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McDonald’s sales continue to fall

McDonald’s sales continue to fall

U.S. 2Q same-store sales fell 2 percent as promotions underperformed

Same-store sales continued to fall at McDonald’s Corp. in the second quarter, including a 2 percent decline in the U.S. market, as the brand’s promotions didn’t have the expected results, the company said Thursday.

But executives said that while the results for the period ended June 30 were “disappointing,” there were “early signs of momentum.” The company also suggested that sales would turn positive in the third quarter.

“We have made meaningful progress since announcing the initial steps of McDonald’s turnaround plan in early May,” CEO Steve Easterbrook said in a statement. He noted that the company restructured its global organization to improve efficiency. “While our second quarter results were disappointing, we are seeing early signs of momentum. I am confident we will create the transformation necessary for McDonald’s to become a modern, progressive burger company delivering a contemporary restaurant experience.”

Global same-store sales at the Oak Brook, Ill.-based burger giant fell 0.7 percent in the quarter, and traffic was negative “in all major segments,” the company said. Revenues fell 10 percent, to $6.5 billion from $7.2 billion, though they increased 1 percent excluding the impact of foreign exchange rates.

Net income fell 13 percent to $1.2 billion, or $1.26 per share, from $1.4 billion or $1.40 per share, in the same period a year ago. The decline was 4 percent if currency translation is excluded.

Operating income fell 16 percent, to $1.85 billion from $2.2 billion, or 6 percent excluding foreign exchange rates.

The overall financial results were better than many analysts expected and the chain’s stock rose 1 percent in early trading Thursday.

Still, sales in the chain’s key U.S. market continue to falter based on what the company says is continued competitive pressures. That continued sales deceleration at the quick-service restaurant that’s now in its third year.

The chain’s domestic sales weakness came despite a couple of key promotional efforts, notably the company’s Third-Pound Sirloin Burger limited time offer, as well as a Double Cheeseburger and Fries offering for $2.50. The company said traffic fell “as the featured products and promotions did not achieve expected consumer response amid ongoing competitive activity.”

The company’s promotional efforts didn’t lift sales, nor did it help the chain regain some of the market share it has lost over the past couple of years to rivals such as Burger King, Wendy’s and Sonic.

However, the company said it is testing all-day breakfast and menu simplification. Committees are analyzing both efforts, and the company has told franchisees to prepare for potential all-day breakfast nationwide as early as October.

In Europe, same-store sales at McDonald’s increased 1.2 percent as “solid performance” in the United Kingdom and Germany offset negative results in France.

In Asia Pacific Middle East and Africa, or APMEA, same-store sales fell 4.5 percent and operating income declined 16 percent excluding foreign exchange rates as weak performance in China and other Asia markets continued.

But Easterbrook suggested that the company’s China performance should improve, which should help generate improving same-store sales worldwide.

The company is currently undergoing a major restructuring and refranchising effort. It is selling 3,500 stores to franchisees by the end of 2018 and expects to save $300 million in annual selling, general and administrative expenses by the end of 2017. Those efforts “are designed to position us for future growth,” CFO Kevin Ozan said in a statement. “We continue to evaluate additional ideas to further drive shareholder value through actions that will deliver sustainable long-term growth.”

Said Easterbrook: “We begin (the) third quarter under a new structure supported by market-level focus, stronger accountability and an unwavering emphasis on the basic fundamentals of running great restaurants. We are aligning our initiatives and resources behind longer-term strategic actions with the ability to drive meaningful improvements in our business.”

Contact Jonathan Maze at [email protected]
Follow him on Twitter at @jonathanmaze

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