Yum Executives Take Blame for China Woes, Shares Fall
October 07 2015 - 11:54AM
Dow Jones News
By Julie Jargon
Yum Brands Inc. executives took full responsibility for missteps
in China that led to disappointing quarterly results and erased as
much as $7 billion in the company's market value Wednesday.
In a candid accounting, Yum executives said on a conference call
Wednesday that they had made mistakes at the company's Pizza Hut
chain during the latest quarter, including offering high-price
steaks at a time when Chinese consumers were looking for value.
"We all, and I personally, take full accountability for the
results in China," Yum Chief Executive Greg Creed said. He pledged
"immediate action" to fix operations in the Asian country, the
company's largest market.
Mr. Creed said he would not blame the weak performance on
China's recent currency devaluation and financial-market
volatility. "The simple facts are the economy there is still
growing, and there are no reasons why China isn't growing," he
said, referring to Yum's China business.
Yum shares recently tumbled 19% to $67.62 in midmorning trading.
Earlier Wednesday, the stock hit an intraday low of $67.20.
Yum, which also owns KFC, said it now projects profit to improve
by a percentage in the low single digits, down from its previous
view of at least 10% growth, largely because of underperformance in
China. Same-store sales in China for the quarter ended Sept. 5 rose
just 2%, well short of the 9.6% analysts expected.
The company's Pizza Hut chain was largely behind the weakness,
Mr. Creed said, explaining that the chain needs to provide
"five-star service at three-star pricing." Pizza Hut is planning to
offer lower-priced dinner options to attract customers during the
week, when business has been soft.
Yum Chief Financial Officer Pat Grismer said same-store sales at
its Pizza Hut chain in China declined by 3% in September, "a major
miss and something we didn't see coming in August." He said he
expects same-store sales at Pizza Hut in China to remain negative
until the end of the year.
The company's KFC business in China has fared better, but Mr.
Creed said the brand is rolling out simplified menu boards to speed
up service and taking popular chicken products from KFC outlets
around the world and adapting them to Chinese tastes.
Yum's China business has been struggling for the past three
years because of a series of food-safety controversies. The
challenges have led analysts and investors to push the company to
consider other options for the division, including spinning off the
China business.
Analysts on the call pressed the company to explain how it can
continue operating the China business amid so much volatility, and
how and when investors can expect the business to recover.
Mr. Grismer said there is evidence the business already is
recovering, in the form of higher transactions and improved
consumer perception of the brands. "We remain confident in the long
term that we will recover those transactions," he said.
Mr. Creed declined to comment on any strategic options, saying
"my absolute focus is on getting these five [business] divisions
firing" on target. He said the company would comment on long-term
strategies at an investor conference in December.
Mr. Creed added that with new leadership in China, there are
fresh eyes on the business. Sam Su, the executive who built KFC
into the largest foreign-restaurant chain in China, in August
retired as head of Yum's China division, and Yum veteran Micky Pant
took the helm.
"I'm still bullish on China," Mr. Creed said.
Write to Julie Jargon at julie.jargon@wsj.com
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(END) Dow Jones Newswires
October 07, 2015 11:39 ET (15:39 GMT)
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