Yum Brands expects 3Q same-store sales in China to fall 13 percent due to food safety scandal

MarketsAssociated Press

Shares of Yum Brands fell sharply before the opening bell Thursday after the company warned that a food safety scandal in China, where the company generates half its revenue, is hammering sales.

The company said in a regulatory filing late Thursday that same-store sales at KFC and Pizza Hut restaurants in China are expected to slide about 13 percent.

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"While sales are beginning to rebound, they continue to be negative," the company said in a filing with the U.S. Securities and Exchange Commission. "Our brands have proven resilient over time and we expect this to be the case with this situation as well."

In July, a Shanghai TV station reported that Shanghai Husi, a division of OSI Group Inc. of Aurora, Illinois, had repackaged old beef and chicken and sold it to KFC and McDonald's. restaurants in China. KFC and McDonald's stopped using products supplied by Shanghai Husi and Yum said that its restaurants severed all ties with OSI in China, the United States and Australia.

McDonald's Corp., based in Oak Brook, Illinois, reported a 7.3 percent drop in July sales at its restaurants in Asia, the Middle East and Africa. It said this week that it has intensified its monitoring of suppliers in China.

Yum vowed in its regulatory filing to "vigorously pursue" legal action against OSI and Shanghai Husi to account for the damage.

Shares of Yum Brands Inc. declined $2.53, or 3.5 percent, to $68.95 in premarket trading.