MCD McDonalds Corp

By Joshua Jamerson 

McDonald's Corp. posted weaker-than-expected same-store sales growth in its latest quarter, a sign that the boost from its all-day breakfast offerings may be losing steam.

This was the fourth consecutive quarter of positive same-store sales across all of McDonald's business segments, but in order to go from turnaround mode to growth mode, the company needs some new tricks.

McDonald's is testing various new products in different markets, including Chicken McNuggets without the artificial preservatives and bigger and smaller Big Macs. A Dallas franchisee's test of Quarter Pounders made with fresh beef has generated the most excitement, because switching to fresh beef could be a game-changer for McDonald's. But franchisees also have expressed concern about the company's ability to pull it off without posing food safety risks and adding too much complexity to a system designed to store frozen food.

The company cited softening growth in the restaurant industry as a reason for its results. Consumers have been pulling back as a result of economic uncertainties at a time when the gap between restaurant and grocery store prices has widened.

McDonald's said it expects to get another lift from all day breakfast in the second half of the year as it makes more breakfast items available all day. The company also stated that it will make more product and operational improvements.

The company has struggled to find a value menu that resonates with budget-conscious customers while not eating into franchisees' profits. McDonald's has moved away from its dollar menu and experimented with other offers, including the latest offer of two items for $2. RBC Capital Markets analyst David Palmer said "the chain continues to wrestle with 'Dollar Menu hangover' as prices for its premium items are perhaps too high for their perceived quality."

Sales at existing stores rose 3.1% in the period, just below the consensus estimate of 3.6% growth in a survey of analysts by Consensus Metrix. But in the U.S., comparable sales rose 1.8% in the U.S., far below the 3.2% growth anticipated by analysts. International sales rose 2.6%, meeting analysts' views.

Since taking the helm last March, Chief Executive Steve Easterbrook has moved to bolster the company's sales by paring down its menu, offering more transparency about how its food is made and launching all-day breakfast at many of its domestic restaurants. He has said the initial boost from the expanded breakfast menu hours would eventually moderate.

McDonald's reported a profit of $1.09 billion, or $1.25 a share in the three months ended in June, compared with $1.2 billion, or $1.26 cents, a year earlier. Excluding items, the company earned $1.45 a share. Analysts had projected $1.38 in per-share earnings.

Revenue fell 4% to $6.27 billion, meeting analysts' expectations.

Shares fell 3.5% to $122.97 in early trading.

Write to Julie Jargon at julie.jargon@wsj.com and Joshua Jamerson at joshua.jamerson@wsj.com

(END) Dow Jones Newswires

July 26, 2016 10:12 ET (14:12 GMT)

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