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The Good News Driving Yum Brands Soaring Stock Won’t Last

Night Market Shopping As China's NPC ContinuesNight Market Shopping As China's NPC Continues
It's not 2008 over again.Photograph by Tomohiro Ohsumi—Bloomberg via Getty Images

Yum Brands is back to being the envy of Western companies in China.

Yum said yesterday same store sales at its China division rose 6% year-over-year, thanks to a 12% jump in KFC same-store sales. Yum shares rose 4% in after-hours trading on the news.

Just a year ago investors were lamenting Yum’s slide in China from all star to ageing veteran. Yum was faced with two years of slowing growth in China because its expansion and novelty had hit a limit. Yum was the first major Western fast food chain to build a presence in China; its first KFC opened near Tiananmen Square in 1987.

A single quarter doesn’t change that narrative, especially the one just announced. KFC’s 12% sales jump was mostly due to Chinese New Year promotion for KFC’s buckets of deep-fried chicken, a one-off promotion.

Pizza Hut, the other sizeable Yum chain in China, reported a 12% decline in same-store sales during the same quarter.

Yum Brands’ continued slowdown in China is affecting the spinoff of the division later this year.

China’s sovereign wealth fund is reportedly backing a group of investors including private equity’s KKR & Co. interested in buying a majority stake in Yum Brands Inc’s China unit at around $7 billion to $8 billion. The amount is a far cry from the $20 billion valuation activist investor Dan Loeb gave the China division last year when he pressed management to spin it off.

Maybe the latest quarterly sales can improve the price Yum can earn from the spinoff. As many noted, they were Finger Lickin’ good.