Shares of Yum!, the owner of KFC and Pizza Hut, were down more than 6% after the company revealed in a government filing that a health scare has had a "significant, negative" impact on sales in the world's second-largest economy.
Yum! has received a deal of media coverage in China after a local news channel released footage of the Shanghai Husi Food company, a subsidiary of the Illinois based food processing company OSI Group, selling and repackaging contaminated and expired goods.
These goods have allegedly been sold to Yum's popular food chains and others including McDonald's (MCD) - Get McDonald's Corporation Report , Starbucks (SBUX) - Get Starbucks Corporation Report, and Papa John's (PZZA) - Get Papa John's International, Inc. Report.
Yum! stated: the "events triggered extensive news coverage in China that has shaken consumer confidence, impacted brand usage, and disparaged the hard work of our over 400,000 Chinese employees."
The news coverage resulted in Yum! severing ties with OSI and the Shanghai FDA launching an extensive investigation exploring the case as well as other restaurants that may have been affected by the scare.
The result has been a significant sales impact to same-stores sales at both KFC and Pizza Hut in China over the past ten days, writes Yum!. The company also states that it is outraged by the alleged illegal activity and reserves the right to take full legal action for the impact on its business.
With that said, Yum! suggests it is still too early to know how quickly sales will rebound in China but if there is a significant impact, it will most likely take a toll on full-year financials.