UPDATE 1-Yum warns its China sales unlikely to rise in fourth quarter
Oct 8 (Reuters) - KFC parent Yum Brands Inc on Tuesday warned that sales at established restaurants in China, its top market, are unlikely to rebound in the fourth quarter, as it had expected, and its shares fell almost 7 percent in extended trading.
Yum operates more restaurants in China than any other U.S. brand and said it remains confident in its business in the world's fastest-growing major economy that accounts for more than half of the company's overall operating profit.
"KFC is unquestionably the category leader in China and we remain confident sales will fully recover," Chief Executive David Novak said in a statement.
Yum's China same-restaurant sales fell 11 percent in the third quarter, as the company grappled with the after-effects of a food safety scare and bird flu outbreak that took away diners' appetite for chicken.
Those sales then dropped a steeper-than-expected 11 percent in September. The fourth quarter of the company's China division has four months.
Yum will launch "an aggressive marketing campaign to fully restore consumer trust in the brand," spokesman Jonathan Blum told Reuters. He said trust in the KFC brand has improved in China since the company was embroiled in a food safety scare involving one of its chicken suppliers last December, but that it wasn't yet fully restored.
Thus far, Yum has culled all but its top-performing suppliers. It also is planning a slew of menu items to drive more sales to KFC restaurants, which account for roughly 4,500 of the company's more than 6,000 restaurants in China.
Yum's third-quarter net income tumbled to $152 million, or 33 cents per share, from $471 million, or $1 per share, a year earlier. During the latest quarter, Yum had higher taxes and booked a charge related to its Little Sheep restaurants in China.
Excluding items, Yum earned 85 cents a share for the third quarter - missing analysts' call for a profit of 93 cents per share, according to Thomson Reuters I/B/E/S.
Total revenue fell to $3.47 billion from $3.57 billion a year ago.
Based on the disappointing sales results from China, and a higher than expected full-year tax rate, Yum now expects an earnings per share decline for 2013 in the high-single to low-double-digit percentage range. It previously had expected a mid-single-digit percentage decline in full-year earnings per share. Both estimates exclude special items.
Shares in Yum fell 6.9 percent, or $4.94, to $66.73 in extended trading.