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Yum! Brands released its August sales for the China Division last Friday.  The company reported a -10% decline in same-store sales versus a -7.7% estimate.  This estimate included a decline of -12% and increase of +5% at KFC and Pizza Hut, respectively.  KFC sales were likely weakened by the lingering effects of negative publicity regarding the December poultry supply incident and, to a lesser extent, concerns over unsanitary practices.

The company expects same-store sales to turn positive in the fourth quarter.  Consensus is modeling for same-store sales of -5.4% in September.  For 4Q, the street estimates same-store sales will be -2.2%, +3.8% and +7.7% for October, November and December, respectively.  We believe same-store sales will rebound sooner than consensus expects, as we are looking for a positive print in October.

YUM continues to be our favorite LONG in the big cap QSR landscape.  The company will release September sales on Oct. 8th, when it reports 3Q13 earnings.






Howard Penney

Managing Director