Mcdonald’s withdraws forecast as sales crash
‘Uncertainty’ as virus reverses strong growth
Mcdonald’s Corp. said on Wednesday that the outbreak of the coronavirus has reversed what had been strong sales growth, prompting the world’s largest fast- food chain to withdraw its guidance for the year as a result.
Comparable-store sales — a key metric for restaurants — declined 3.4 per cent in the first quarter, Mcdonald’s said, with this measure plunging in March after growing 7.2 per cent the previous two months. The company said almost all of its U. S. restaurants remain open, mostly via drive- thru, delivery and carry- out. Globally, three-quarters of Mcdonald’s restaurants are operating.
The company shelved the outlook it provided on Feb. 26 “due to the uncertainty related to COVID-19 and its impact on the global economic conditions and the company’s business operations.”
With measures to limit the pandemic severely curtailing restaurant operations, consumer behaviour has shifted drastically practically overnight, sparking upheaval in the industry. McDonald’s said it is working with its franchisees “to support financial liquidity during this time of uncertainty.” It’s deferring some rent and royalty payments and working with suppliers and lenders to extend franchisee payment terms “when possible.”
Mcdonald’s shares rose as much as 1.1 per cent to US$177.50 in New York trading. The stock has fallen about 11 per cent this year — less than most of its restaurant peers.
The Chicago- based company is working with suppliers on contingency plans and has experienced no shortages of food, packaging, toys or equipment, said chief executive Chris Kempczinski, who’s taking a 50-per-cent pay cut in his base salary from April 15 to September 30 this year. Other executives are getting a 25-per-cent reduction for the same period, which may be extended.
Mcdonald’s expects to reduce capital expenditures by about US$1 billion this year, in part due to fewer new restaurant openings. It also suspended its share repurchase program to preserve financial flexibility.
Mcdonald’s has 38,000 restaurants globally, 93 per cent of which are franchised by independent operators who provide revenue in the form of rental payments — which differs from the type of agreements most other restaurant operators have in place. These payments, based on sales at stores, will decline due to the pandemic and this puts the chain at risk, said Stifel analyst Chris O’cull. In a note to clients on Wednesday, he estimated that global rental income will drop by about US$ 800 million from last year.
Investors are ignoring certain risks, including its “unconventional” franchise arrangement and its exposure to more countries where stores are completely closed, O’cull said.