China challenges continue for Yum!

by Monica Watrous
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LOUISVILLE, KY. – Facing continued challenges in China, Yum! Brands Inc. failed to post a profit during the fourth quarter or fiscal year.

Efforts to strengthen its poultry supply chain and rebuild consumer trust in China weren’t enough to reverse the division’s negative same-store sales streak, spurred by negative press in 2012 regarding the use of excess antibiotics in chicken, followed by fears over avian influenza.

For the year ended Dec. 28, 2013, the company had net income of $1,091 million, equal to $2.41 per share on the common stock, down 32 percent from $1,597 million, or $3.46 per share, in 2012.

Total revenues for the year slipped 4 percent to $13,084 million from $13,633 million the year before.
Fourth-quarter income dropped 4.7 percent to $321 million, equal to 72 cents per share, from $337 million, or 74 cents per share, in the prior-year period.

Total revenues in the quarter increased slightly to $4,179 million from $4,153 million during the fourth quarter of the previous year.

“While 2013 was a challenging year, I’m pleased to report continued progress as we enter 2014 with fourth-quarter EPS growth of 4 percent, excluding special items,” said David Novak, chairman and CEO. “More importantly, with the decisive actions we've taken to strengthen our company across the board, we are well positioned to deliver double-digit EPS growth in 2014 and the years ahead.”

Special items included expenses related to the extinguishment of debt, refranchising gains and pension settlement charges.

In the US division, same-store sales were flat, reflecting 3 percent growth at Taco Bell that offset 2 percent declines at Pizza Hut and KFC during the year. Same-store sales decreased 2 percent during the quarter, reflecting a 4 percent decline at Pizza Hut and 5 percent decline at KFC. The company opened 77 units during the year, marking the second consecutive year of net unit growth in the US. Operating profit grew 3 percent for the year.

The China division saw a 13 percent decline in same-store sales during the year and 4 percent decline for the quarter, but Pizza Hut Casual Dining same-store sales grew 4 percent for the year and 5 percent for the quarter. Yum! opened 740 new units in China during the year, with 282 in the quarter.

Same-store sales for Yum! Restaurants International climbed 1 percent for the year and 2 percent for the quarter. A record 1,055 new units in 78 countries opened during the year, with 488 in the fourth quarter. In India, same-store sales declined 1 percent during the year and 4 percent in the quarter.

Looking ahead, Yum! Brands expects to deliver at least 20 percent earnings per share growth in 2014.
On Jan. 1, the company combined its Yum! Restaurants International and US divisions into three global brand divisions: KFC, Pizza Hut and Taco Bell. China and India will remain separate divisions.

“This new structure is designed to drive greater brand focus and lead to even more aggressive global growth,” Novak said.
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