Yum! says KFC's sales decline in China is easing

Chengdu, CHINA: Women sits on a bench next to a billboard of American fastfood giant Kentucky Fried Chicken in Chengdu, in China's southwestern province of Sichuan, 27 March 2007. China is under considerable pressure to do something about its trade surplus as concerns are multiplying that its booming exports are wiping out jobs in key trading partners, especially in European and US manufacturing. China's trade surplus last year soared 74 percent to hit a record 177.5 billion dollars and has continued to spiral upwards this year. AFP PHOTO/LIU Jin (Photo credit should read LIU JIN/AFP/Getty Images)
LIU JIN

NEW YORK Yum! Brands says a key sales figure for China dropped 19 percent in May as the parent company of KFC began to see signs of recovery from the double whammy of a bird flu scare and an earlier controversy over its chicken supply.

The drop is an improvement from the 29 percent decline in April. The company said the latest figure reflects a 25 percent decline at KFC and 12 percent growth at Pizza Hut.

On Monday, McDonald's Corp. (MCD) also blamed fears over bird flu for a decline in China sales for the month.

Yum! Brands Inc. (YUM) said that it expects sales at established restaurants to continue recovering over the course of the year and to turn positive in the fourth quarter. Although publicity around the bird flu continued to have a "significant, negative impact" in May, Yum! noted that the impact of past cases of bird flu has been short-lived.

"Based on current trends, we believe this will again be the case," the company said in a regulatory filing Tuesday with the Securities and Exchange Commission.

China is a critical region for Yum!, which has benefited greatly from the country's rapid economic expansion in recent years. The company, based in Louisville, Ky., is the biggest Western fast-food operator in the country, with 5,300 locations, most of them KFC restaurants. In 2012, Yum! raked in more than half its total sales from China.

But late last year, a Chinese TV report said some of the company's suppliers were giving chicken unapproved levels of antibiotics. Yum! was slow to adequately address the concerns, and sales plummeted. The company later took a more aggressive stance and said it was eliminating more than 1,000 small producers from its chicken supplier network and launched a marketing campaign to assure customers of the safety of its food.

Yum! has been reporting its monthly sales figures for the region to keep investors updated on its recovery efforts. At the end of March, progress was interrupted when a new strain of bird flu surfaced in the country.

Still, Yum! executives note that the company has overcome similar scares in the past. And the company stands by its plans to continue opening new locations at a rapid clip this year.

For the China division's second quarter, which includes March, April and May, Yum says the sales figure fell 20 percent.

Yum shares fell $1.19 to $70.57 in after-hours trading.