| LOS ANGELES
LOS ANGELES Oct 6 Yum Brands Inc said
on Thursday its KFC and Pizza Hut businesses in China suffered
no lasting brand damage after political tensions over the South
China Sea caused an unexpected third-quarter sales drop in that
The company, which will spin off its China business on Oct.
31, said the last quarter started well there, but its
restaurants were hit by anti-U.S. protests after an
international court in July rejected China's claim to historic
rights in the South China Sea.
Yum Brands on Wednesday reported a surprise 1 percent drop
in third-quarter sales at China restaurants open at least one
year. The protests reduced the measure by as much
as 500 basis points, but the impact has largely eased,
executives said on a conference call on Thursday.
Analysts polled by research firm Consensus Metrix had
expected a 4.1 percent sales gain for the China unit, which is
Yum's top profit generator.
For the China unit's current quarter that started on Sept.
1, same-store sales so far are down "modestly" but are expected
to be positive for the balance of the quarter, Yum Brands Chief
Executive Greg Creed said.
Company research indicated that the protests inflicted "no
damage whatsoever to the brand," Micky Pant, CEO of Yum
Restaurants China, said.
An international tribunal in the Hague said in July it found
no legal basis for China's claim to most of the South China Sea.
This prompted local media to call the court a
"puppet" of external forces and accuse the United States of
turning the Philippines, which filed the case, against China.
Several brands became lightning rods for short-lived
anti-U.S. protests and boycott calls, including Apple Inc
and KFC, which has more than 5,000 restaurants across
Some analysts questioned the extent of the impact of the
sporadic protests in China, where Yum is also battling tough
competition, lingering effects of food safety missteps and a
"We estimate sales dropped 15 to 25 percent in some of the
cities because a lot of the protesters were looking for a big
American brand to attack, to protest against," said Shaun Rein,
managing director of Shanghai-based China Market Research Group.
"So they did have to shut a lot of stores in Northeast China.
"The big challenge for them is, will there be lingering
Yum's China business will begin trading as a separate
company on Nov. 1 on the New York Stock Exchange under the
ticker symbol "YUMC."
Chinese investment firm Primavera Capital and Ant Financial,
an affiliate of Alibaba Group Holding Ltd, said in
September they would buy a stake in Yum China for $460 million.
Creed said Yum China's strategic partnership with Primavera
and Ant Financial will give the newly independent company a
"Both are well-respected China institutions that are ideal
partners for Yum China as a standalone public company operating
in China," Creed said.
Yum shares were down 1.6 percent at $87.22 on Thursday
afternoon on the New York Stock Exchange.
(Reporting by Lisa Baertlein in Los Angeles; Editing by Matthew