By Chelsey Dulaney
McDonald's Corp. offered further evidence that it is out of
touch with consumers, reporting Monday its sharpest drop in U.S.
monthly sales since 2000, when fears over mad-cow disease dented
demand for burgers.
The company posted steeper-than-expected sales declines at all
of its divisions in November, intensifying pressure on Chief
Executive Don Thompson to rework McDonald's increasingly
complicated menu.
Global sales fell 2.2%, excluding newly opened stores, while
analysts had expected a 1.7% decline, according to Consensus
Metrix. McDonald's also said it expects a summer meat-supplier
issue in China and currency fluctuations to bring down its
fourth-quarter results.
Shares of McDonald's, basically flat over the past year before
Monday, fell more than 3% in morning trading.
McDonald's sharpest sales decline in November came at its U.S.
division, where sales fell 4.6% last month, far worse than the 1.9%
drop in sales analysts had projected and the biggest slide since
May 2000. Sales at the division haven't increased since October
2013.
An increasingly complicated menu--which has grown to a whopping
121 items--has slowed service in the U.S. as McDonald's
once-reliable base of younger customers have also defected to
fast-casual chains boasting customized ordering and fresh
ingredients, including Chipotle Mexican Grill Inc., and
specialty-burger chains such as Five Guys.
McDonald's has said it is planning "fundamental changes to its
business" to combat its recent weak performance, seeking to
eliminate layers of management and creating a new organizational
structure in the U.S. as it works to better respond to consumer
tastes.
The company added it is working to enhance its marketing and
simplify its menu to restore momentum in the division.
In the company's Asia/Pacific, Middle East and Africa region,
sales at existing locations fell 4%, missing the 3.8% drop analysts
were expecting. McDonald's performance in the region appears to be
improving somewhat after one of its meat suppliers was accused of
intentionally selling expired meat to restaurants in July. The
scandal shook consumer confidence and has driven down sales in
recent months.
November's decline was a slight improvement over October's 4.2%
sales decline in the region.
In Europe, broader economic softness has been compounded by
political complications in Russia, where authorities have been
inspecting and shutting McDonald's restaurants--moves widely seen
as retaliation for U.S. sanctions in response to Russia's military
incursion in Ukraine.
Sales fell 2% in the division in November as "very weak results"
in Russia offset strength in the U.K.. Analysts had projected a
1.9% decline in the region.
McDonald's projected the supplier issue in China would dent its
fourth-quarter earnings by seven to 10 cent a shares, while the
strengthening of the U.S. dollar against foreign currencies is
expected to bring down results by seven to nine cents a share.
Analysts polled by Thomson Reuters recently expected per-share
earnings to fall 9% to $1.27 a share. Revenue, meanwhile, is
expected to fall 3% to $6.85 billion.
Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com
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