Los Angeles, July 15 - KFC, Pizza Hut and Taco Bell parent Yum Brands Inc remains bullish on China, even as consumers in its most important market boost savings rates amid a global recession.
Chinese economic growth is outpacing much of the world, yet diners there have not been immune to the global downturn that has stung factories and resulted in fewer job opportunities for young people.
"We still feel very bullish about long-term trends in China," Yum Chief Financial Officer Rick Carucci said in a conference call.
But in the near term, he said, the Chinese consumer is cautious.
"Their savings rates continue to rise, so they're being conservative with their spending right now," Carucci said.
New restaurants will continue to drive Yum's growth in China, where the company plans to add at least 475 units this year.
Chief Executive David Novak said the company also is making an aggressive breakfast push in China, where fast-food breakfast is still something of a novelty.
"The team is focused on growing the breakfast menu from currently less than 5 percent of sales to ultimately owning the breakfast day part in China," Novak said.
Most of the company's restaurants already sell breakfast in China, and executives hope breakfast sales will eventually account for as much as 30 percent of sales.
KFC is the largest fast-food chain in mainland China, with 2,670 restaurants. The company also has 516 Pizza Hut restaurants in China.
Roughly 75 percent of the company's restaurants are in cities in China's coastal areas, but executives said Yum is focusing more on central and western China going forward.
On Tuesday, the company posted a second-quarter profit that topped Wall Street's view but did not raise its full-year earnings outlook to reflect the beat.
Sales at established restaurants in mainland China fell 4 percent during the recently completed quarter, prompting Yum to cut its 2009 same-stores sales forecast for China to "about flat" from up 5 percent previously.
Standard & Poor's Equity Research analyst Mark Basham maintained his "strong sell" rating on Yum, saying in a client note: "China same store sales falling 4 percent despite large stimulus spending is troubling."
Weaker demand in China will be offset by falling prices on key commodities, said executives, who expect prices on chicken and oil to fall.
Shares in Yum were down 4.3 percent at $34.51 in midday trade on the New York Stock Exchange after falling as low as $33.64 during the session.