In an 8-K filed Monday afternoon, fast food giant Yum! Brands (click ticker for report: ) announced terrible July results in its Chinese division. Same-store sales declined 13% compared to the prior year, with same-store sales down 16% year-over-year at KFC, partially offset by 3% same-store sales growth at Pizza Hut.
This implies that sales declines accelerated through the course of July, reversing the improving trend management mentioned on the second quarter conference call. Same-store sales declines had moderated in June to 10%, and it appears the firm’s sales in China could be decelerating even more dramatically (heading into August).
Image Source: Valuentum, Company Filings
As we can see in the above chart, same-store sales declines in the first half of 2013 were steep enough to turn the two-year trend negative. While the second quarter had previously looked as though it might be the bottom, sales weakness will likely persist through the remainder of 2013.
Valuentum’s Take
Weakness at KFC China looks poised to remain the status quo for at least the rest of calendar 2013. Given the company-specific issues, we do not think the results say anything about the broader economic situation in China. However, we’re still avoiding adding shares to the portfolio of our Best Ideas Newsletter.