OAK BROOK Ill. McDonald’s Corp. on Monday posted flat December same-store sales, ending its months-long surge of positive results and leading industry observers to speculate that the worst is still to come for restaurant chains struggling against a pending U.S. recession.
McDonald’s had weathered the consumer slowdown since last summer, citing its value menu, longer operating hours, breakfast offerings and coffee sales as major factors. As recently as November, the chain posted a U.S. same-store sales gain of 4.4 percent over the same month a year earlier. Its report on Monday revealed that like other restaurant chains, December was a tougher month for McDonald’s.
The company’s confirmation that “softer consumer spending” in December affected sales led industry observers to grow even more pessimistic about the sector. With higher pricing of 3.5 percent in December versus a year earlier, U.S. same-store sales traffic at McDonald’s was negative, securities analyst John Ivankoe at JP Morgan said.
Reduced traffic at McDonald’s led analysts to speculate that softer-than-normal results soon will also come from Starbucks Corp., another industry bellwether, which is expected to report its latest-quarter results on Wednesday.
McDonald’s share price fell $4.30, or 8 percent, to $49.80 in midday trading. Stock prices of several competing quick-service companies also fell, following the release of McDonald’s results, including Wendy’s, Burger King, Yum! Brands, and CKE Restaurants, operator of Hardee’s and Carl’s Jr.
Top executives at McDonald’s Corp. said Monday that although the company was not recession-proof, it was recession-resistant and would weather any continuing economic downturn as this year progresses.
Jim Skinner, chief executive, said McDonald’s expects to deliver another good year because it’s a “very different company today” than it was in early 1990s when U.S. economic problems contributed to the chain’s slowing sales. One major difference, he said, is less dependence today on the domestic economy, which accounts for 35 percent of revenues, compared with 58 percent of revenues in the early 1990s.
“We have navigated through tough times before,” he said.
Forecasting January same-store sales, Skinner said McDonald’s expects increases of 1.5 percent in the United States, 8 percent to 9 percent in Europe and 6 percent to 7 percent in the Asia/Pacific, Middle East and Africa region.
For the fourth quarter ended Dec. 31, net income totaled $1.27 billion, or $1.06 a share, up from a year earlier’s net income of $1.24 billion, or $1 a share.
Revenue totaled $5.75 billion, up 5.5 percent from the $5.45 billion quarterly total in 2006. Global comparable-store sales for the quarter rose 6.7 percent, and U.S. same-store sales increased 3.3 percent.
Skinner and Ralph Alvarez, president and chief operating officer, said they’ve seen only a slight shift in sales toward the $1 menu, which accounts for about 13 percent or 14 percent of total sales.
Chief financial officer Pete Benson said McDonald’s has no plans to return to the “burger wars” of discounting core sandwiches that plagued leading quick-service chains during previous economic downturns.