BackMcDonald’s sales slump worst since 2003 amid China scare
Supplier problems in China will reduce third-quarter earnings per share by 15 cents to 20 cents, says McDonald's
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Chicago: McDonald’s Corp., the world’s largest restaurant chain, posted the worst same-store sales decline in more than a decade, hurt by sluggish demand in the US and a health scare involving a Chinese supplier.
Sales at stores open at least 13 months fell 3.7% in August, the Oak Brook, Illinois-based company said in a statement on Wednesday. Analysts estimated a 3.1% drop. McDonald’s also said that supplier problems in China will reduce third-quarter earnings per share by 15 cents to 20 cents.
McDonald’s, which has more than 14,200 US locations, is facing challenges at home and abroad. Domestically, it’s been relying on discounts, limited-time offers and remodeled stores in a failed attempt to reignite growth. In China, meanwhile, the company’s meat supplier OSI Group Llc was investigated for changing the expiration dates on food, triggering shortages and a sales slump.
“There isn’t a lot of good news here," Peter Saleh, a New York-based analyst at Telsey Advisory Group, said in an interview. “China is going to be under pressure for a while; their traffic is down in the US."
The shares declined 1.5% to $91.09 at the close in New York. The Big Mac seller has slumped 6.1% this year, while the Standard & Poor’s 500 Restaurants Index lost 2.4%.
US same-store sales dropped for the fourth straight month in August, falling 2.8%. Analysts projected a 2% decrease, the average of projections from Consensus Metrix.
Weak sales may pressure US margin in the third quarter, the company also said on Wednesday.
US competition
In the US, the chain has been trying to lure diners with $2 jalapeno burgers and 20-piece Chicken McNuggets for $5. There’s also been steeper competition as rivals, including Burger King Worldwide Inc. and Taco Bell, advertise value meals and cheap breakfast fare. In August, the company said Mike Andres will take over as president of US operations when Jeff Stratton retires next month.
Same-store sales in the company’s Asia Pacific, Middle East and Africa division dropped 14.5% last month. Analysts projected a 10.1% drop. Japan same-store sales tumbled 25% in August following the food safety scare.
Earlier this month, the company said it appointed a China food safety chief and is stepping up audits of suppliers there after it had to pull products.
Same- or comparable-store sales are considered an indicator of a retailer’s performance because they include only older, established units.
Europe decline
McDonald’s is scheduled to release third-quarter earnings on 21 October. Analysts estimate profit of $1.51 a share, on average, according to data compiled by Bloomberg.
Sales fell 0.7% in Europe, where McDonald’s gets about 40% of its revenue. Analysts estimated a 2.1% decrease, according to Consensus Metrix, owned by Kaul Advisory Group in Wayne, New Jersey.
The restaurant chain is also facing pressure in Russia, where consumer-safety regulators have recently ordered restaurants to temporarily close because of violations of sanitary rules. More than 100 McDonald’s stores are being inspected and could be under threat of being closed. Bloomberg
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