Yum Brands, the operator of KFC and Pizza Hut, estimates quarterly same-store sales in China fell 13 percent. But some analysts see signs things are turning the corner. Fred Katayama reports.
Yum just can't catch a break. A slew of analysts sliced their profit estimates and price targets on Yum! Brands after the operator of Pizza Hut and KFC estimated its quarterly same-store sales in China fell 13 percent. The culprit: the food safety scare there sparked by expired meat from a former supplier. Yum gets more than half of its sales from China. Analysts estimate that Yum's sales there may have fallen more than 30 percent in the last six weeks. Susquehanna Financial, which cut its price target, predicts it could take Yum "several quarters to recover." This latest scare comes just as Yum was beginning to recover from a scandal involving chickens overstuffed with antibiotics that slammed KFC at the end of 2012. Yum stock fell in early trading, deepening its loss of nearly 5 percent this year. But several analysts were optimistic. Stifel analyst Paul Westra recommends buying the stock, saying, "Our most recent channel checks suggest that Yum China comps have rebounded significantly in the last two weeks, and in our unchanged opinion, we expect China fourth quarter 2014 comps to turn positive in mid fourth quarter." Baird notes the media attention has died down and that the troubled supplier supplies fewer items to Yum than to other restaurant chains.