By Annie Gasparro And Chelsey Dulaney
McDonald's Corp. warned that sales and profits will remain under
pressure for the next several months as it reported a 21% drop in
earnings for the latest quarter, rounding out a dismal year for the
fast-food chain that prompted core changes to its business.
The world's largest restaurant chain by revenue has struggled
with weak sales in all major markets, most notably the U.S., amid
changing consumer tastes and other hurdles. In the fourth quarter,
customer traffic fell in Asia, Europe and the U.S.
"2014 was a challenging year for McDonald's around the world,"
Chief Executive Don Thompson said in a news release. "As we begin
2015, we are taking decisive action to regain momentum in sales,
guest counts and market share." But, he added, "our business
continues to face meaningful headwinds."
The results also offered a smidgen of positive news, as
McDonald's logged its first monthly increase in same-store sales in
the U.S. in more than a year. A key metric for the industry, sales
at McDonald's locations that have been open at least 13 months rose
0.4% in the U.S. in December.
McDonald's said it would spend less on expansion and other
projects this year, with a budget of $2 billion marking its lowest
capital-expenditure plan in more than five years.
"We're exercising further financial discipline," Chief Financial
Officer Pete Bensen said, as McDonald's works to regain momentum
and improve the sales and profitability of its 36,000 restaurants
around the world.
Investors had a muted reaction, with McDonald's shares
oscillating slightly up and down in recent trading.
"The very little stock movement shows just how low expectations
are," said Bill Smead, chief executive of Smead Capital Management,
which owns about 168,000 shares of McDonald's stock.
Mr. Smead's fund has decreased its stake in McDonald's since the
chain's problems surfaced in 2012, but he said he was confident in
the long-term potential. "They have the best brand awareness, the
best restaurant locations," he said.
In recent months, McDonald's has posted its worst U.S.
same-store sales in more than a decade. Its increasingly
complicated menu has slowed service, and younger customers are
trading Big Macs for what they view are healthier, fresher options
at made-to-order fast-casual chains like Chipotle Mexican Grill
Inc.
The company also has been losing customers to more upscale
burger and sandwich rivals such as Five Guys Holdings LLC and
Chick-fil-A Inc. that focus on just a few menu items.
Mr. Thompson has outlined plans to fix the problems over the
past few months--such as paring down the menu, more customizable
options and higher-quality ingredients. This month, McDonald's
launched a new marketing campaign in the U.S. with commercials and
new packaging for food that focus on sprucing up its longtime "I'm
lovin' it" slogan, under Chief Marketing Officer Deborah Wahl who
joined in March. Despite her moves and the appointment of a U.S.
chief in October, McDonald's still expects this month's same-store
sales to decline.
Janney Capital Markets analyst Mark Kalinowski said he was
surprised by the negative outlook among McDonald's franchisees in
the U.S.
"Recent changes by McDonald's--perhaps most notably to
advertising--don't seem to be generating any meaningful near-term
lift in sales trends," he said in a note to investors ahead of
Friday's release.
Overall, for the fourth quarter, McDonald's reported a profit of
$1.1 billion, or $1.13 a share, down from $1.4 billion, or $1.40 a
share, a year earlier. Revenue fell 7.3% to $6.57 billion. Analysts
polled by Thomson Reuters had expected earnings of $1.22 a share on
revenue of $6.68 billion.
McDonald's said global same-store sales fell 0.9%, including a
1.7% slide in the U.S. despite the uptick in December.
In the company's Asia-Pacific, Middle East and Africa region,
sales at existing locations fell 4.8% as it continues to take a hit
from a scandal with one of its meat suppliers that was accused of
intentionally selling expired meat to restaurants in July.
McDonald's performance in the region has improved somewhat, and it
expects it to continue recovering over the next few months.
In Europe, McDonald's sales fell 1.1% as consumer-confidence
issues in Russia added to broader economic softness in France and
Germany. Russian authorities last year began inspecting many
McDonald's restaurants and shutting some, widely seen as
retaliation for U.S. sanctions in response to Russia's military
incursion in Ukraine. More recently, sharp falls in oil prices and
the Russian currency have hit the country's economy.
Write to Annie Gasparro at annie.gasparro@wsj.com and Chelsey
Dulaney at Chelsey.Dulaney@wsj.com
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