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McDonald's same-store sales fall 3.7% in August

McDonald's same-store sales fall 3.7% in August

Company reports worst global same-store sales decline in a decade

McDonald’s Corp. global same-store sales fell 3.7 percent in August, its worst monthly decline in a decade, as the quick-service operator struggled to recover from a supplier scandal in China that has impacted the entire region.

In its core market of the U.S., where the Oak Brook, Ill.-based company operates more than 14,000 locations, same-store sales fell 2.8 percent, an improvement over the 3.2-percent drop McDonald’s reported for domestic locations in July, but still lower than most Wall Street projections.

On average, analysts had expected a 3.1-percent drop in global same-store sales and a 2-percent drop in the U.S., according to Reuters and analyst reports.

Company officials blamed sluggish industry growth in a highly competitive marketplace in the U.S., but Wall Street analysts pointed to lingering problems with menu complexity, slowing average service times, and the continuing impact of a Monopoly promotion that ran through Aug. 12 last year.

Other observers questioned whether McDonald’s is losing its appeal among young people.

According to market research firm Technomic Inc., families with a child age 12 or under accounted for 18.6 percent of McDonald’s customers in 2011. By mid-2014, those families accounted for about 14.6 percent of the chain’s domestic visitors, noted a report in Crain’s Chicago Business.

Last month, McDonald’s USA president Jeff Stratton said he would retire. He will be replaced in October by former Logan’s Roadhouse Inc. chief executive Mike Andres.

In Europe, same-store sales decreased 0.7 percent in August, reflecting positive results in the United Kingdom offset by geopolitical headwinds in Russia. Seven restaurants in Russia remain closed after regulators there alleged sanitary violations, though many see the move as a reflection of tensions between Moscow and the U.S. over the conflict in Ukraine.

The worst results were seen in the Asia/Pacific, Middle East and Africa, or APMEA, region, which reported a same-store sales decline of 14.5 percent in August.

McDonald’s blamed the ongoing supplier issue in China, where a state television exposé showed workers at supplier Shanghai Husi Food Co. Ltd. picking up meat from a factory floor and mixing expired meat with fresher meat.

McDonald’s and other restaurant operators, including Yum! Brands Inc., have since dropped the supplier, and it is working to restore consumer confidence and trust while “continuing to pursue value, convenience and menu initiatives that differentiate the McDonald’s experience,” the company said.

McDonald’s estimated that the China supplier scandal will negatively impact third quarter results by about 15 cents to 20 cents per share.

“This is largely due to a combination of lost sales, expenses associated with our recovery efforts and the impact of these items on the third-quarter tax rate, which is expected to be above the company’s outlook for the full-year tax rate of 31 percent to 33 percent,” McDonald’s said.

Systemwide sales for August decreased 2.9 percent, or 1.3 percent in constant currencies, which is calculated by translating current year results at prior year average exchange rates.

Systemwide sales in the U.S. fell 1.8 percent, which contributed to a year-to-date decline of 1.1 percent.

In a report titled “That’s not ketchup … It’s blood,” Wall Street analyst Mark Kalinowski downgraded his forecast, reducing his full-year earnings estimate by 22 cents, to $5.31 per share.

McDonald’s operates or franchises 35,683 units in 119 countries.

Contact Lisa Jennings at [email protected].
Follow her on Twitter: @livetodineout

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