Retailing, Franchising, and Consumerism Business Intelligence in China

China Helps Yum! Brands With Strong Q2 Results

Yum! Brands' reported results for the second quarter ended June 16, 2007 show worldwide system-same-store sales grew by 2%, including 7% growth in mainland China, 5% growth in Yum! Restaurants International Division,  and flat results in the U.S.

The company has raised its full-year EPS growth forecast to 12% from 11% based on the continued strong growth from its China divisions. Its China Division includes mainland China, Thailand and the KFC Taiwan business.

David C. Novak, chairman and CEO, said, "Our mainland China business continues to generate strong top-line growth with same-store-sales growth of 7%, while we are well on our way to opening another 375 new restaurants for 2007. Furthermore, our YRI Division had one of its best quarterly performances ever, delivering system-sales growth of 11% and is on pace to open 800 new YRI restaurants in 2007. This global growth will contribute to Yum! Brands' seventh straight year of opening at least 1,000 new restaurants outside the U.S. Importantly, we anticipate this pace of development will be maintained into the future, reinforcing our position as the leading international retail developer."

Second-quarter 2007 reported operating profit for mainland China increased 20% with same-store-sales growth and continued new-unit development for both KFC and Pizza Hut as the key contributing factors. Reported operating profit for the China Division overall increased 14% versus last year, as weak performances in the company's Thailand and KFC Taiwan markets impacted the division's growth rate.

Increased levels of commodity inflation for some food ingredients, including chicken and higher labor costs moderated the overall growth of operating profit and resulted in a decline in restaurant margin. The company expects these factors to continue, with the rate of commodity inflation expected to increase during the second half of 2007.

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