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Yum Brands Defends Potential For Continued KFC, Pizza Hut Growth In China

By Annie Gasparro Of DOW JONES NEWSWIRES NEW YORK -(Dow Jones)- Yum Brands Inc. (YUM) is confident in the continued expansion of its Pizza Hut Casual Dining and KFC restaurants in China, despite recent slowing in the Chinese economy. In the first quarter, Yum continued to open restaurants rapidly in China, but due to double-digit food and labor inflation, its profit margins were squeezed and same-store sales growth wasn't as high as previous quarters--issues Yum acknowledged previously. "We simply cannot expect 19% same-store sales growth going forward, but fortunately, our ongoing business model does not need the high level of same-store sales growth we recently experienced," said Chief Financial Officer Rick Carucci on a conference call. Investors still seem to think Yum may have peaked in China, as Yum's shares fell 2.3% to $71.23 Thursday, retreating from the boost it received in the few days leading up to earnings. However, as the company ventures further into smaller-tier cities in China, it says the expansion opportunities are vast. Yum says that even though its first quarter margin retreated a bit to 23.6%, and same-store sales growth of 14% fell slightly below expectations, both figures are still stronger than most of its competitors and its own businesses elsewhere in the world. China continues to be its biggest driver for growth, and Yum plans to open 600 new units there this year. "Long-term economic trends are also working in our favor in China. Rising incomes are making our brands even more affordable for an increasing number of people and the consumer class is expected to double over the next 10 years to well over 600 million consumers," said Chief Executive David Novak. With those "overwhelming macro tail winds," Novak says, Yum's long-term goal is to grow same-store sales at least 5%. Though that's a significant moderation from the recent double-digit results, it's only natural as a business matures. That's why Yum is putting increased focus on its newer emerging markets, such as India, Vietnam, Indonesia and Brazil, which are in the much earlier stages of Yum's development. Leaders of those markets will be going to China in June to "look at the China operating model and take that same model and apply it into those markets," Novak said. Like McDonald's Corp. (MCD) and Starbucks Corp. (SBUX), Yum's western brands have been a big hit among Chinese consumers. Yum's Pizza Hut Casual Dining restaurants offer high-end fare, such as spaghetti, steak and shrimp salads. Meanwhile, KFC has the advantage of the intense popularity of chicken among Chinese consumers. But the race against McDonald's for value perception remains. "If you look at McDonald's, the success they had, they broke the mold when they had 15-cent hamburgers--We're making our brands now as affordable as they can possibly be in China, and we're doing it at great margins," Novak said. -By Annie Gasparro, Dow Jones Newswires; 212-416-2244; annie.gasparro@dowjones.com

Stock News for Yum (YUM)
DateTimeHeadline
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07/13/201406:18:25MARKET SNAPSHOT: Tech, Bank Earnings To Test Economic Recovery
07/10/201418:53:12Cosi Names Yum Brands Veteran as Chief Financial Officer
05/01/201413:00:58Yum Says Novak to Leave CEO Role, Become Executive Chairman...
04/23/201417:02:14MARKET SNAPSHOT: U.S. Stocks Tumble; S&P 500 Ends 6-day Run
04/23/201415:47:47MARKET SNAPSHOT: U.S. Stocks Drift Lower
04/23/201410:40:12MARKET SNAPSHOT: U.S. Stocks Fall; PMI, Home Sales Disappoint
04/23/201410:15:39MARKET SNAPSHOT: U.S. Stocks Fall; PMI Slips In April
04/22/201419:18:45Correction to Yum Earnings Story
04/22/201418:59:34Yum's Profit Improves as China Sales Recover -- Update
04/22/201418:30:10Yum's Profit Improves as China Sales Recover
04/22/201414:38:17MARKET SNAPSHOT: U.S. Stocks Rise; Netflix Jumps On Results
04/22/201414:29:14McDonald's Plans Marketing Push as Profit Slides -- 3rd Update
04/20/201406:17:33MARKET SNAPSHOT: Long View On Stocks Is Best During Weak Earnings...
03/28/201412:35:00Yum Brands Unveils New Segment Reporting Structure -- Update
03/28/201412:30:44Yum Brands Combines Existing Divisions Into Global Brand Segments
03/27/201405:20:46Yum Bids to Regain Consumer Confidence in China With New Menu
03/21/201419:38:47Yum CEO's Total Pay Drops 29% to $10 Million in 2013
03/06/201416:43:39MARKET SNAPSHOT: U.S. Stocks Rise: S&P 500 At Record

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