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China Comps Plunge at YUM! in July

Zacks Equity Research

It seems that the tough phase for Yum! Brands Inc. (YUM) is not over yet. The company’s powerhouse China Division has again witnessed a dip in its comparable sales (comps) for the month of July.

In a recent SEC filing, Yum! Brands stated that its China Division’s comps have suffered a 13% decline in the month under review. The drop was the result of a 16% drop in same-store sales for KFC brand, partially offset by a 3% rise in comps at Pizza Hut Casual Dining. Adverse publicity arising from the allegations regarding KFC China’s poultry supply situation in Dec 2012, continues to impede China Division’s comps. To add to the woes, the outbreak of avian flu in China in early-Apr 2013 also dented China Division’s performance. However, the decline did not come as a surprise as management had earlier anticipated comps to be down.

China Division-accounting for more than double of its U.S. revenues-has played a key role in Yum! Brands’ solid performance over the last few years. However, it began to falter since fourth-quarter 2012 due to the aforementioned setbacks. In its recently reported second-quarter 2013, Yum! Brands’ total revenue declined 8% year over year as a result of a 20% plunge in China Division’s comps.

Although the company’s China Division is reeling under pressure, management expects these hurdles to be short-term and external. The Zacks Rank #2 (Buy) company anticipates that it will gradually recover from the downturn and might post impressive results in the latter half of the year.

However, we believe even though the company is trying to overcome this adversity through an quality assurance and various promotional offers, it will take some time to reach the pre-issues level.

Another restaurateur, McDonald’s Corp. (MCD) posted positive comps for July. Global comps nudged up 0.7% in Jul 2013, backed mainly by improved performance in the U.S. System-wide sales were up 1.6% in the month under review.

Some other restaurant industry stocks with a favorable Zacks Rank include Jack in the Box Inc. (JACK) and Buffalo Wild Wings Inc. (BWLD). Jack in the Box carries a Zacks Rank #1 (Strong Buy) while Buffalo Wild Wings holds a Zacks Rank #2 (Buy).

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Read the Full Research Report on BWLD

Read the Full Research Report on MCD

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