were in 2012," prior to the scare.
Though more cases of avian flu deaths have been reported since the start of 2014, Grismer said that the company hasn't yet seen a significant impact to KFC sales. "As you would expect, we're monitoring the situation closely but at this time overall sales results have generally been in line with the high expectations we had as we entered the year," he said.
"Stock fell off because of the bird flu, and then the stock bounced back because the management assured people the bird flu is not impacting their China business, which we know is not true," said Junheng Li, head researcher of JL Warren Capital. Li said the fallout from publicity of the flu scare was "more important than bird flu itself," so management is doing itself a "disfavor" by promising a very overly optimistic guidance, she said.
Li told Global FoodMate that she thinks the company is doing "all the right things" in order to curry favor back from Chinese consumers - promoting media campaigns and rolling out new flavors - but "they just don't know whether bird flu will get worse or better, they don't know whether people will like their new flavors versus the old flavors more."
