McDonald’s growth short of projections
Analysts see signs recession may be coming in U.S. fast-food industry
McDonald’s Corp., the world’s biggest restaurant chain, reported same-store sales growth that missed analysts’ estimates, stoking concerns the U.S. fast-food industry is heading into a recession.
Same-store sales grew 3.1 per cent globally, the Oak Brook, Ill.based company said in a statement Tuesday.
Analysts projected a 3.6 per cent increase on average, according to Consensus Metrix.
Analysts such as Stifel Financial Corp.’s Paul Westra have raised concerns the restaurant sector is hitting a downturn, a harbinger for a broader economic slump in the U.S. next year.
Fast-food rivals such as Wendy’s Co. also are piling on discounts and promotions, putting pressure on McDonald’s to keep prices low. That’s undercut the benefit of adding all-day breakfast in the U.S. last year.
“The overall industry got weaker, and clearly McDonald’s felt some of that,” said Peter Saleh, an analyst in New York.
“It was not a great quarter, especially on the U.S. side.”
The shares fell 4.47 per cent to close at US$121.71 in New York.
McDonald’s had gained 7.8 per cent this year through Monday’s close, outpacing the 6.1 per cent increase of the Standard & Poor’s 500 Index.
Stifel’s Westra and Jefferies Group analyst Alexander Slagle both downgraded other restaurant stocks, renewing broader fears about the sector.
Red Robin Gourmet Burgers Inc. tumbled as much a 7.8 per cent to US$46.84 after Slagle lowered his recommendation on the chain to hold. Stifel cut its ratings on 11 restaurant stocks, saying it had turned bearish on the U.S. industry.
Texas Roadhouse Inc. fell 6.5 per cent, its worst tumble in almost a year, while Noodles & Co. plunged 20 per cent.
Restaurants’ downturns often serve as a precursor to a U.S. recession, Westra said in a note.
“If history is a guide, we warn investors that restaurant industry sales tend to be the ‘canary that lays the recessionary egg,’ ” he said.
For McDonald’s, the slowdown hampers efforts by chief executive officer Steve Easterbrook to turn around the company.
McDonald’s same-store sales gains slowed to 1.8 per cent last quarter domestically, compared with 5.4 per cent in the prior quarter. Analysts estimated a 3.2 per cent increase.
Earnings fell one cent to US$1.25 a share in the period. But when excluding 20 cents US in one-time expenses, the figure topped the average analyst projection of US$1.39.
McDonald’s also is facing additional costs as part of its comeback plan.
The company is selling companyowned restaurants and moving its headquarters from the suburbs to downtown Chicago.
Revenue decreased 3.6 per cent to US$6.27 billion in the quarter, matching analysts’ estimates.
The move to sell more of its company-owned restaurants to franchisees is lowering total sales volume.
The chain said earlier this month that it’s planning to expand all-day breakfast options, adding McGriddles and more sandwiches to the menu.
The move is meant to fuel sales as McDonald’s approaches the oneyear anniversary of the introduction in October.
The breakfast push has helped McDonald’s cope with “softening industry growth during the quarter,” the company said on Tuesday.
Other fast-food chains have been selling more breakfast options, as well as adding specials.
Wendy’s has said its US$4 meal promotion has been bringing in more customers, while Burger King recently advertised US$1 hotdogs.
McDonald’s, which has about 14,200 U.S. locations, has been promoting McPick deals with offerings such as a two sandwiches for US$5.