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KFC China owner plans faster expansion on strong chicken sales

[CHICAGO] Yum China Holdings Inc. plans to accelerate the opening of new locations in China as its KFC chain beat expectations by drawing in more customers with discounts and delivery. Pizza Hut sales also performed better than expected, the company reported in its second-quarter earnings.

KFC comparable sales rose 5 per cent in the quarter, the company said Tuesday. Analysts had estimated a 3.9 per cent gain, according to Consensus Metrix. Pizza Hut same-store sales rose 1per cent -- higher than the 0.4 per cent estimate and a positive sign for a chain that's been a trouble spot for Yum China.

Key Insights

Shanghai-based Yum China has been trying to turn around its Pizza Hut chain with faster delivery times, remodels and new desserts to entice customers. The chain has been looking to sister brand KFC to help it grow its digital presence as well. So far it's starting to work: it just logged its second straight same-store sales gain after four quarters of declines.

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The company is facing more competition as the Chinese restaurant market gets increasingly crowded. Burger King, Tim Hortons and Starbucks Corp. are expanding quickly. But so is Yum China, which has said that expansion is a "key priority." The company now expects 800 to 850 new locations this year across multiple brands, up from an earlier estimate of 650.

Yum China is facing higher food costs this year, especially for its key ingredient of chicken. That weighed on margins in the quarter, which were 14.7 per cent, compared with 15.1 per cent a year ago. The company also said it expects sales growth to moderate, as it faces comparisons with successful value campaigns that started in last year's second half.

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