McDonald’s Corp.’s global same-store sales fell 3.3 percent during the third quarter ended Sept. 30, as it dealt with a host of challenges around the world, from supplier issues in China to politics in Russia.
In the U.S., where McDonald’s has struggled against its competition, the chain’s same-store sales fell 3.3 percent, including a 4.1-percent decline in September — its worst monthly domestic performance since 2003, according to Janney Capital Markets analyst Mark Kalinowski.
Global troubles led to a 5-percent decline in consolidated revenue, while operating income fell 14 percent. Net income declined 30 percent, mostly due to tax and supplier issues that suppressed profit.
“McDonald’s third quarter results reflect a significant decline versus a year ago, with our business and financial performance pressured by a variety of factors,” president and CEO Don Thompson said in a statement. “We recognize that we must demonstrate to our customers and the entire McDonald’s system that we understand the problems we face and are taking decisive action to fundamentally change the way we approach our business.”
In the U.S., McDonald’s faces stiff competition from Wendy’s and Chick-fil-A, and even fast-casual concepts like Chipotle, which McDonald’s Corp. once owned.
McDonald’s operating income fell 10 percent domestically. The company said its initiatives to address market dynamics “did not translate into improved financial results.”
3Q NET INCOME
Result: $1.1 billion, or $1.09 per share% Decrease: 30% (from $1.5 billion, or $1.52 per share)
3Q REVENUE
Result: $6.9 billion% Decrease: 5% (from $7.3 billion)
3Q SAME-STORE SALES
% Decrease worldwide: 3.3%
% Decrease U.S.: 3.3%
Source: Company report
The results came a day after Chipotle co-CEO Steve Ells chastised “traditional fast food” for cutting prices and lowering food quality.
“It has aggressively marketed low prices to entice customers to visit more often, which has resulted in the need to reduce cost by cheapening ingredients and by compromising the overall dining experience,” Ells said Monday in a conference call discussing Chipotle’s earnings, without mentioning McDonald’s by name.
McDonald’s has already jumpstarted efforts to lift U.S. sales. It named a new president of U.S. operations, Mike Andres, in August, and it recently launches a marketing campaign, “Our Food, Your Questions,” designed to increase the transparency of its food sourcing.
On Tuesday, the company also promised that its domestic operations will have a “flatter, more nimble organization,” in which key business decisions are made at the local level.
In addition, McDonald’s says it is planning a simplified menu that showcases core products and features “locally relevant menu options” that are new and customizable. For months, franchisees have complained about the complexity of the menu and its impact on service times.
Outside the U.S., McDonald’s struggled most in Asia during the quarter, notably in China and Japan, where same-store sales fell 9.9 percent due largely to a supplier food safety scandal. Operating income there fell 55 percent.
Yet the company’s weakness was worldwide, including a 1.4-percent decline in Europe, due in part to a challenging operating environment in Russia and the Ukraine. Russia has been investigating McDonald’s over hygiene violations in what is widely viewed as a political move, signaling something of a cold war between that country and the west over Ukraine. McDonald’s temporary closures in Russia have had a $0.01 per share impact on its earnings.
The company said Tuesday that it is using a new “global approach” to increase its relevance with consumers and drive traffic. The effort includes what it calls “McDonald’s Experience of the Future,” which intends to elevate the menu and customer experience, and which uses the company’s reimaging investments to improve the look and feel of restaurants.
McDonald’s also promises a new digital strategy to simplify ordering, an effort that includes the recently launched Apple Pay. And it says it will undertake a “diligent review” of its organizational structure to direct spending toward those initiatives.
However, the company does not expect a quick turnaround. Thompson said McDonald’s headwinds are “formidable,” and same-store sales will be negative in October and the fourth quarter.
Contact Jonathan Maze at [email protected].
Follow him on Twitter: @jonathanmaze
