Yum China sees big sales recovery - UK
Fin24 - Oct 9th 2014, 12:05
London - Yum Brands said on Wednesday it expects China sales to bounce back strongly in 2015, but cautioned that it likely faces a bumpy, multi-month recovery from a recent supplier scandal that scared away diners in its most important market.
Sales at established KFC and Pizza Hut restaurants in China should improve during the current fourth quarter, but will still be down year-over-year and batter 2014 earnings, Yum executives said on a conference call with analysts.
"We are relatively early in the stage of this recovery and we continue to believe that we will see a full recovery in a six- to nine-month time frame," chief executive David Novak said.
The latest in a series of food safety scares that have decimated sales at Western chains such as KFC and McDonald's Corp broke in July when a local Chinese television station showed workers at supplier Shanghai Husi using meat past its expiration date.
Yum, which is the largest Western restaurant operator in China with nearly 6 420 restaurants, conducted only a small percentage of its business with Shanghai Husi and quickly cut ties with its parent, major U.S. meat supplier OSI Group LLC.
But news stories about the scandal often mentioned Yum's KFC and Pizza Hut restaurants with equal weight to McDonald's, which is a major OSI customer, and the damage was done, Novak said.
On Tuesday, Yum slashed its 2014 earnings growth forecast, citing the hit from the supplier scandal.
The latest incident landed just as Yum's China restaurant sales had begun to recover from the double whammy of an avian flu outbreak and a December 2012 poultry supply scare at KFC that caused Yum to cut 1 000 poultry farmers from its China supply chain.
No diner is believed to have fallen ill as a result of any of the food safety scares that caused sales to swoon.
In response to the Shanghai Husi incident, Yum is requiring suppliers in China to install closed-circuit televisions. It also is establishing a whistleblower system to encourage suppliers and employees to report any potential food safety violations, Novak said.
"I would never be one to say that we could never have an incident like this again, but I can tell you ... we do everything we can to learn from it and get better," said Novak, who is retiring as Yum's CEO on January 1.
Shares of Yum were up 1.4% at $70.70 in midday trading on the New York Stock Exchange. From Fin24.com
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