By Annie Gasparro And Chelsey Dulaney
McDonald's Corp. said its sales are continuing to struggle as
efforts by its new chief executive to win back customers in the
U.S. haven't paid off yet.
The Oak Brook, Ill.-based burger giant is off to a rough start
this year, reporting on Wednesday that same-store sales fell 2.6%
in the U.S. division in the first quarter, including a 3.9% decline
in March--worse than analysts expected. Profit for the period also
fell by a steeper-than-expected 32%, in part because of
exchange-rate changes.
Customer traffic declined in all of McDonald's major markets,
adding to two years of struggles at the world's largest fast-food
chain, which is battling changing consumer tastes in America and
food-safety issues in Asia. The company said it expects to report a
continued decline in same-store sales for April and has decided to
close an additional 220 under-performing restaurants, primarily in
the U.S. and China.
McDonald's is nearly two months into its turnaround effort under
Steve Easterbrook, who became CEO on March 1. While yet to revive
sales growth, Mr. Easterbrook's effort to turn McDonald's into a
"modern, progressive burger company" seems to have won over the
confidence of some investors. Shares have climbed since the
announcement in late January that he would step in, including a
3.3% gain Wednesday morning.
"We are evolving to be more responsive to today's customer," Mr.
Easterbrook said. "McDonald's management team is keenly focused on
acting more quickly to better address today's consumer needs,
expectations and the competitive marketplace."
He said he will discuss more details of his plan at an investor
presentation May 4.
Janney Capital Markets analyst Mark Kalinowski said some
investors are pinning their hopes on Mr. Easterbrook sparking some
"pizzazz" at the presentation. But doing so will be a challenge,
since McDonald's already has announced meaningful cuts in spending
on restaurant openings, and has no brands to sell off, Mr.
Kalinowski said in a note to investors.
Barclays analyst Jeff Bernstein noted ahead of Wednesday's
earnings release that McDonald's is struggling with intense
competition in the fast-food industry, while its own new product
releases are limited--recently coming out with a new premium
chicken sandwich and sirloin burger.
Mr. Easterbrook made waves in recent weeks with announcements
that he will raise wages for workers at corporate-owned McDonald's
restaurants, curb antibiotic use in its chicken, and consider
selling its breakfast-menu items all day--a measure customers have
long wanted. Those plans come as McDonald's is working on revamping
and simplifying its menu and putting more marketing muscle behind
the brand with a new "I'm Lovin' It" campaign.
Some of the efforts, however, have drawn the ire of some of the
franchisees who run the vast majority of McDonald's restaurants and
question whether they can afford to implement the plans.
And they seem to have had little impact on sales so far as
customer visits continue to drop.
Sales at stores open at least 13 months fell 2.3% globally in
the latest quarter, including an 8.3% drop in the Asia-Pacific
division, where it is struggling with perception issues after
food-safety scares in China and Japan.
Overall, McDonald's reported a profit of $811.5 million, or 84
cents a share, down from $1.2 billion, or $1.21 a share, a year
earlier. The results included 17 cents per share related to
write-offs and restructuring and 9 cents a share related to foreign
currency. Analysts polled by Thomson Reuters had expected earnings
of $1.06 a share.
Revenue fell 11% to $5.96 billion, in-line with Wall Street
expectations.
Write to Annie Gasparro at annie.gasparro@wsj.com and Chelsey
Dulaney at Chelsey.Dulaney@wsj.com
Access Investor Kit for McDonald's Corp.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US5801351017
Subscribe to WSJ: http://online.wsj.com?mod=djnwires