Yum! Brands Inc. reported an 18 percent gain in first-quarter profits as sales in China improved.
Yum reported profits of $399 million, or 87 cents per share, compared to $337 million, or 72 cents per share, a year ago. Same-store sales in China grew 9 percent, including growth of 11 percent at KFC and 8 percent at Pizza Hut.
“Yum! Brands is clearly on its way to a strong bounce-back year delivering first-quarter EPS growth of 24,” said David C. Novak, chairman and CEO. “Operating profit grew 80 percent in China, prior to foreign currency translation, driven by strong sales and margin growth. Looking ahead, we have significant building blocks in place in China and each of our divisions to drive sales and profit growth this year and beyond.
“China Division system sales increased 17 percent and restaurant margins were 23.4 percent. Importantly, KFC results continued to improve with an 11 percent same-store sales increase in the quarter,” Novak continued. “We are building off this sales momentum and are encouraged by our recent Menu Revamp, which features the simultaneous launch of 15 exciting products. At Pizza Hut Casual Dining, we had strong performance across every measure. Given the strength at both KFC and Pizza Hut, we expect to open at least 700 new restaurants in China this year as we further capitalize on our leading position in the number-one retail opportunity in the world.”
Yum has been challenged in China by poultry supply chain problems and fears over avian influenza. But the company pushed ahead with a new menu and marketing strategy aimed at refreshing the brand in China.
Business outside of China is growing. Novak said Russia and Africa delivered solid sales and profits as well as developed markets such as KFC in the UK and Australia. However, US results were disappointing.
While same-store sales rebounded in China, all three brands reported same-store sales declines in the US – 3 percent at KFC, 5 percent at Pizza Hut and 1 percent at Taco Bell. Novak attributed the performance to severe weather.
“We have confidence in our plans to drive balance of year improvement and are particularly pleased with the initial results of our recent Taco Bell breakfast launch,” he said.
“In summary, Yum! Brands is off to a strong start this year. We expect to achieve EPS growth of at least 20 percent in 2014 and look forward to re-establishing our track record of consistently delivering double-digit EPS growth in the years ahead.”
