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% from $1,597 million, or $3.46 per share, in 2012.

Total revenues for the year slipped 4% to $13,084 million from $13,633 million the year before.

Fourth-quarter income dropped 4.7% to $321 million, equal to 72c per share, from $337 million, or 74c 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 e.p.s. growth of 4%, excluding special items,” said David Novak, chairman and chief executive officer. “More importantly, with the decisive actions we've taken to strengthen our company across the board, we are well positioned to deliver double-digit e.p.s. 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 U.S. division, same-store sales were flat, reflecting 3% growth at Taco Bell that offset 2% declines at Pizza Hut and KFC during the year. Same-store sales decreased 2% during the quarter, reflecting a 4% decline at Pizza Hut and 5% decline at KFC. The company opened 77 net units during the year, marking the second consecutive year of net unit growth in the U.S. Operating profit grew 3% for the year.

The China division saw a 13% decline in same-store sales during the year and 4% decline for the quarter, but Pizza Hut Casual Dining same-store sales grew 4% for the year and 5% 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% for the year and 2% 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% during the year and 4% in the quarter.

Looking ahead, Yum! Brands expects to deliver at least 20% earnings per share growth in 2014.

On Jan. 1, the company combined its Yum! Restaurants International and U.S. 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,” Mr. Novak said.
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