Yum! Focuses on China at U.S. Expense

LOUISVILLE, Ky. ( TheStreet) -- Yum! Brands' ( YUM) handily beat expectations thanks to strong sales growth in China, but a closer look at the restaurant operator's quarterly report revealed worrisome declines in the U.S. and other established western markets.

Taco Bell and KFC

Yum, the operator of Taco Bell, KFC and Pizza Hut restaurant chains, said same-store sales -- or sales at stores open at least one year, a closely watched metric in the restaurant industry -- grew 18% in China but fell 4% in the U.S. Analysts had expected the key line item to grow 11% in China and to fall 1.6% in the U.S.

Pizza Hut same-store sales jumped 22% in China, while KFC saw the metric grow 17%.

"Mainland China is Yum! Brands' number one market for new company restaurant development worldwide," according to Yum's Web site.

Such distinct focus on China and emerging market growth comes at a cost, however. As a percentage of system sales for Yum! Restaurants International (YRI), the company's international division, Canada showed a steep decline of 6%, accounting for just 7% of quarterly system sales. Continental Europe also accounted for just 7% of YRI system sales, a 3% uptick year-over-year. U.K. sales accounted for a healthier 14% of YRI system sales, but that only represented growth of 1% over last year.

Yum shares were 2% higher at $56.69 Thursday morning following its better-than-expected earnings report late Wednesday. More than 5.3 million shares had changed hands just two hours into the trading session, compared with their average daily volume of just 3.5 million.

-- Written by Miriam Marcus Reimer in New York.

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