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Drop in U.S. Sales Takes a Toll on McDonald's Profit

McDonald's profit slips amid weak sales
David Paul Morris/Bloomberg via Getty Images
By CANDICE CHOI

NEW YORK -- McDonald's is fighting to hold onto customers in the U.S.

The world's biggest hamburger chain said sales at established U.S. locations fell 1.7 percent in the first three months of the year as guest counts declined. After a decade of consistent growth, sales also declined last year as McDonald's (MCD) struggled to roll out an array of new menu items and fend off competitors.

CEO Don Thompson said in call with analysts and investors Tuesday that the company is working to improve its operations and marketing in key regions, including the U.S.

"It's important to underscore it will take time for consumers to notice the changes and reward us with increased visits," he said.

While acknowledging that McDonald's continues to face numerous challenges, Thompson stressed that the decline in U.S. guest counts in the latest quarter was largely the result of severe weather. Last week, however, Chipotle Mexican Grill (CMG) said its sales rose 13.4 percent on stronger customer traffic.

The disappointing performance in the U.S. reflects the struggles McDonald's is facing as people flock to chains that position themselves as higher-quality alternatives. Thompson has noted that people with more spending money increasingly seem to be heading to such chains and that McDonald's needs to focus on underscoring value for its more cash-strapped customers.

The focus on keeping prices affordable has pressured profit margins, particularly given rising costs for ingredients. In the U.S., McDonald's said its ingredient costs rose 3 percent, driven primarily by protein. Inflation is expected to continue at a similar level for the second quarter before easing in the second half of the year.

In the meantime, McDonald's is trying to adapt to shifting eating trends in a variety of ways, including the rollout of new prep tables in the U.S. that can hold more sauces and toppings.

The idea is to eventually offer greater customization on its menu while keeping orders easy to assemble for workers. Speed and accuracy have been an issue for McDonald's as it stepped up the pace of new menu items.

McDonald's, which has more than 35,000 locations around the world, said global sales for April are expected to be modestly positive with "market dynamics" expected to remain similar to 2013.

For the quarter ended March 31, sales rose 1.4 percent at established locations in Europe and 0.8 percent in the unit encompassing Asia, the Middle East and Africa, offsetting the decline in the U.S. Overall, global sales edged up 0.5 percent.

Profit fell to $1.2 billion, or $1.21 a share. Analysts expected $1.24 a share, according to FactSet.

A year ago, the company earned $1.27 billion, or $1.26 a share. McDonald's noted that the year-ago results were boosted by income tax benefits.

Revenue edged up to $6.7 billion, but was shy of the $6.71 billion Wall Street expected.

Shares of the Oak Brook, Ill., company edged down 10 cents to $99.57 in afternoon trading.


McDonald's Profit Falls As U.S. Same-Restaurant Sales Slip

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pm0501

Michelle Obama couldn't be happier! Less McDonalds sold, less fat kids to complain about!

April 22 2014 at 4:58 PM Report abuse -1 rate up rate down Reply