CHICAGO/LOS ANGELES McDonald's Corp (MCD.N) said sales at established U.S. restaurants fell for the second straight month as competitors like Burger King and Taco Bell pushed low prices to attract customers.
Weakness in Germany and China also pressured sales that analysts said were worse than expected throughout the world, and shares of the world's largest hamburger chain fell 1.9 percent.
Sales at U.S. restaurants open at least 13 months fell 0.6 percent, the latest sign that the fast-food sector that had performed well through most of the recession is weakening.
The decline in U.S. sales at stores open at least 13 months was McDonald's second straight monthly decline and comes less than a week after rival fast-food chain operator Yum Brands Inc (YUM.N) forecast weaker-than-expected fourth-quarter sales.
"It does not bode well for spending in the (U.S.) restaurant category," said Tom Forte, an analyst at Telsey Advisory Group. He added that high unemployment among 18- to 34-year-olds is weighing on the fast-food industry that McDonald's dominates.
But analysts did note that McDonald's sales were hurt by having one less Saturday and one more Monday in the month than in 2008. The company typically does more business on the weekend.
Stepped-up competition in the food sector also caused grocery chain operator Kroger Co (KR.N) to post worse-than-expected quarterly profit.
Fast-food chains like McDonald's were outperforming other restaurant categories until just recently, when rising unemployment began to take a noticeable bite of sales, particularly at breakfast -- where McDonald's leads the industry.
McDonald's has been doing better than Wendy's/Arby's Group Inc WEN.N, Burger King Holdings Inc BKC.N and other chains in the United States by offering a variety of items on its popular Dollar Menu.
But its rivals are stepping up with a broad range of inexpensive fare, including a new $1 double cheeseburger from Burger King, a new 99-cent menu from Dunkin Donuts and a value menu from Yum's Taco Bell that offers items for less than $1.
"McDonald's was on air with dollar menu advertising in November, and we expect this value message to dominate ahead," Oppenheimer analyst Matthew DiFrisco said in a research note.
McDonald's CEO Jim Skinner said on Tuesday that the company remained "focused on growing market share with a disciplined pricing strategy."
Same-restaurant sales were up 0.7 percent overall for November, helped by a 2.5 percent rise in Europe, McDonald's said. Same-restaurant sales fell 1 percent in the company's Asia/Pacific, Middle East and Africa region, hurt by China.
Several analysts said sales were weaker than expected across the board and that Europe's results stood out as trailing expectations even though they were up.
"Europe dropped off much more than expected as Germany went 'south' again," Stifel Nicolaus analyst Steve West said.
In Asia, while China's gross domestic product numbers have improved, Forte said it appears much of that expansion is coming from infrastructure and consumer durable spending.
"We're still waiting for that to flow through to discretionary spending" at restaurants, Forte said.
Sales in formerly booming factory towns in China have been falling sharply and McDonald's -- which has significantly fewer restaurants than Yum in China -- said in April it planned to lower lunch prices to compete with Chinese fast food that sells for 30 percent to 40 percent less.
"After Yum posted sequentially lower fourth-quarter results in China earlier this week, McDonald's comments should not come as a surprise as the country's (fast-food) industry appears to be slowing with customer gravitation toward more economical offerings from local (Chinese) competitors," J.P. Morgan analyst John Ivankoe said in a research note.
McDonald's also said that it expects to record a fourth-quarter benefit of about $85 million, or 8 cents a share, related to a 2007 Latin American developmental license transaction.
The company had no news on a successor to Chief Operating Officer Ralph Alvarez. The company said last week that Alvarez would retire due to chronic knee pain.
McDonald's shares fell $1.17 to $60.76 on the New York Stock Exchange.
(Reporting by Brad Dorfman and Lisa Baertlein, editing by Dave Zimmerman)