Home cooking sinks McDonald’s
Fast-food chain sees earnings slip 9 percent in second quarter
CHICAGO — Americans packed lunches and made more dinners at home this spring, leading to traffic declines across the restaurant industry. For McDonald’s, the trend led to disappointing second-quarter results after months of strong growth.
McDonald’s, based in suburban Chicago, said Tuesday its second-quarter earnings slipped 9 percent on costs related to refranchising and relocating the company’s longtime headquarters, as well as slower industry growth. The results were below what Wall Street expected, and the stock fell more than 4 percent.
“I think there’s just a broader level of uncertainty ... and when (consumers) are uncertain, caution starts to prevail,” CEO Steve Easterbrook said on a conference call after the results were released. Easterbrook acknowledged that there has been a “fairly well-documented consumer slowdown” in recent months, but said that McDonald’s is taking steps to counteract it.
That includes the expansion of all-day breakfast nationwide this fall, on the anniversary of the popular promotion’s inception in 2015. The new menu will include McGriddles nationwide and both biscuits and English muffins, instead of one or the other based on geography. McDonald’s and observers expected the boost from allday breakfast to slow after the first few quarters, so the world’s largest burger chain is hoping that the breakfast expansion will keep customers coming in the door and buying more. All-day breakfast has led customers to spend more at lunch and dinner as they add breakfast items to their usual orders.
McDonald’s said it was able to improve customer traffic and make up for a slowdown industrywide by stealing more customers from its closest competitors. Easterbrook said that in light of the industry slowdown, “it was important to us that we maintained our competitive advantage and fought for market share.”
That fight led McDonald’s to see a 1.8 percent rise in sales at restaurants open at least 13 months in the U.S., but that’s far slower than the company has reported in recent quarters. The metric is a key gauge of restaurant health because it excludes results from newly opened stores.
McDonald’s is the biggest restaurant company yet to report that the slowdown in dining affected its financial results, but it’s far from alone. Both Starbucks and the parent of Dunkin’ Donuts noted slowing traffic growth when they reported earnings last week. Also last week, a KeyBanc analyst said pizza delivery companies were seeing a surge in business as more people ordered in instead of going to restaurants.
At least one analyst thinks the slowdown is just the beginning.
A Stifel Nicolaus analyst on Tuesday downgraded his ratings on a number of restaurant companies, including Chipotle and Panera, predicting that the U.S. will fall into a recession early next year. A slowdown in the restaurant industry is one of the first indicators of an economic slowdown, because dining out is one of the first things people give up when they’re feeling uncertain about the future.