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YUM Fried As China Same-Store-Sales Crash; Expects EPS Decline In 2013

Tyler Durden's picture




 

While it was relatively well-known (or expected) that YUM's China business was hurting (after its PR snafu), this is considerably worse than expected (hoped for). Revenues and earning met considerably lowered expectations but the outlook is drastically slashed:

  • *YUM!: PUBLICITY STILL SIGNIFICANTLY HURTING CHINA KFC SALES
  • *YUM SEES CHINA COMP SALES JAN AND FEB COMBINED DOWN 25% :YUM US
  • *YUM! SAYS CHINA DIVISION JAN. EST. COMP SALES FELL 37% :YUM US

which leaves them

  • *YUM SEES YR ADJ. EPS DOWN MID-SINGLE DIGITS VS $3.25, EST $3.57

But there's always hope...

  • *YUM! SEES KFC CHINA COMP SALES POSITIVE IN 4Q :YUM US

The stock is down 8% after-hours (for now).

 

The question is - of course - WWJCD - "I think the bulls are right and the bears are letting a short-term Chinese speed-bump scare them away from a great story" It was $67.52 then...$61.00 now

And from the Press Release:

CHINA UPDATE

 

KFC sales in the last two weeks of the fourth quarter were significantly impacted by the intense media attention surrounding an investigation by the Shanghai FDA (SFDA) into poultry supply management at Yum! China. The investigation was prompted by a report broadcast on China’s national television (CCTV), which aired on December 18, 2012. The report showed that a few poultry farmers were ignoring laws and regulations by using excessive levels of antibiotics in chicken. Regrettably, some of this product was purchased by two poultry suppliers of KFC China. The investigation caused further media attention, including social media commentary, and this negatively affected consumer perceptions of poultry safety, and KFC in particular.

 

On January 25, 2013, the SFDA concluded its investigation and released its recommendations. We appreciate their thorough and diligent review. The SFDA identified issues and provided “Supervisory Recommendations” to Yum! China to strengthen our poultry supply chain practices including refined voluntary self testing procedures, improved reporting and communications and enhanced supplier management. Our team in China has taken a comprehensive review of our current system and is in the process of incorporating all of the SFDA’s recommendations. We have always recognized the importance of building a world-class supply chain in China, which is why we have implemented a wide range of quality assurance and testing practices over the years above legal and regulatory standards. The SFDA’s recommendations will further strengthen those practices. The SFDA did not bring a case against Yum! China and no fine was assessed.

The past seven weeks of media attention have been intense and negative towards the KFC brand image. Even though this is a very disappointing setback, we are more committed than ever to continue to strengthen our efforts, restore the confidence of our customers and win back their brand loyalty. To that end, the China team will soon be launching a brand reputation quality campaign to re-assure consumers of our high quality food, along with aggressive marketing plans.

 

2013 OUTLOOK

 

We are confident the YRI and U.S. businesses will deliver annual operating profit growth consistent with our ongoing growth model. Given current uncertainties related to KFC sales in China, it is difficult to confidently forecast our overall financial performance. We have made the assumption that KFC China same-store sales will improve as the year progresses and will be positive in the fourth quarter. With these assumptions, we estimate a mid-single digit EPS decline in 2013 versus prior year, excluding Special Items. This includes an expectation for a significant decline in EPS performance in the first half of the year followed by EPS growth in the second half.

 

The first quarter for our China business includes only the months of January and February and is highly impacted by consumer spending during the Chinese New Year holiday. The timing of this holiday changes each year. This year it is important to note that while the timing impact of Chinese New Year is neutral to our first quarter, there is a significant negative impact to January sales and a corresponding significant benefit to February sales due to the timing of this week-long holiday. We expect that the underlying performance of our China business will remain relatively unchanged for the balance of the first quarter, with a same-store sales decline of approximately 25% for January and February combined (China’s first quarter).

and from the CEO:

Although we cannot predict how long it will take to restore sales, we are steadfast in our belief that the power and popularity of the KFC brand in China will ultimately drive a full sales recovery.

 

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Mon, 02/04/2013 - 18:06 | 3214504 Tinky
Tinky's picture

What do discerning consumers think of YUM! Brands?

Yuck!

Mon, 02/04/2013 - 18:11 | 3214510 Lost Wages
Lost Wages's picture

Taco Bell to capitalize on newfound KFC popularity with deep fried kidney-thigh Doritos Locos taco.

Mon, 02/04/2013 - 18:13 | 3214527 ebworthen
ebworthen's picture

Fried chicken liver tacos!

I'd actually buy those and eat them.

Mon, 02/04/2013 - 18:19 | 3214551 francis_sawyer
francis_sawyer's picture

Chi-Coms must be orderin' "Small Fries Big Mac" [Dey be Illin']

~~~

http://www.youtube.com/watch?v=1KIneIRjDOg

Mon, 02/04/2013 - 19:20 | 3214735 TruthInSunshine
TruthInSunshine's picture

Speaking as someone who has been to China nearly a dozen times, and who has been to 4 different Provinces or Municipalities in China, I can guaran-damn-tee anyone that the dreadful YUM! results in China have nothing to do with food quality or changing Chinese consumer tastes, and everything to do with INFLATION.

Can you smell that?

Can you smell what all the world's fractional reserve central fiat printing workshops (aka central "banks") have got cooking?

That's the pungent aroma of the blazing hot, wok induced, breath of the dragon, bitchez, otherwise known as I-N-F-L-A-T-I-O-N.

 

Mon, 02/04/2013 - 19:50 | 3214830 Tinky
Tinky's picture

Assuming that your interpretation is accurate, the point you make is excellent.

Playing the highly cynical devil's advocate, though, why wouldn't the (evil) fast food industry simply copy the play being used by food manufacturers in other sectors: quietly reduce portion sizes and charge the same?

On second thought, perhaps that's a rhetorical question given the high sensitivity that fast-food aficianados have to precisely that variable!

Mon, 02/04/2013 - 22:37 | 3215259 TruthInSunshine
TruthInSunshine's picture

Fast food places are cutting portion sizes; they've been cutting portions of actual food, and increasing the portion of edible, food-like substances across their menus.

Shit, they're using horsemeat in the U.K., and they probably batter the chicken (or street pigeon) in melamine in China.

Mon, 02/04/2013 - 22:44 | 3215271 ebworthen
ebworthen's picture

Could not believe how small the kid meal hamburger was at Wendy's last time I was there, Eisnehower dollar coin size.

Explains all their ads lately about what a great "value" they are (*cough*).

48 oz. instead of 64 oz. "half-gallon" ice cream.

Ere long a dozen eggs will be six.

Tue, 02/05/2013 - 00:01 | 3215451 TruthInSunshine
TruthInSunshine's picture

 "Could not believe how small the kid meal hamburger was at Wendy's last time I was there, Eisnehower dollar coin size."

Where's the beef?

The Bernank is lucky that Clara Peller  isn't still alive, for she'd definitely stick a boot up his ass.

Where have you gone Joe Dimaggio & Clara Peller


 A nation turns its lonely eyes to you (woo woo woo)

Tue, 02/05/2013 - 01:03 | 3215543 Abbie Normal
Abbie Normal's picture

It takes the average factory worker 4 hours wages to buy a KFC dinner for one.  In the U.S. at minimum wage, that's equivalent to $28 for one meal as compared to usual $7.  Ask if anyone you know would pay $28 for a value meal and you have your real answer as to why sales are down.

Tue, 02/05/2013 - 02:53 | 3215689 Freddie
Freddie's picture

The food there and in most fast food would not meet any real standards if the FDA had any standards now.  McDonalds is a joke now.  Everything there is mystery filler "food."  Hope and Change.

Mon, 02/04/2013 - 19:12 | 3214712 bobthehorse
bobthehorse's picture

I've got your YUM.

I've got it hanging between my legs.

Motherfuckers.

http://www.angrysinner.blogspot.kr/2013/02/tuesday.html

Mon, 02/04/2013 - 18:05 | 3214505 Muppet Pimp
Muppet Pimp's picture

heard on street: YUM blames inability of Chinese people to find stores due to thick smog for 25% sales miss...more information will be forthcoming

Mon, 02/04/2013 - 18:08 | 3214517 Lost Wages
Lost Wages's picture

They could offer a free can of clean air with every chicken strips meal.

Mon, 02/04/2013 - 18:07 | 3214515 ebworthen
ebworthen's picture

Cramer says "Buy! Buy! Buy!" while he sells at the top.

And the pundits will of course say that China couldn't possibly be slowing down.

And all those baby-boomers are going to decide to go out late at night and party, with a stop at Taco Bell on the way home, and Pepperoni Pizza (Hut! Hut!) for breakfast.

Mon, 02/04/2013 - 18:13 | 3214529 PhD
Mon, 02/04/2013 - 18:15 | 3214535 francis_sawyer
francis_sawyer's picture

Give those Chi-Coms some EBT cards...

Mon, 02/04/2013 - 18:23 | 3214557 kornholio
kornholio's picture

Bullish

 

Mon, 02/04/2013 - 18:43 | 3214625 rfaze
rfaze's picture

For chickens.......

Mon, 02/04/2013 - 18:24 | 3214563 Cursive
Cursive's picture

I don't believe YUM ever met these growth targets and are now using this development to come clean.  The shit these fast food "restaurants" serve up is terrifying.

Mon, 02/04/2013 - 18:41 | 3214621 oddjob
oddjob's picture

eat your beaks.

Mon, 02/04/2013 - 18:26 | 3214572 algol_dog
algol_dog's picture

These numbers can be trusted, rather than the ficticious China "great story" BS normally tossed around ...

Mon, 02/04/2013 - 18:31 | 3214586 HoaX
HoaX's picture

Cheer up, at least they´re providing us with free medicine?

Obamacare 2.0, now at a KFC near you!

Mon, 02/04/2013 - 19:01 | 3214673 forwardho
forwardho's picture

+1 for antibiotic fowl.

Carry on sir.

Mon, 02/04/2013 - 18:37 | 3214613 Hedgetard55
Hedgetard55's picture

Cramer: " China Stimulus: "You have to remember that China's economy had been decelerating, but now it's begun to turn the corner thanks to smart interventions from the Chinese Central Bank."

 

Wow, just wow. What a freakin' dope.

Mon, 02/04/2013 - 19:04 | 3214676 earleflorida
earleflorida's picture

from General Mao [is?is]chicken... too, where's the beef?

'Russia Bans Meat from Ractopamine Treated Animals'

http://www.cattlenetwork.com/cattle-news/Russia-bans-meat-from-ractopami...  

http://en.wikipedia.org/wiki/Ractopamine

What's next? farm raised catfish in leeching ponds over america's aging landfills....

Mon, 02/04/2013 - 22:39 | 3215266 TruthInSunshine
TruthInSunshine's picture

General ObaMao's Chicken.

Mon, 02/04/2013 - 19:02 | 3214677 Political_Savage
Political_Savage's picture

Cream-of-some-young-guy Burritos, with Mild Sauce!

 

Mon, 02/04/2013 - 19:07 | 3214694 Antifaschistische
Antifaschistische's picture

I'm one of the guys that happens to believe China has a nice collection of beautiful ladies.  Millions of which still have body fat percentages only seen in the US by girls who are 11 or younger...and soon destined to wear nothing smaller than a size 12. 

Chinese people....please listen....save yourselves....do not eat "western food".   My boots on the ground in China are telling me they are actually seeing overweight ladies that didn't exist AT ALL 5 years ago.

Don't do this to yourselves...get out while you can.  You've been doing it right for the past 1000 years.  America only did it right for about 100 years then we gave it all up in 1972.

My parents high school year books did not have a SINGLE fat person in them...by today's standards. (i.e. need to lose at least 40 pounds).   Now, it's just disgusting.

Mon, 02/04/2013 - 19:32 | 3214777 Dr_Lucid
Dr_Lucid's picture

Its' too bad that the expectations for growth and consumption in China are falling short of what the rest of the world needs. 

China needs more cowbell.

Mon, 02/04/2013 - 19:52 | 3214842 nmewn
nmewn's picture

Its the smogs fault, i-workers brownbagging more, Japanese jet fighters, a great flood...IT WASN'T MY FAULT!!!

Mon, 02/04/2013 - 21:07 | 3215050 haskelslocal
haskelslocal's picture

The Colnel is dead. Good riddance you dirty rat friers.

Tue, 02/05/2013 - 04:17 | 3215728 TahoeBilly2012
TahoeBilly2012's picture

Zombie apoca "strips"...made from snake meat...YUM

Tue, 02/05/2013 - 05:07 | 3215747 Harrison
Harrison's picture

Does anyone actually BELIEVE that "too much antibiotic use" is a "PR snafu" in China? That is a country where people collect grease buildup out of sewers to "recycle" it into cooking oil, which they then resell to restaurants. And no, that's not an urban legend or some sort of capitalist plot, that's what people trying to scrape a living in China actually do to make a buck.

ChinaLawBlog had a link to an article by an "urban sociologist", a female westerner doing research on the lower levels of the rural Chinese who have moved to the cities to try to make more money, in which she lived with and documented one particular farm family during their attempt to set up a food vending cart. The descriptions of the sewer water that they used to make noodles, the flies covering the stuff they were about to cook, and so on were enough to nauseate anyone.

And yet we're supposed to believe that KFC lost customers because some minor supplier put too much antibiotic in its chicken feed? HAH. Bullshit!

Do NOT follow this link or you will be banned from the site!