Wall St. Magically Thinks Yum! Brands’ China Woes Are History

Companies and Brands

Published: March 12, 2013 9:40 am

Last Updated: March 12, 2013 9:42 am

Yum! Brands Inc. (NYSE: YUM) may have saved its slide of bad news out of China with the release of its same-store sales data. On the surface it looks awful, but Wall St. works off of a relative basis, and it seems that the horrific slide may have abated from the company’s troubles in China.

A Securities and Exchange Commission filing from Monday evening said that first-quarter same-store sales declined an estimated 20% for the China Division, which includes an estimated decline of 24% at KFC and an estimated 2% at Pizza Hut Casual Dining. Yum! Brands went on to say, “Consistent with prior years, the first quarter of the China Division is two months and includes January and February results.”

That 24% sounds awful, and frankly it is. What saved the day is that the February same-store sales growth was approximately 2% for the China Division. That includes flat same-store sales at KFC and 13% growth at Pizza Hut Casual Dining. There is a caveat here around the calendar, but Wall St. is taking it to heart that maybe Yum! Brands is escaping its food quality issues in China.

As far as the caveat, Yum! Brands said, “We estimate the timing of Chinese New Year had a positive mid-teen impact on February same-store sales growth for both KFC and Pizza Hut Casual Dining, offsetting a similar negative mid-teen impact in January. For the full quarter, the Chinese New Year impact to same-store sales growth was neutral.” Yum! Brands plans to release March same-store sales for its China Division on April 10, 2013, after market hours.

Yum! Brands shares closed at $67.84 on Monday, against a 52-week range of $59.68 to $74.75, and the fast-food company’s cycle-low was just in February at the peak of the woes in China after the company admitted to misjudging the situation there. Now shares are up 5% at $71.27 as Wall St. is hoping that it also misjudged the selling pressure so far in 2013.

We have not seen any real spillover into shares of McDonald’s Corp. (NYSE: MCD) on Tuesday. It closed at $98.89 Monday and shares are down only about $0.15 after the open.

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