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
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.
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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
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
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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