Business Intelligence on Retailing, Franchising, and Consumerism in China

KFC, Pizza Hut Push Yum Higher

Yum! Brands have raised their full-year EPS outlook to US$2.89, or 14% growth prior to special items, based on continued very strong growth from its China Division and double-digit growth from its YRI Division. The company's prior EPS guidance for 2006 was at least US$2.83.

"Third-quarter performance demonstrated our global growth once again led by 26% profit growth in China and 22% growth at YRI. As a result third-quarter EPS increased by 20% despite a 2% decline in U.S. same-store sales and U.S. profit growth of 1%," said David C. Novak, Chairman and CEO. "Fueled by this continued strong profit growth from each of our international divisions, we have once again raised our full-year EPS forecast, increasing it from US$2.83 to US$2.89 or 14% growth. This marks our fifth straight year of at least 13% EPS growth, exceeding our annual target of at least 10% growth. Importantly, we continue to build even stronger market positions in our China and YRI businesses.

For the third quarter 2006, company sales for the China Division increased 25% in local-currency terms due to the continued strong expansion of both the KFC and Pizza Hut brands in mainland China. Each brand is the market leader within the quick-service category and casual-dining category, respectively. Mainland China system restaurants in operation grew 18%, and system-same-store sales grew 12% in local-currency terms.

Third-quarter 2006 operating profit increased 23% in local-currency terms versus last year. The key contributing factor was continued growth in both the KFC and Pizza Hut brands' sales in mainland China. Importantly, third-quarter restaurant margin reached an all-time record. Last year, third-quarter China Division operating profit included US$14 million in other income from a one-time financial recovery from a supplier.

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