Yum! Brands, owner of quick service restaurants KFC and Pizza Hut, has posted an $8 million operating loss in India operations during the July-September quarter.
According to its global financial results, although Yum! added new stores, sales dropped nine per cent on a year on year basis, due to an 18 per cent decline in same-store sales (SSS) in India. The company announced its global financial results in the US on Tuesday, late evening.
Operating losses in India were the worst in the past 15 quarters and SSS has seen a double-digit decline every quarter since that of December 2014. Burger chain KFC’s sales suffered due to stiff competition from McDonald's and new entrant Burger King, apart from the continued slowing in the country's quick service restaurant (QSR) business. Competitive pricing, free and other offerings from rivals like Domino's dented Pizza Hut’s sales, according to a report by Edelweiss Securities.
Since October-December 2014, Yum!s total restaurant court in India has gone down to 811, from 833. Edelweiss estimates the company has closed down 14 outlets (seven of KFC, four Pizza Hut casual dining stores and four Pizza Hut home service stores) during the three months ended September, 2015.
"The QSR space is yet to see any material improvement in demand,” the report observed. “Competitive intensity in the pizza space has stepped up but is more rational than in the past, when players were regularly offering BOGO (buy one, get one).”
Yum! has also identified the continued losses at operating levels in India. “Operating loss was $8 million, as compared to $3 mn in the prior year,” the company stated. “India division system sales decreased nine per cent, as 10 per cent unit growth was offset by an 18 per cent SSS decline.”
Globally, the fast food major’s sales went up two per cent to $3.43 billion in the September quarter from $3.35 bn in the year-ago period. Profit went up to $421 million from $404 mn. The restaurant margin increased 3.3 percentage points to 18.2 per cent. While it added 376 new restaurants worldwide, Yum!’s operating profit increased 23 per cent.
During the quarter, the company’s restaurant count in China, the second largest market for Yum! after the US, rose seven per cent to 6,867 and its SSS from the market turned positive.
“Our growth fundamentals in China, including new-unit development, remain intact.
However, we’re experiencing unexpected headwinds, making the second half of the year more challenging than we anticipated,” said Greg Creed, chief executive officer of Yum! Brands. “Outside of China, our Taco Bell and KFC divisions continued to sustain their positive sales momentum, while Pizza Hut was relatively flat. Given our lower full-year expectations in China, combined with additional foreign exchange impact, we now expect 2015 EPS (earnings per share) growth to be well below our target of at least 10 per cent."
