McDonald's Profit Falls 17%, Bruised by Missed Breakfasts -- WSJ
May 01 2020 - 3:02AM
Dow Jones News
By Heather Haddon
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (May 1, 2020).
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
May 01, 2020 02:47 ET (06:47 GMT)
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