Shares of Yum Brands fell more than 10 per cent on Friday on fears that recent struggles in its China business are worsening.
The company, which operates KFC, Taco Bell and Pizza Hut, announced late on Thursday that it expected same-store sales to decline 4 per cent year-on-year in China during the fourth-quarter.
David Novak, Yum’s chief executive, said that “softer” sales in China were offset by progress in other countries and the US. China sales grew 21 per cent in the same quarter during the prior year, making it difficult for the company to sustain that momentum.
“We are extremely confident Yum China remains the best growth story in the restaurant industry,” Mr Novak said.
Yum is the biggest foreign restaurant operator in China, surpassing even McDonald’s, and has been a pioneer at integrating its brands into Chinese diets. China accounts for nearly half of Yum’s revenues.
However, its rapid pace of expansion combined with rising costs and slowing economic growth have hampered Yum’s China business in recent quarters.
“The deterioration in traffic is likely to weigh negatively on investor expectations,” Sara Senatore, restaurant analyst at Bernstein Research, said.
Yum expects to open 700 restaurants in China next year, down from 800 in 2012.
Ms Senatore suggested that Chinese consumers are being cautious because of the recent government transition and that they will be more likely to start spending again once they have greater clarity about their new leadership.
Last month, McDonald’s said it also saw signs of weaker consumer spending in China’s big cities, where most of its restaurants are concentrated.
In spite of its new challenges in China, Yum’s same-store sales are expected to rise 4 per cent in its other international restaurants and 3 per cent in the US. A resurgent Taco Bell has helped revive Yum’s fortunes in the US in the last year.
Yum has maintained its 2013 outlook, projecting earnings per share to grow 10 per cent.
The company announced the sales outlook ahead of its annual investor conference in New York next week.
Yum’s shares fell 10.33 per cent to $66.78 on Friday.
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