MCD McDonalds Corp

By Heather Haddon 

McDonald's Corp. said dramatic changes in consumer behavior during the coronavirus pandemic hurt its profit and sales, disruptions that the burger chain expects to continue for months.

The Chicago-based company said Thursday that its earnings fell in the first quarter as the virus forced the chain to limit service and close restaurants across the globe. McDonald's said it expects even steeper sales declines in the current quarter and that its business outlook remains uncertain due to the economic downturn and risk of a second wave of infections.

Chief Executive Chris Kempczinski said it is not clear exactly what eating at McDonald's restaurants will look like in the future.

"The exact trajectory of our recovery is highly uncertain," Mr. Kempczinski said on a call. "The world is going to look different coming out of this crisis and we expect that many of those changes are going to be enduring."

Shares fell 2% to $184.

As some parts of the world ease lockdown restrictions, McDonald's operators are evaluating whether to keep a more limited menu permanently to improve profit and service speeds, executives said.

Nearly all restaurants in France, Italy, Spain and the U.K. are closed, while operations remain limited in Australia, Canada, Germany, Russia, Japan and Brazil, the company said. McDonald's has resumed service in 99% of its restaurants in China, though demand remains reduced.

Domestically, 99% of McDonald's locations are operating, the company said.

McDonald's is making nearly 90% of its U.S. sales through drive-through now, up from two-thirds before the crisis.

Mr. Kempczinski said that McDonald's business at breakfast had been hit particularly hard as its customers have stayed home. McDonald's has focused on boosting breakfast sales in recent years, adding those items to its all-day menu.

"Getting back that breakfast business will be critical for us," Mr. Kempczinski said.

Dunkin' Brands Group Inc. also said Thursday that its morning sales were down. The coffee chain has allowed owners to slash hours and limit menus to try to improve profit.

McDonald's canceled all-day breakfast recently and is serving a limited menu at drive-throughs and for pickup and delivery. Average check sizes have grown during the pandemic as larger parties pool McDonald's orders, executives said.

McDonald's is slashing discretionary capital spending by $1 billion because of the virus's impact on its business. It stopped share buybacks but is continuing regular dividend payments. The company said it expects less free cash during its current quarter.

"We expect our operating cash flow to be down significantly this year," Chief Financial Officer Kevin Ozan said.

The company's board also approved cutting executives' salaries. Mr. Kempczinski's base pay was cut in half.

McDonald's said it hadn't had any major disruptions to its supply chain during the crisis, and that it has obtained 120 million masks for store workers.

The company reported earlier in April that same-store sales for the quarter fell 3.4% overall. McDonald's said sales by that metric rose in the first two months of the year, but tumbled 22% in March as stores closed in more markets. That was around when the pandemic spurred businesses to close and consumers to socially distance.

McDonald's said its profit dropped 17% to $1.1 billion from a year ago as sales fell to $4.7 billion, down 6% from the previous-year's period ending March 31.

Sales were largely in line with expectations, but earnings per share, at $1.47, fell below analysts' forecasts.

--Allison Prang contributed to this article.

Write to Heather Haddon at heather.haddon@wsj.com

(END) Dow Jones Newswires

April 30, 2020 10:53 ET (14:53 GMT)

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