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Yum China Sales Up in February Amid Turnaround

Monday, 11 Mar 2013 | 8:07 PM ET
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KFC parent Yum Brands Inc reported an unexpected 2 percent rise in February sales at established restaurants in China, boosted by Chinese New Year and easing worries about a food safety scare that drove away customers.

Shares in Yum jumped 6.6 percent in extended trading to $72.32, their highest level since November, after the results were far better than the estimated 8.7 percent drop expected by three analysts polled by Consensus Metrix.

Yum also said on Monday first-quarter same-restaurant sales in China fell 20 percent, less than its prior forecast for a 25 percent drop.

(Read More: Yum Brands Warns China Sales Fell More Than Expected)

The company last month warned that plunging China sales would cause 2013 profits to shrink rather than grow. It also said it expected KFC same-store sales in China to turn up by the fourth quarter.

Yum China's latest results "would seem to imply that the recovery is potentially going to be faster than what we thought," Bernstein Research analyst Sara Senatore said.

The fast-food operator reaps more than half of its overall sales in China, where most of its nearly 5,300 restaurants are KFCs. It does not normally report monthly China sales results, but is doing so while it works to turn that business around.

(Read More: China Still Our Best Market: Yum Executive)

A new Reuters analysis of comments on Weibo - China's version of a social media site - showed that the number of angry posts about KFC has shrunk, suggesting that public outrage over contaminated chicken found in some of Yum's food supply is fading.

While trends are moving in the right direction, Yum's China crisis is far from over, analysts said.

"You're still taking about a negative double-digit comp right now," said Morningstar analyst R.J. Hottovy.

Yum still must rebuild consumer trust and repair its image in China, where it has long enjoyed a reputation for serving high-quality food, Hottovy said.

(Read More: Yum Tweaks China Growth Plans, Targets More Pizza Huts)

Yum China's February results included flat same-restaurant sales at KFC and 13 percent growth at Pizza Hut Casual Dining.

Chinese New Year raised February restaurant sales in the mid-teen percentages and offset a similar hit in January, Yum said in a statement. As a result, the overall impact of the holiday was neutral for the first quarter, which includes only January and February.

The division, which is Yum's largest, posted a 37 percent drop in same-restaurant sales for January. That included a 41 percent fall at KFC and a 15 percent decline at Pizza Hut Casual Dining.

Diners in China started cutting back on visits to Yum's restaurants in December after news reports and government investigations focused on chemical residue found in a small portion of its chicken supply.

(Read More: Yum Warns on 2013 after China Scare)

Yum was not fined by food safety authorities.

The company has apologized for the chicken incident, vowed to end ties with smaller poultry suppliers that have not modernized their operations and pledged to further tighten its food safety procedures.

"I do think they've said all the right things so far. It's just going to take some time for consumers to get over the negative perception," Hottovy said.

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