Yum! Brands blames South China Sea dispute for hurting China sales
The company attributed its difficulties to negative sentiment against Western brands.
Yum! Brands reported its financial results for the third quarter ended September 3, 2016, and pointed to the international court ruling on the territorial disputes over the South China Sea as the reason for its disappointing China sales ahead of the Yum China split.
The China Division system sales increased 3%, excluding foreign currency translation. Same-store sales decreased 1%, with declines of 1% at KFC and 4% at Pizza Hut Casual Dining.
Greg Creed, CEO, said “Sales were off to a good start in the first six weeks of the quarter in the China Division. However, anticipated tougher laps in the second half of the third quarter were compounded by an international court ruling on claims regarding the South China Sea, which triggered a series of regional protests and negative sentiment against a few international companies with well-known Western brands. If not for this event, we believe the China Division would have delivered its fifth consecutive quarter of positive same-store sales growth. The good news is the incident was shortlived and the sales impact continued to dissipate through August and September. Despite the protests, Pizza Hut Casual Dining continued its trend of quarterly sequential improvement."
Commenting on its overall results, Creed said, "Yum! Brands delivered third-quarter core operating profit growth of 11% and EPS growth, excluding Special Items, of 9%. For the full year, we are raising our core operating profit growth guidance from at least 14% to at least 15%."
"In the third quarter, I was pleased with both KFC’s and Taco Bell’s performance, each of which returned to a focus on core menu items, but in ways that were distinctive, disruptive and relevant. Both brands had accelerating same-store sales growth, despite sluggish QSR industry trends, especially in the U.S. Excluding China, our brand divisions in aggregate delivered core operating profit growth of 11%, which was ahead of our expectations. System sales for the brand divisions excluding China grew 5% in constant currency, driven by KFC where system sales grew 7% with international emerging markets up an impressive 12%. We are excited about the momentum we are seeing in our base business as we embark on the next chapter of growth at our company."
