Yum! Brands China Division Sales and Profits Decline Significantly

11 July 2013 --- Yum! Brands, Inc. has reported results for the second quarter ended June 15, 2013, including EPS of $0.56, excluding Special Items. Reported EPS was $0.61 for the quarter.

Second-Quarter Highlights:
• Worldwide system sales grew 1%, prior to foreign currency translation, including 6% at Yum! Restaurants International (YRI) and 2% in the U.S. System sales declined 12% in China.
• China Division sales and profits were significantly impacted by adverse publicity surrounding Avian flu, as well as the residual effect of the December poultry supply incident.
• Same-store sales declined 20% in China. Same-store sales grew 1% at YRI and 1% in the U.S.
• Total international development was 315 new restaurants; 76% of this development occurred in emerging markets.
• Worldwide restaurant margin declined 2.7 percentage points to 12.5%, including a decline of 5.0 percentage points in China. Restaurant margin increased 0.8 percentage points at YRI and 0.8 percentage points in the U.S.
• Worldwide operating profit declined 20%, prior to foreign currency translation, including a 63% decline in China. Operating profit grew 12% at YRI and 4% in the U.S.
• Worldwide effective tax rate, prior to Special Items, decreased to 22.1% from 23.9%. The decrease in the tax rate positively impacted year-over-year EPS results by 2 percentage points.

June same-store sales declined an estimated 10% for the China Division, improving from a 19% decline in May. This included an estimated decline of 13% at KFC and 6% growth at Pizza Hut Casual Dining. June sales are included in the China Division’s third-quarter results.

In terms of the full-year outlook, the company estimates mid-single-digit full-year EPS decline versus prior year, excluding Special Items, remains unchanged. China Division same-store sales are expected to continue to recover over the course of the year and be positive in the fourth quarter.

David C. Novak, Chairman and CEO, said, “Second-quarter EPS declined 16%, which was generally in line with our expectations. KFC sales and profits in China were significantly impacted by intense media surrounding Avian flu, as well as the residual effect of the December poultry supply incident. The good news is that China sales are recovering as expected. The extensive media surrounding Avian flu in China has subsided and same-store sales at KFC are clearly improving.

I’m pleased with the very strong performance at Pizza Hut Casual Dining, which delivered solid same-store sales growth as we continue to open new units at a record pace. For the total China Division, we remain on track to open at least 700 new units this year. This means we will have opened about 1,600 units over a two-year period. As KFC sales continue to recover, we expect to have solid momentum in China heading into 2014.

We expect record new-unit openings for Yum! Restaurants International and in India this year. Our emerging market new-unit pipeline is stronger than ever. Additionally, Taco Bell continues to deliver sales growth in the U.S. with industry-leading innovation.

Our estimated mid-single-digit full-year EPS decline versus prior year remains unchanged. We expect a strong bounce-back year in 2014 as we continue to aggressively invest behind our core strategies and capitalize on the enormous growth opportunities we see around the world.”