Tags: McDonalds | Sales | Slump | China

McDonald's Sales Slump Worst Since 2003 Amid China Scare

Tuesday, 09 September 2014 06:54 PM

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 U.S. and a health scare involving a Chinese supplier.

Sales at stores open at least 13 months fell 3.7 percent in August, the Oak Brook, Illinois-based company said in a statement Tuesday. Analysts estimated a 3.1 percent 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 U.S. 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 U.S.”

The shares declined 1.5 percent to $91.09 at the close in New York. The Big Mac seller has slumped 6.1 percent this year, while the Standard & Poor’s 500 Restaurants Index lost 2.4 percent.

U.S. same-store sales dropped for the fourth straight month in August, falling 2.8 percent. Analysts projected a 2 percent decrease, the average of projections from Consensus Metrix.

Weak sales may pressure U.S. margin in the third quarter, the company also said today.

U.S. Competition

In the U.S., 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 U.S. operations when Jeff Stratton retires next month.

Same-store sales in the company’s Asia Pacific, Middle East and Africa division dropped 14.5 percent last month. Analysts projected a 10.1 percent drop. Japan same-store sales tumbled 25 percent 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 Oct. 21. Analysts estimate profit of $1.51 a share, on average, according to data compiled by Bloomberg.

Sales fell 0.7 percent in Europe, where McDonald’s gets about 40 percent of its revenue. Analysts estimated a 2.1 percent 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.

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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 U.S. and a health scare involving a Chinese supplier.
McDonalds, Sales, Slump, China
Tuesday, 09 September 2014 06:54 PM
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