China bird flu threatens KFC parent Yum’s winning streak

PUBLISHED : Thursday, 11 April, 2013, 10:37am
UPDATED : Thursday, 11 April, 2013, 11:32pm


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KFC parent Yum Brands warned that a new bird flu outbreak in China badly hit restaurant sales there this month, even as the company also reported a sharper-than-expected slide in March sales in the country caused by the lingering impact of a separate food safety scare.

“Within the past week, publicity associated with avian flu in China has had a significant, negative impact on KFC sales,” the company said in a regulatory filing.

Yum did not quantify the impact.

The bird flu outbreak has already sickened 33 and killed ten people, as Chinese authorities try to clamp down on rumours about the deadly virus and its potential spread.

Yum reaps more than half its overall sales in China, where most of its nearly 5,300 restaurants are KFCs. It was already struggling in the country after chemical residue was found in a small portion of its chicken supply late last year.

“This will set them back a little bit. If those (bird flu casualty) numbers go up, then the impact could be longer,” said Edward Jones analyst Jack Russo.

Sales at Yum’s China restaurants open at least one year fell 13 per cent in March, more than the 10 per cent average drop expected by analysts polled by Consensus Matrix.

The March results included a 16 per cent drop at KFC and a 4 per cent rise at Pizza Hut.

The company plans to educate consumers, as it has done in the past, that properly cooked chicken is safe to eat, Yum said in Wednesday’s filing.

In February, KFC’s sales were flat in China, which had given analysts some hope a turnaround was already taking hold.

While the March results were disappointing, they may show that the effects of the timing shift of the all-important Chinese New Year holiday on January and February were bigger than expected.

“I don’t think we should interpret this, necessarily, as a step back,” Sanford Bernstein research analyst Sara Senatore said.

Yum shares fell more than 2 per cent to $65.20 in extended trading following the report. Yum’s stock traded around $72 in late March before reports of the first deaths from the novel strain of avian flu.