Yum records disappointing profits in China

Yum! Brands (YUM.NYSE), the parent company of KFC, announced quarterly profits that fell short of Wall Street’s expectations partly due to rising costs in China, the company’s largest market, Reuters reported. Higher food and wage costs, the transition to providing 24-hour service and additional training for new restaurants all contributed to Yum’s smaller margin in China, where the company generates nearly 40% of its profits. Yum, which is based in Louisville, Kentucky, operates more than 3,900 KFC outlets and nearly 700 Pizza Hut restaurants in China, making it the largest Western restaurant operator in the country. Higher costs in China are a consequence of China’s rapid economic growth, said Sara Senatore, a Bernstein Research analyst, adding that she expects labor costs to eventually stabilize. Yum has seen its share price fall 10% from its peak in April, partly as a result of concerns over China’s economic slowdown.