McDonald’s sees U.S. sales slump
Burger giant’s CEO sees ‘early signs of momentum,’ buoying investor optimism
McDonald’s Corp. chief executive officer Steve Easterbrook predicted a return to growth for the burger chain in the second half of the year, giving investors cause for optimism after another quarter of slumping sales.
Global same-store sales, which measure locations open at least 13 months, will grow in the third quarter, Easterbrook said on Thursday when the company released its earnings results. The sales fell 0.7 per cent by that measure last quarter, missing the average estimate compiled by Consensus Metrix.
Though a rebound was already expected in the third quarter, Easterbrook’s remarks offered comfort, said Jack Russo, an analyst at Edward Jones. Easterbrook, a longtime McDonald’s executive who was elevated to the top job in March, is working on a turnaround plan that includes reorganizing management, cutting costs and returning cash to shareholders.
“A lot of analysts were projecting that, but it’s still good to hear from management,” he said. “We hope for better days ahead.”
The company is still facing a tough challenge in its home market, where same-store sales have declined for seven straight quarters. McDonald’s has struggled with changing U.S. consumer tastes, a bloated menu and slow service times.
The U.S. sales drop was 2 per cent in the second quarter, worse than the 1.5-per-cent decrease predicted by analysts. The company blamed ineffective “featured products and promotions” for contributing to the decline. In recent months, McDonald’s has advertised a special summer menu in Canada and the U.S.
“While our second-quarter results were disappointing, we are seeing early signs of momentum,” Easterbrook said in the statement.
The company has been cutting costs as it copes with the sales slump, helping profit edge past estimates last quarter. McDonald’s posted earnings of $1.26 a share, compared with the $1.23 predicted by analysts on average. Total revenue declined 9.5 per cent to $6.5 billion. Analysts had projected $6.43 billion.
Easterbrook has vowed to transform McDonald’s into a modern burger company focused on tasty food and convenience. Since he took over, McDonald’s has embarked on a plan to stop serving chicken raised with some antibiotics. He also announced a pay raise for workers at U.S. stores owned by the company, about 10 per cent of the restaurant chain’s total.
Easterbrook said in May that McDonald’s had lost its place as a leader in convenience. He said companies such as Amazon.com Inc. and Uber Technologies Inc. have reframed customers’ expectations and that McDonald’s needs to “keep evolving our proposition to the customers.”
McDonald’s has changed how it grills hamburgers to make them juicer and is toasting sandwich buns longer to make the food hotter.
And the chain is experimenting with more localized menu items in various markets across the U.S., trying to appeal to a wider swath of Americans.
In the past year, McDonald’s restaurants in the U.S. have sold less- characteristic fare, including mini-bundt cakes, grits, chorizo burritos and a variety of muffin flavours. Sometimes, thousands of locations sell the regional offerings, and other times the count is less than 100.
The company is also testing serving breakfast all day, something customers have requested for many years. Selling Egg McMuffins later in the day could help sales in the U.S., but isn’t enough to transform the business, said Asit Sharma, an analyst at the Motley Fool.
“McDonald’s still has to find the last puzzle piece: menu innovation with higher perceived quality that will draw customers back and keep them coming back,” he said.