Please ensure Javascript is enabled for purposes of website accessibility

Yum!'s China Scare

By Brian Gorman – Updated Nov 16, 2016 at 1:08PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Yum!'s recent stumble in China may prove costly.

Yum! Brands (NYSE:YUM) shares perked up 5% yesterday on heavy volume in the wake of the fast-food purveyor's most recent same-store restaurant sales release. The results for the most recent four weeks were indeed respectable, but investors may want to temper their enthusiasm. Going forward, Yum! will likely face more challenges in China, a region that has been the source of breakneck growth.

The Louisville, Ky.-based firm announced yesterday that same-store sales at its U.S.-based restaurants, which include KFC, Pizza Hut, and Taco Bell, rose 4% over the past four weeks versus the comparable period in 2004. Perhaps the most encouraging sign on the domestic front is the continuing turnaround in KFC restaurants. After playing the laggard for some time, it seems KFC is taking the lead -- U.S. same-store restaurant sales surged 7% in the latest reporting period after a respectable 4% gain in the four weeks before that.

In the international arena, Yum!'s sales climbed 6% in local currency year over year. However, these sales excluded results in the China division, which includes mainland China, Thailand, and Taiwan. China has been a major growth driver for the firm, but sales in the country in the latest period actually fell 5%. The slump stems from negative publicity the firm's KFC restaurants received in connection with the withdrawal of products found to be contaminated with a potentially harmful dye. Yum! is confident the setback is temporary, although it expects sales to be flat next month.

While the dye scare is not likely to spell the end of Yum!'s growth in China, the stumble could prove more costly than one might think. Yum! won't be able to rehabilitate its reputation overnight, and in the meantime, its rivals are likely to make inroads. McDonald's (NYSE:MCD), for example, has taken notice of Yum!'s success and is planning to open 100 restaurants a year in China in hopes of increasing its Chinese outlets from 660 currently to 1,000 by 2008. For Yum!, the days of its China bonanza may be coming to a close.

For more on Yum! check out these articles:

Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.

None

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

McDonald's Corporation Stock Quote
McDonald's Corporation
MCD
$245.95 (-0.80%) $-1.99
Yum! Brands, Inc. Stock Quote
Yum! Brands, Inc.
YUM
$110.65 (-0.13%) $0.14

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.