After the markets close today, Yum! Brands (NYSE: YUM) will report its third-quarter earnings. Analysts are expecting EPS of $0.83 on revenue of $3.1 billion, compared with second-quarter EPS of $0.63 on revenue of $2.82 billion. Big things are expected from Yum!, which gets more than 40% of its revenues from its China operations. But will China be enough following last week’s disappointing report from Darden Restaurants (NYSE: DRI) brought the whole casual dining sector down?

Darden, which owns and operates Olive Garden and Red Lobster stores among others, went ex-dividend today on its $0.43 quarterly dividend payable on November 1st. The company’s dividend yield is now about 4.18%. A more direct competitor to Yum! is McDonald’s (NYSE: MCD), which has been trying to step up its presence in China, as has Starbucks (NASDAQ: SBUX). Another tack is that taken by Chipotle Mexican Grill (NYSE: CMG), which is opening a new chain of Asian food stores.

McDonald’s faltering same-store sales are particularly a surprise in Asia, where August sales fell -0.3% compared with an expected rise of 3.5%. What has been working for the Golden Arches in the U.S. — introductions of higher margin drinks and other products — apparently has not translated well into Chinese.

Yum! — which operates KFC, Taco Bell and Pizza Hut — is expected to see Chinese same-store sales growth of 12% in the third quarter. U.S. same-store sales are expected to fall -3%, and analysts are concerned that sales in China will get softer as economic growth cools. The big question for Yum! is whether or not China’s consumers are still willing to line up for fried chicken, tacos and pizza. The company is betting heavily that they will, as expansion plans call for roughly five times as many stores in China over the next several years.

Starbucks has its eye on China as well, looking to more than double its complement of about 750 stores in the country over the next several years. The issue Starbucks must overcome is different from either Yum! or McDonald’s, which appeal to a family crowd in the bigger cities. The Starbucks consumer in China needs to have a little extra cash to spend for the company’s higher-priced coffee drinks, and the number of Chinese consumers who meet that requirement is relatively small. Plus, many will be those same customers for burgers and pizza with the family.

Chipotle’s new ShopHouse Southeast Asian Kitchen stores are targeted to attract the same customers as its popular Mexican food stores. These are the value-conscious consumers and there are sure to be more of them as the U.S. economy continues in the doldrums. This approach may gain traction because Asian food has yet to blanket the U.S. in the same way that burgers, fried chicken and pizza do.

When Yum! reports earnings today, an important number to look at will be their sales in emerging nations other than China. If that number is light, and U.S. sales are soft, Yum! may have a tough time convincing investors that China is the answer to their prayers.

Yum’s shares are down about -0.5% in the first 90 minutes of trading this morning, at $48.23, in a 52-week range of $46.09 – $57.75. McDonald’s shares are off more than -2%, at $84.15, in a 52-week range of $72.14 – $91.22. Starbucks shares are down about -0.2%, at $36.14, in a 52-week range of $25.37 – $42.00. Chipotle’s shares are up about 0.1%, at $293,01, in a 52-week range of $171.24 – $346.78.

Paul Ausick

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