Now, with same-store sales in China falling 29% in April, the company must figure out a way to preserve its market share, especially following a 13% decline in same-store sales for March. China customers are not quite ready to forgive, which means investors must now prepare for the possibility that growth may not come back for quite some time. I believe management understands this. For the first quarter, which ended March 23, Yum! posted 70 cents in earnings per share, which declined 8% when excluding special items. Weakness in China really took a toll here. Pperating profits plummeted 41%. This was partially offset by 19% profit increase at Yum! Restaurants International and a 5% profit increase in the U.S. division.
More than anything, investors have to wonder what are the long-term prospects of Yum! Brands and to what extent will these public relations scandals hurt. In my view, I don't think the PR problem will have an impact. It's not as if management has tried to shield itself from scrutiny. The company has been upfront about the situation and has dealt with both the media and consumers appropriately. The good news is the company's brand has not been severely affected outside of China. I think this speaks the level of trust Yum! has earned over the years. I'm not trying to make light of this issues here, but there have been other companies that have rebounded from much worse situations, including Exxon Mobil ( XOM) and BP ( BP).