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Tickers in this Article: YUM, BKW, MCD, WEN
Yum! Brands Inc.’s (YUM) Chinese division, the largest contributor to its revenue stream, posted another quarter of negative same-store sales (comps) growth.

Comps at YUM! dipped 19% in May 2013 as a result of a 25% fall in comps at its KFC brand. Adverse publicity arising from the outbreak of the H7N9 Avian flu in early-April continues to affect KFC’s performance in the region. However, the rate of decline is moderating, as evident form the fact that the decline in comps in May was much less than the 29% reported for April.

Yum!’s Pizza Hut Casual Dining’s comps were also up 12% in China during the month under review, ahead of the April comps growth of 5%.

Yum! has provided a sales outlook for its China division for the second quarter of 2013 (March, April and May), results of which are expected on Jul 10. According to the company, its China division’s comps will suffer a 20% decline in the second quarter as against a 10% growth in the year-ago quarter. Quarterly decline in comps would be the result of a 26% decline in KFC comps, partially offset by a 7% increase in comps at Pizza Hut Casual Dining.

China, which has played a crucial part in Yum!’s growth story in the past few years, began to witness a setback since the fourth quarter of 2012. An allegation regarding the quality of chicken supplied to KFC in Dec 2012 and the outbreak of avian flu in China in early-Apr 2013 were held primarily responsible for the company’s weak performance in China in the past few quarters.

Currently carrying a Zacks Rank #3 (Hold), Yum! is gradually recovering from the downturn and might record positive same-store sales in the fourth quarter of 2013. The company has issued several aggressive quality assurance programs, marketing campaigns and various promotional offers to boost its sales. However, all of the company’s brand awareness initiatives will likely result in incremental expenses that will weigh on its bottom line.

Another restaurateur, McDonald’s Corp. (MCD), also seems to be back on track after posting a dismal performance so far in the year. Comps increased in May as the company witnessed positive comps growth in all the three geographical segments – U.S., Europe, and Asia/Pacific, Middle East and Africa (APMEA). Menu-innovations, value-options and breakfast offerings did the trick across the globe.

Other players in the restaurant industry, which look attractive at current levels, include The Wendy’s Co. (WEN) and Burger King Worldwide Inc. (BKW), both carrying a Zacks Rank #2 (Buy).

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