(Adds analyst comment)
By Lisa Baertlein
Oct 21 McDonald's Corp warned on Monday
that global sales at established restaurants would be relatively
flat in October and signaled that weakness would continue in the
fourth quarter amid stiff competition and a halting economic
recovery, heaping pressure on its chief executive.
CEO Don Thompson, at the helm for more than a year, has
switched top management and shaken up menus to boost sales and
profits. Now, analysts are asking if McDonald's woes are due to
poor execution rather than external factors.
The company has reported four straight quarters of
disappointing sales, Hedgeye Risk Management restaurant analyst
Howard Penney said on Twitter.
"When will the (company) transition from blaming the economy
to internal issues?" said Penney, who told Reuters that
McDonald's high-profile McCafe coffee and beverage expansion
masked a slowdown in its core business of selling hamburgers and
McDonald's shares fell 1 percent in midday trading after
investors digested the company's forecast for restaurant margin
declines in the fourth quarter similar to those suffered in this
year's first quarter.
The outlook suggested more margin pressure than the market
was expecting, Morningstar analyst R.J. Hottovy told Reuters.
McDonald's, which has roughly seven times the sales of
Wendy's Co and Burger King Worldwide Inc
combined, has been slower than its rivals in adapting to
changing consumer demands.
Shares of Burger King inched up 0.2 percent and Wendy's rose
Global sales at McDonald's restaurants open at least 13
months gained 0.9 percent in the third quarter, falling just
short of analysts' average estimate on softer-than-expected
results in all of the company's major markets, according to
In the United States, McDonald's Monopoly game promotion and
Mighty Wings limited-time offer met internal expectations but
failed to substantially lift results amid intense discounting.
While fast-food chains fight hard for the business of
cash-crunched, lower-income diners, former McDonald's unit
Chipotle Mexican Grill Inc is enjoying more visits from
wealthier - and often younger - diners.
"We think (McDonald's) is losing its appeal to the
millennial generation, who prefer healthier foods," S&P Capital
IQ analyst Jim Yin said in a note. Such customers are often more
willing to pay a bit more for their meals.
France, which leads McDonald's top revenue market of Europe,
reported its first quarter of same-restaurant sales growth in a
year in the third quarter, while results in Germany remained
McDonald's lacks the ability to raise prices in Europe, CEO
Thompson said on a conference call with analysts.
Both Japan and China reported declines in same-restaurant
sales for the quarter, dragging down results from the
Asia/Pacific, Middle East and Africa region. Based on the
results, McDonald's is delaying new restaurant openings in
emerging markets like China.
A recent survey from Goldman Sachs suggested McDonald's,
which has lagged rivals in introducing popular new menu items,
might be losing favor with U.S. diners.
The company, which built a large lead over rivals after the
global recession, is fighting to step up sales in the United
States amid a barrage of new items and short-time specials from
McDonald's previously got a sales bump from new products
including oatmeal, sandwich wraps and lattes, but its more
complicated menu has slowed service at the drive-thru window.
Third-quarter net income rose 4.6 percent to $1.52 billion,
or $1.52 per share, coming in a penny better than the analysts'
average estimate, according to Thomson Reuters I/B/E/S. Revenue
was up 2.4 percent at $7.32 billion.
Restaurant margins at both franchised and company-operated
stores slipped in the quarter.
McDonald's shares were down 91 cents to $94.29 on the New
York Stock Exchange.
(Reporting by Lisa Baertlein in Los Angeles and Aditi
Shrivastava in Bangalore; Editing by Sriraj Kalluvila, Maureen
Bavdek and John Wallace)