The China division, which reaps more operating profit for the company than any other, saw same-store sales drop 1 percent in the quarter. Wall Street had expected the unit’s same-store sales to rise 4.5 percent.
The news was concerning to some observers since the unit is poised to spin off on Oct. 31.
“While the margin performance was encouraging, we remain concerned about the volatility in China sales and the impact on the segment’s outlook ahead of the separation,” said Peter Saleh, an analyst at BTIG.
In interim, Yum plans to expand promotions in China in an effort to boost sales. The strategy worked at the company’s U.S. divisions in the third quarter.
A limited-time snack platter promotion at KFC is planned through November and they are amping up special Christmas offerings.
“We’ve got some very good promotions in November and at Christmas,” said Micky Pant, Yum China’s CEO, during the company’s earnings conference call Thursday. “And we are putting additional money in advertising those promotions. We’ve also got some unique China-only deals with international films, and we’ve also got maybe three of the best celebrities available in China across the brands. So that’s where we’ve made investments.”
In addition, Pant noted that the company expects to see a boost in sales from China’s Golden Week, a holiday celebrating the Communist founding of the People’s Republic in 1949. The week-long national event is the second most significant holiday aside from the Chinese New Year, he said. An estimated 589 million people are expected to travel for the holiday, reported the People’s Daily, the Communist Party Newspaper, according to The New York Times.
Greg Creed, CEO of Yum, blamed protests over an international court ruling regarding the South China Sea as the chief reason that sales in China suffered.
“If not for this event, we believe the China Division would have delivered its fifth consecutive quarter of positive same-store sales growth,” he said in a statement Wednesday. “The good news is the incident was short-lived and the sales impact continued to dissipate through August and September. Despite the protests, Pizza Hut Casual Dining continued its trend of quarterly sequential improvement.”
Yum China is expected to begin trading on Nov. 1.