May 2, 2018 / 11:21 AM / a year ago

Yum says UK KFC supply snafu will be drag on second quarter results

(Reuters) - Yum Brands Inc’s (YUM.N) sales at established restaurants rose at just half the pace expected by Wall Street, after a chicken supply shortage hammered sales at KFC in the UK and Pizza Hut struggled in China.

FILE PHOTO: A Kentucky Fried Chicken (KFC) logo is pictured on a sign in North Miami Beach, Florida, U.S. April 6, 2017. REUTERS/Carlo Allegri

Shares in the company that also owns the Taco Bell brand fell 5 percent early on Wednesday, after its chief financial officer said lingering concerns at KFC UK would contribute to the current quarter likely being “the worst” of the year.

Sales at Yum restaurants open at least a year rose 1 percent in the three months ended March 31, compared with the 2 percent expected by analysts, according to Thomson Reuters I/B/E/S.

The results contrasted with stronger-than-expected global quarterly sales from McDonald’s Corp (MCD.N) and Domino’s Pizza Inc (DPZ.N), indicating that Louisville, Kentucky-based Yum may have lost market share during the quarter.

Same-restaurant sales at KFC rose 2 percent in the first quarter of 2018, missing analysts’ target with the slowest growth rate in four quarters.

On a conference call with analysts, Yum executives said KFC would have recorded a 3 percent growth in same-restaurant sales had it not been for a serious supply snafu in the United Kingdom, where it has 871 restaurants.

Yum was forced to shut hundreds of British KFC outlets in February after a supplier change led to shortages of everything from chicken to gravy. The restaurants have mostly resumed operations and executives expect to restart advertising this month.

Pizza Hut also missed expectations for same-restaurant sales, which were up 1 percent worldwide, after strength in the United States offset a decline in China.

Overall revenue at Yum fell 3 percent to $1.37 billion (1 billion pounds) but topped estimates of $1.09 billion, thanks to stronger sales at Taco Bell, where $1 Nacho Fries debuted as its best-selling new product in history.

Net income jumped to $433 million from $280 million last year, reflecting gains from the sale of company-owned restaurants to franchisees.

Excluding one-time items, Yum earned 90 cents per share, ahead of expectations of 68 cents.

Reporting by Aishwarya Venugopal, Additional reporting by Lisa Baertlein in Los Angeles; Editing by Sai Sachin Ravikumar and Susan Thomas

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