Yum! China profit falls 63 pct

Yum! Brands Inc, owner of the KFC and Pizza Hut restaurant chains, released its second-quarter earnings report early Thursday morning, showing that its operating profit in China has dropped 63 percent to $68 million from the same quarter last year.

The company's China division's second-quarter revenues, counted through June 15, have slid 7 percent from $1.56 billion in 2012 to $1.45 billion this year, and its year-to-date revenue was down 6 percent to reach $2.6 billion.

"KFC sales and profits in China were significantly impacted by intense media surrounding avian flu, as well as the residual effect of the December poultry supply incident," Yum! Brands Chairman and Chief Executive Officer David Novak was quoted as saying in the financial statement.

Analysts contacted by the Global Times on Thursday said the bird flu, which broke out this spring and claimed 43 lives on the Chinese mainland, will have only a short-term impact on Yum! Brands.

"The bird flu scare is almost gone and I expect KFC's sales to recover significantly in the third and fourth quarter," Ma Wenfeng, an analyst with Beijing Orient Agribusiness Consultant Co, told the Global Times Thursday.

Yum! Brands is confronting China's sluggish dining industry, a challenge that has grown from the slowing economy, and it faces stiff competition by more localized players such as Guangzhou Province-based Zhengongfu chains and Japanese Yoshinoya restaurants, said Yan Qiang, an industry analyst with Beijing-based Hejun Consulting.

Although the earning figures look dim compared with last year, Yum! Brands' revenues have increased 26 percent from $1.15 billion in the first quarter.

"The good news is that China sales are recovering as expected. The extensive media surrounding avian flu in China has subsided and same-store sales at KFC are clearly improving," Novak said.

Both Yan and Ma said they are optimistic about Yum! Brands' performance in the future.

"The company's chain restaurants have a good reputation and a large customer base, which will help it survive the slow economy and the competition," Yan said.

The company has opened 100 new units in China in the second quarter, and 326 this year to date.

"For the total China division, we remain on track to open at least 700 new units this year," Novak said. "This means we will have opened about 1,600 units over a two-year period. As KFC sales continue to recover, we expect to have solid momentum in China heading into 2014."

Yum! Brands should also provide new products targeting lower income groups, Ma said.

"KFC and Pizza Hut are still ­pricey for low-income households, so if Yum! Brands could explore that section of the market with a new, cheaper chain, it would make better profits in China," he said.

The company's US second-quarter operating profit has increased by 4 percent to hit $173 million, and it expects "record new-unit openings for Yum! Restaurants International and in India" in 2013.