McDonald's Posts Lackluster Same-Store Sales Growth -- Update
July 26 2016 - 10:27AM
Dow Jones News
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)
Copyright (c) 2016 Dow Jones & Company, Inc.
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