McDonald's cites value for strong 1Q

OAK BROOK Ill. McDonald’s Corp. reported Wednesday a 4-percent jump in first-quarter profit on the strength of its breakfast sales, chicken offerings and new beverage initiative that focuses on specialty coffees and espressos.

Global same-store sales for the quarter ended March 31 rose 4.3 percent, reflecting a 4.7-percent increase in the United States. The parent to the No. 1 burger chain said it would continue to focus on value and convenience — two attributes that have helped it thrive during this recession.

 

“We all know the state of today’s consumers,” Jim Skinner, McDonald’s chief executive, said in a call with investors. “They’re scaling back and being more discerning about what they purchase. This means a strong value proposition is critical, from price to product, to experience.”

The parent to the No. 1 burger chain also said that two U.S. sales-driving initiatives — the rollout of the McCafe specialty coffees and the long-tested Angus Third Pounder burger — will be completed systemwide this year.

While some analysts and franchisees have questioned the thinking behind two premium product introductions in the midst of a recession, McDonald’s said Wednesday it would remain committed to value, while also offering additional products. The Angus burger, for example, would be targeted to customers who are “a little bit hungrier and want to spend a few more bucks,” Skinner said.

The U.S. launch of McDonald’s Angus burger, first reported earlier this week, will be the chain’s first burger debut in eight years. It has been tested since May 2007 in Southern California, New York City and Columbus, Ohio. In the New York City market, the sandwich is a one-third pound Angus patty offered in three varieties: a Deluxe, a Bacon & Cheese, and a Mushroom & Swiss. The franchisor suggested price was set at $3.99.

One franchisee who has been testing the item said sales rose after the initial launch and marketing of the burger, but then leveled off. The franchisee, who asked not to be identified, noted that new equipment for the larger burger was needed. Subsequent reports, however, have indicated that McDonald’s reduced the size of the burger slightly so it would fit onto the regular grills.

For the beverage initiative, nearly 70 percent of the U.S. McDonald’s system already serves the espresso drinks and other specialty coffees, and the remaining units will be equipped by this summer, the company confirmed. McDonald’s has said the initiative could bring $1 billion in incremental sales, and analysts have expected the promotion to tap into Starbucks’ once-strong leadership role in the coffee market.

For the quarter ended March 31, McDonald’s earned $979.5 million, or 87 cents per share, compared with $946.1 million, or 81 cents per share, in the same quarter a year earlier. McDonald’s said the stronger U.S. dollar, which negatively affects currency exchange rates for U.S.-based companies, hurt latest-quarter results by 8 cents a share.

Sales fell 10 percent to $5.08 billion, from $5.61 billion, a year ago, and also were hurt by currency conversions.

Contact Sarah E. Lockyer at [email protected] [3].