McDonald's gets fewer visits in quarter, expects weak January

Thu Jan 23, 2014 1:33pm EST

A newly constructed McDonald's restaurant is pictured in Encinitas, California January 14, 2014. REUTERS/Mike Blake

A newly constructed McDonald's restaurant is pictured in Encinitas, California January 14, 2014.

Credit: Reuters/Mike Blake

(Reuters) - McDonald's Corp (MCD.N) reported weaker-than-expected quarterly sales at established restaurants on Thursday as fewer diners frequented the fast-food chain, and warned that sales would again fall short of analysts' expectations in January.

The world's biggest restaurant chain by revenue has reported disappointing sales for five straight quarters, hurt by self-inflicted operational stumbles, weak demand and intensified competition from resurgent rivals such as Wendy's Co (WEN.O) and Burger King Worldwide Inc (BKW.N).

Indeed, efforts by Chief Executive Don Thompson to shore up earnings in the 18 months since he took the top job at the company - by tweaking menus and changing management - have not borne fruit.

The pressure is on him to boost McDonald's share price as well. The stock is up just 7 percent since Thompson became chief executive on July 1, 2012, well behind the 27-percent jump in the Dow Jones Industrial Average index, of which McDonald's is a component.

Analysts predicted that investors would give Thompson a bit more time to turn the company's fortunes before they begin to advocate for big changes.

"If McDonald's doesn't fix itself by the end of 2014, the drumbeat of activism will grow," Hedgeye Risk Management analyst Howard Penney told Reuters.

On a conference call with analysts, McDonald's executives said they "over-complicated" menus last year.

They vowed to re-engage customers this year with plans that include customizing sandwiches, emphasizing breakfast and coffee, and increasing marketing via mobile phones and other devices.

Some critics have called on McDonald's to simplify operations by downsizing its menu. Penney warned that the company's new plan to customize sandwiches could further slow service.

Global sales at McDonald's restaurants open at least 13 months fell 0.1 percent during the fourth quarter, due in part to severe winter weather in the United States.

Quarterly results were overshadowed by McDonald's forecast for "relatively flat" January global sales at restaurants open at least 13 months.

The January forecast "stands out as a healthy (same-store sales) miss," Wells Fargo restaurant analyst Jeff Farmer said in a client note. Analysts, on average, estimate a 2.4 percent gain in January.

Analysts were optimistic that McDonald's sales trends would improve in January, largely because the company turned in lukewarm results in January 2013.

PROFIT BEATS, SALES MISS

McDonald's has about seven times the sales of Wendy's and Burger King combined, but has had less success than those rivals in tempting diners with limited-time specials and promotions.

Hyped new products, such as Mighty Wings, flopped. Beyond that, the addition of lattes, smoothies, salads and wraps have slowed McDonald's service in a business where hyper-competitive drive-thru times are measured in seconds.

McDonald's also switched its value-oriented "Dollar Menu" to the "Dollar Menu & More" in November with slightly higher prices. Executives said the heavily marketed new menu met internal performance targets, but didn't appear to draw more customers.

Closely watched global same-restaurant sales in December were down 1.2 percent, versus a 0.6 percent gain expected by analysts polled by Consensus Metrix.

The 3.8 percent drop in the United States was the biggest shortfall - analysts expected a decline of just 0.6 percent - but other regions also missed.

The Asia Pacific, the Middle East and Africa (APMEA) region posted an unexpected 2.1 percent decline and Europe's 0.5 percent gain was about half what analysts expected.

Fourth-quarter net income was flat at $1.40 billion, or $1.40 per share.

Total revenue for the company, known for its crispy french fries and Big Mac hamburgers, grew 2 percent to $7.09 billion.

Analysts on average were expecting the company to earn $1.39 per share on revenue of $7.11 billion, according to Thomson Reuters I/B/E/S.

Still, shares ticked up 0.2 percent to $95.11 in afternoon trading.

(Additional reporting by Siddharth Cavale in Bangalore; Editing by Joyjeet Das, Jilian Mincer, Bernadette Baum and Amanda Kwan)

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Comments (26)
Harry079 wrote:
“The fast-food chain also reported a 0.1 percent decline in global sales at established restaurants in the fourth quarter ended December 31.”

A .01% decline? Really?

Who is going after a Happy Meal when it’s 40 below?

Jan 23, 2014 9:11am EST  --  Report as abuse
MKM23 wrote:
McDonald’s is always stating that their decline in sales is due to a “lackluster economy.” Sorry to tell you, people are more informed of the dangers of eating most of the food at McDonald’s and want HEALTHIER options. You can blame it on the economy as much as you want. At the end of the day, people are turning to more healthier options rather than McDonald’s, which is the real reason for its decline. In addition, many other food chains are experiencing great profits.

Jan 23, 2014 9:34am EST  --  Report as abuse
sjfella wrote:
Yawn.

Jan 23, 2014 9:49am EST  --  Report as abuse
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