Yum, Tiffany, Feel Pinch in China

Shares of Yum Brands Inc.

fell in after-hours trading Thursday and Friday morning upon reports of declining sales trends in China. The company expects Chinese sales to drop by 4 percent in the fourth quarter of fiscal 2012, in stark contrast to a sales boom of 21 percent that occurred last year. The news of the declining sales caused Yum shares to drop about 8 percent in pre-market hours. Yum remains optimistic about future growth in China, and pointed to strong performances in its International and U.S. divisions as evidence that the company is still meeting and exceeding expectations. The company expects that same-store sales overall will be up about 4 percent for the fourth quarter of 2012. Yum Brands operates approximately 4,000 KFC restaurants and 750 Taco Bell restaurants in China, having added 800 sites this year after the stunning growth last year prompted a continuation of expansion. Same-store sales, which are more reliable by accounting for the opening and closure of stores, are expected to drop by 4 percent this quarter, though the company projects growth of 6 percent for same-store sales in China for the whole fiscal year. Yum maintains a full-year forecast of an adjusted EPS of $3.24, a growth of 13 percent year-over-year and only slightly lower than analysts' projections of $3.28 per share. In addition, Yum expects earnings per share in 2013 to rise by 10 percent, but it remains to be seen how much of the growth in sales will occur in China versus the stronger U.S. and International divisions. Tiffany & Co.

has bet long on expansion into China as well, but sales at stores open in Asia for at least a year dropped by 4 percent this quarter. A year ago, same-store sales for the same quarter rose 36 percent. Due to declining jewelry sales in China and elsewhere, Tiffany has had to lower guidance for fiscal 2012. The latest projections for the company's full-year profit stand at $3.20 to $3.40 per share, compared to an earlier range of $3.55 to $3.70 per share. Global sales rose 3.8 percent to $852.7 million in the third quarter that ended October 31st, but analyst predictions had been for sales of $859 million. Tiffany's stock fell by $3.93 in afternoon trading yesterday, to a close of $59.80. As of the time of this writing, pre-market trading shows a further drop of $0.40 or about 2/3 of a percentage point. China's slowing economy is held partially responsible for lackluster sales versus projections. China's GDP growth this quarter was 7.4 percent, below what many analysts had predicted. Data points to this being a short-term trend as the Chinese economy bounces back from the economic crisis, but in the meantime companies like Yum and Tiffany have suffered losses.