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How Is Yum Brands Doing? Look at China

Big Data Download

Sales results in China could make or break Yum Brands' health as the owner of restaurant chains including KFC, Taco Bell and Pizza Hut prepares to report earnings after the market close on Wednesday.

"Yum trades squarely on what's going on in China," Morningstar Senior Restaurant Analyst R.J. Hottovy told "Big Data Download."

In particular, investors will be looking at revenue from KFC restaurants in China, a market that accounts for about 44 percent of Yum's overall operating profit, Hottovy said.

Comparable-store sales at KFC in China were down about 20 percent in the first quarter of this year and the same is expected for the second quarter, Hottovy said, citing fears about avian influenza and accusations that chicken suppliers in China were overusing antibiotics.

"It's such a global presence for the company and for the average investor you may not recognize how widespread this brand is. It's the largest restaurant brand in China with a significant presence across a number of emerging markets," said Hottovy of KFC.

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"I'm really looking to see what kind of improvement, whether or not some food quality marketing efforts, some new value menu products added to the menu, what kind of impact they've had on the overall same-store sales trends and whether or not consumers are coming back to the KFC brand in China," Hottovy said.

Besides China, where there were 4,260 KFC locations as of the end of March, India, Korea, Malaysia and Russia are expected to be growth areas for the restaurant chain, according to Hottovy.

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Stateside, Hottovy said he expects to see strong sales growth at Taco Bell restaurants, which have been selling healthier items on its so-called "Cantina Bell" menu.

At KFC in the United States, Hottovy expects flat sales growth and store closures, adding that if the bottom 15 percent of KFC restaurants in terms of sales performance were closed, Yum would see significant margin improvement.

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