Yum! Brands, Inc. (YUM) Looks To Restore Its Reputation

The same store sales increased 5% in US, 4% in China, and 3% at Yum! Restaurants International (YRI) during the year. However, the same store sales suffered from the food safety issue in China and turned negative in the second half of December 2012. In fact, the same store sale fell 6% for the fourth quarter in China.

The China division faced difficulties at the end of the year; but the YRI business gave solid performance and is expected to continue fetching solid numbers for the fast food restaurant chain. Even the US business of the company was pretty strong. Taco Bell was the key driver to Yum’s domestic success in 2012 as the new restaurant additions worked in favor of the company. In addition, the company also added 150 new Pizza Hut outlets and this is of great importance as the investment cost is low while returns are pretty attractive. The company is confident about its current year outlook for US as it has some innovative offerings across all its three brands. However, is the overall outlook for the current year getting hampered due to the issues faced in the mainland?

The road ahead
The Kentucky company is confident about its US and YRI businesses, however the uncertainties surrounding China have made the overall outlook a bit gloomy. The scandal is going to negatively affect its sales in China from where the company amasses a great chunk of its revenue. This would hurt the overall sales growth of the company which could result in a decline in profit in the current year.

The Chinese business continued to suffer in January as the food safety issue had an impact on both KFC and Pizza Hut outlets. While KFC’s same store sales fell as much as 41%, Pizza Hut suffered a decline of 15%. This is expected to improve with time and give favorable results in the last quarter of 2013. David Novak, the company Chief Executive is positive about the popularity of KFC in China and believes that it would soon contribute to the sales in full force.

My takeaway
Yum! may have more outlets in US, but China is a more profitable market as the cost of operation is lower. The company’s growth heavily depends on its Chinese operation. It is therefore essential for the company to restore it reputation in this emerging market which has a lot more growth potential given the rising disposable income.

The article This Fast Food Giant Looks To Restore Its Reputation originally appeared on Fool.com and is written by Rajesh Marwah.

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