Yum! Brands Sales Hit by Avian Flu in China

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After the close, Yum! Brands, Inc. (NYSE:YUM) reported that China same store sales for April declined 29%, close to guidance for a 30% decline. KFC China same store sales in April were down 36% while Pizza Hut China same store sales were up 5%. Pizza Hut results have been positive the past two months after a 2% decline in 1Q comps.

Yum! Brands Sales Hit by Avian Flu in China

Yum! Brands hurt by Avian Flu

KFC results have been significantly impacted by unfavorable publicity around avian flu that began in early April. The company expects the avian flu sales impact to be short-lived and news about avian flu diagnoses and deaths has slowed. KFC is reminding consumers that it is safe to eat cooked chicken.

Triple whammy for Yum’s China sales

Worries about avian flu have prolonged and exacerbated Yum’s China sales problems. Yum! Brands, Inc. (NYSE:YUM) is facing a triple header of sales issues in China – company specific pricing/value decisions that surfaced in late 2012 when same store sales initially turned negative, worries that surfaced in late December about antibiotic use in chicken that led to a 20% decline 1Q China comps, and avian flu concerns that started in April driving same store sales even lower. It bottomed in 2H of November and improved starting December. Lingering effects lasted till March when the co mentioned sales were back to levels prior to Avian flu and red dye scare in 2Q06. The latter two issues are not company-specific issues but have impacted KFC China given the brand’s leading market share position and close identity with chicken.

Yum! Brands, Inc. (NYSE:YUM) continues to educate consumers that properly cooked chicken is safe to eat in response. The company mentioned historically, the sales impact of Avian flu publicity has initially been dramatic at KFC but relatively short-lived. Previously, they have said they have complete confidence in a full sales recovery. While Avian flu is not known to be a health issue with fully cooked chicken.

The company did not provide a guidance update.

Previously, Yum! Brands, Inc. (NYSE:YUM) mentioned they believe there will be a 6-9 month recovery in China SSS, and that it will turn positive in 4Q. Based on historical impacts, Avian flu lasted about 3 months which they also expect to be the case this time (they also don’t expect an impact to other Asian markets). They also previously mentioned the chicken supply scare impact subsided with a sales recovery seen Feb/March. The last update to guidance for China was for down MSD SSS for the yr, with mid teen CRM (mid teen labor inflation and LSD food inflation). The company will release May SSS after market close on 6/11.

 Further reading Super Bugs: Could They Cripple the Developing World?

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