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Thin crust: Pizza Hut weighs on Yum China growth

  • Yum China posted quarterly sales slightly below estimates
  • The firm said same-store sales rose 3 percent in the second quarter of 2017
  • Yum is China's biggest fast food chain with over 7,685 outlets
A pepperoni pizza from a Pizza Hut restaurant, a unit of Yum! Brands Inc.
Patrick T. Fallon | Bloomberg | Getty Images
A pepperoni pizza from a Pizza Hut restaurant, a unit of Yum! Brands Inc.

Yum China Holdings Inc, the operator of KFC, Pizza Hut and Taco Bell in the world's second-largest economy, posted quarterly sales slightly below estimates, dragged down by sluggish growth at Pizza Hut amid a turnaround drive.

The firm, which spun off from Yum Brands Inc late last year, said same-store sales rose 3 percent in the second quarter of 2017, driven by a 4 percent jump at fried chicken chain KFC. Pizza Hut's same-store sales were flat.

Yum, China's biggest fast food chain with over 7,685 outlets, has been looking to rev up growth in the market which has slowed since 2012, hit by food safety scares, changing consumer tastes and a wider economic slowdown.

The Pizza Hut division, which has been off-setting stronger growth at KFC since before Yum China's listing, fell short of analyst estimates of a 1.5 percent same-store sales rise, according to research firm Consensus Metrix.

Joey Wat, Yum China's president and chief operating officer, told analysts after the results that the pizza unit had been struggling and there were "quite a few key aspects of the fundamentals of the business that we have to fix".

"There is a still a long way to go to turn around Pizza Hut and we are working diligently to get things done," she said.

KFC's growth was stronger, helping push overall same-store sales above the average analyst estimate of a rise of 2.4 percent.

Shares in the company eased, however, on the concerns over Pizza Hut.

Yum China has been trying to turn around the unit by simplifying its menu, as well as making a push on mobile payments and delivery. It recently bought a controlling stake in local food-delivery service Daojia.

The fast food chain's net income rose to $107 million, or 27 cents per share, in the quarter, from $77 million, or 21 cents per share, a year earlier, which management said was helped by an industry wide tax reform. Margins also widened.

Total revenue fell 0.4 percent to $1.59 billion, slightly missing the average analyst estimate of $1.60 billion, according to Thomson Reuters I/B/E/S.